RadNet, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are to the corresponding 2020 periods. RadNet operates outpatient diagnostic imaging centers and related technology businesses. It had 350 centers in seven states at quarter-end, versus 334 a year earlier.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Service revenue | $332.7 million | $291.8 million | $981.9 million | $763.9 million |
| Provider relief funding | $0 | $0.2 million | $6.3 million | $25.7 million |
| Operating income | $32.6 million | $23.4 million | $77.9 million | $14.8 million |
| Net income attributable to RadNet common stockholders | $16.2 million | $6.2 million | $28.6 million | Loss of $20.8 million |
| Diluted EPS | $0.30 | $0.12 | $0.54 | Loss of $0.41 |
| Adjusted EBITDA (non-GAAP) | $62.3 million | $45.8 million | $164.4 million | $88.8 million |
Q3 service revenue rose 14.0%; operating margin was approximately 9.8%, up from 8.0%, and net income attributable to RadNet was approximately 4.9% of service revenue, versus 2.1%. For the nine months, service revenue rose 28.5%; operating margin was approximately 7.9%, versus 1.9%, and attributable net margin was approximately 2.9%, versus a loss margin of 2.7%.
Cash flow: Operating cash flow was $100.3 million for the nine months, down from $170.3 million. The prior-year period benefited from $39.5 million of CMS advance payments; 2021 cash flow also reflected working-capital movements, including increased receivables and reduced deferred revenue. Investing cash use was $159.5 million, including $88.5 million for property and equipment and $70.1 million for acquisitions. Financing provided $108.5 million, mainly associated with the debt refinancing. Cash increased to $151.3 million from $102.0 million at year-end 2020.
Liquidity and debt: Carrying value of term debt was $757.5 million at September 30, 2021, compared with $652.7 million at December 31, 2020; face value was $771.2 million. The company had no revolver borrowings, with $187.2 million available under its $195 million Barclays facility after letters of credit, plus $30 million available under its SunTrust facility. Working capital excluding current operating lease liabilities was $39.1 million, versus negative $61.9 million at year-end. RadNet reported compliance with debt covenants.
Changes and management commentary
- Management attributed stronger results to recovery in procedure volumes and acquisitions. Q3 same-center procedure volume increased 10.0% year over year; same-center revenue rose 7.3%. For the nine months, same-center volume increased 25.0% and same-center revenue rose 18.9%, against pandemic-affected 2020 comparisons.
- Q3 total revenue including provider funding increased 13.9% to $332.7 million. Nine-month total revenue including provider funding increased 25.2% to $988.2 million; growth also included acquired centers. RadNet acquired imaging businesses and other assets for approximately $66.9 million during the nine months.
- Cost of operations increased with higher volumes, staffing and acquired centers. Nine-month stock-based compensation was $21.6 million, including $8.9 million of employee COVID-related bonus awards.
- On April 23, 2021, RadNet refinanced its first-lien credit agreement with $725 million of term loans and a $195 million revolver; refinancing-related restructuring and extinguishment expenses totaled $6.0 million in the nine-month period.
- Management said procedure volumes had returned to pre-pandemic levels and operations had resumed normal activity. It expects existing capital resources, operating cash flow and borrowing capacity to support operations for the next 12 months and foreseeable future. The filing provides no quantified financial guidance.
Risks, contingencies and unusual items
- COVID-19 remains a risk to procedure volumes, collections, staffing, suppliers and partners. Management cautioned that renewed operating losses could affect liquidity and covenant compliance; further financing, if needed, may not be available on acceptable terms.
- Debt is primarily variable-rate. The filing estimates a 1 percentage-point increase in the adjusted Eurodollar rate would add about $7.2 million in annual interest expense on first-lien term loans and about $0.5 million on the SunTrust term loan. Interest-rate swaps had a $23.8 million fair-value liability; changes in the ineffective hedge portion affected earnings.
- Provider relief funding is subject to HHS review and possible recoupment if eligibility or use requirements are not met. RadNet recognized $6.3 million in the nine-month period.
- RadNet reported ordinary-course legal proceedings and said it did not expect current matters to have a material adverse effect, while noting outcomes are uncertain. Goodwill was $502.7 million; management reported no impairment indicator through September 30, 2021.
- RadNet sold a 24.9% interest in West Valley Imaging Group for $13.1 million, retaining 50.1% and control. Acquisition accounting and integration, reimbursement estimates, and the effect of noncontrolling interests are also relevant to interpreting results.
Important facts for investors to verify
- Whether procedure-volume recovery and same-center growth continued after Q3, and how much reported growth came from acquired centers.
- Cash generation and working-capital trends, particularly receivables, deferred revenue and the comparison with 2020 CMS advances.
- Debt balances, variable-rate exposure, hedge accounting effects, covenant headroom and actual revolver availability.
- Adjusted EBITDA reconciliation and the impact of stock awards, refinancing charges, provider relief funding and other non-recurring items.
- Acquisition integration, goodwill valuation, provider-relief eligibility and any material changes in litigation or other contingencies.