RadNet, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing, not a standalone Q4 report; selected unaudited Q4 results are included below. Amounts are in U.S. dollars.
Business context
RadNet operated 233 freestanding outpatient imaging centers across seven states and performed approximately 3.74 million procedures in 2011. Services include MRI, CT, PET, mammography, ultrasound, X-ray and related imaging. The company also expanded into imaging software and teleradiology through acquisitions.
Financial performance and liquidity
| Metric | FY2011 | FY2010 | Change / context |
|---|---|---|---|
| Revenue | $619.8 million | $551.8 million | Up 12.3%; same-center revenue rose 0.7% |
| Operating income | $50.7 million | $41.7 million | Operating margin 8.2%, versus 7.6% |
| Net income (loss) attributable to RadNet common stockholders | $7.2 million | $(12.9) million | Basic and diluted EPS $0.19, versus $(0.35) |
| Adjusted EBITDA | $115.5 million | $106.2 million | Non-GAAP measure defined by the company |
| Cash from operating activities | $57.6 million | $66.9 million | Down from prior year |
| Cash and cash equivalents at year-end | $2.5 million | $0.6 million | Working capital was $29.9 million, versus $5.8 million |
| Total debt and capital-lease obligations | $558.8 million | $504.6 million | Includes $200 million senior notes, $280 million term debt and $58 million revolver borrowings |
Net revenue growth was substantially acquisition-driven: same-center revenue increased 0.7%, while centers acquired after January 1, 2010 contributed $97.0 million in 2011, compared with $32.8 million in 2010. Cost of operations was 77.1% of revenue, versus 76.3%; bad-debt provision declined to 5.6% of revenue from 6.0%. Interest expense increased to $52.8 million from $48.4 million.
Investing activities used $87.7 million, including $42.7 million for property and equipment, $43.0 million for imaging-facility acquisitions and $5.1 million for joint-venture interests. Financing activities provided $31.9 million, primarily from revolver borrowings. Year-end revolver availability was reported as $63.25 million, subject to borrowing conditions. Stockholders’ equity remained in deficit at $69.8 million.
Q4 (unaudited): Revenue was $164.8 million, versus $146.1 million in Q4 2010. Net income attributable to common stockholders was $4.5 million, versus $3.3 million.
Material changes versus prior periods
- RadNet returned to annual attributable net income after losses in 2010 and 2009. The 2010 loss included a $9.9 million debt-extinguishment charge from refinancing.
- Revenue grew 12.3%, but comparable-center growth was modest at 0.7%; acquisitions account for much of the reported increase.
- Year-end debt rose to $558.8 million from $504.6 million, while operating cash flow fell by $9.2 million.
- The November 2011 Raven Holdings acquisition added imaging operations in Maryland, Delaware and Rhode Island. Consideration was approximately $40.4 million, including cash, a seller note and assumed equipment debt.
- In 2011 RadNet acquired Imaging On Call and a controlling interest in Radar Medical Systems, among other businesses. eRAD revenue was $4.8 million, up from approximately $1.0 million in 2010.
Outlook, risks and unusual items
The filing provides no numerical financial guidance. Management’s stated priorities include improving existing-center performance, profitable contracting, operating efficiencies, expanding imaging applications and selective acquisitions. Management cited industry demand drivers such as an aging population, while noting reimbursement pressure and uncertainty.
- Leverage and liquidity: Debt service, variable-rate borrowings, restrictive covenants and limited cash are significant risks. The company reported covenant compliance at year-end. A substantial portion of debt is secured; the $200 million senior notes bear a 10.375% coupon and mature in 2018.
- Reimbursement and regulation: Medicare and Medicaid changes, healthcare cost controls, accreditation and credentialing requirements, and healthcare fraud, privacy and corporate-practice-of-medicine rules could affect revenue or operations. Medicare and Medicaid represented approximately 23% of net revenue.
- Operating and integration risks: Results depend on physician referrals, contracted radiology groups (including BRMG), adequate staffing, imaging equipment uptime, acquisition integration and management of capitated utilization risk.
- Unusual items: 2011 included approximately $5.1 million of other income, primarily from interest-rate-swap fair-value adjustments, and a $2.2 million equipment-disposal gain, primarily related to insurance proceeds after a fire. Insurance proceeds also included flood-related amounts and business-interruption proceeds.
- Acquisition estimates: Raven Holdings’ purchase-price allocation was preliminary; certain asset valuations were expected to be finalized in 2012. The company reported no goodwill impairment in its October 2011 test.
- Contingencies and controls: Management said current litigation was not expected to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Key investor verification points
- Assess how much future growth is likely to come from same-center volumes and pricing rather than acquisitions.
- Review debt maturities, borrowing availability, interest-rate exposure and covenant headroom; verify the company’s capacity to fund capital needs and debt service.
- Track receivables and collections: accounts receivable rose to $128.4 million from $96.1 million, while bad-debt provision was $34.7 million.
- Evaluate the final Raven Holdings purchase-price allocation, integration results and performance of the newer software and teleradiology businesses.
- Verify the filing’s differing GE equipment-maintenance commitment disclosures: approximately $24 million per year in the liquidity discussion versus approximately $30 million per year in the commitments note.
- Monitor Medicare reimbursement changes, physician-group relationships and compliance risks, including the company’s significant relationship with BRMG and its CEO.