RadNet, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. RadNet operated 353 outpatient imaging centers in seven states, compared with 335 a year earlier. Results rebounded from pandemic-depressed 2020 levels; the company said procedure volumes had returned to pre-COVID-19 levels by mid-2021.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue, including provider relief funding | $334.0 million | $216.0 million | $655.5 million | $497.6 million |
| Service revenue | $333.9 million | $190.6 million | $649.2 million | $472.1 million |
| Operating income (loss) | $27.7 million | $0.2 million | $45.3 million | $(8.6) million |
| Net income (loss) attributable to RadNet common stockholders | $2.9 million | $(10.6) million | $12.3 million | $(27.0) million |
| Diluted earnings (loss) per share | $0.05 | $(0.21) | $0.23 | $(0.53) |
| Adjusted EBITDA | $56.6 million | $22.6 million | $102.1 million | $43.0 million |
Revenue growth reflected recovery in procedure volumes and contributions from acquired centers. Same-center total procedure volumes increased 80.5% in Q2 and 36.1% for the six-month period versus the respective 2020 periods. The comparisons are affected by COVID-related cancellations and disruptions in 2020. Management reported operating margins of 8.3% for Q2 and 7.0% for the six months, calculated against service revenue.
- Cash flow: Operating cash flow was $58.7 million for the six months, down from $131.5 million. The prior-year period benefited from $39.5 million of CMS accelerated Medicare payments. Investing used $119.7 million, including $64.9 million for acquisitions and $53.8 million for property and equipment; financing provided $99.8 million, largely reflecting refinancing activity.
- Cash and liquidity: Cash was $140.9 million at June 30, up from $102.0 million at year-end 2020. Working capital, excluding current operating lease liabilities, was $25.1 million versus a deficit of $61.9 million. RadNet reported $187.2 million available under its $195 million Barclays revolver after letters of credit, plus $30.0 million available under its SunTrust revolver.
- Debt: Term-loan face value was $774.1 million ($759.9 million carrying value after discounts); no amounts were drawn on either revolving facility. In April, RadNet refinanced its first-lien debt with $725 million of new term loans, maturing in 2028, and a $195 million revolver. The company reported compliance with all credit covenants.
- Balance sheet: Total assets were $2.03 billion and total liabilities were $1.73 billion at June 30. Operating lease liabilities totaled approximately $639.1 million, current and long-term combined.
Adjusted EBITDA is a non-GAAP measure; it excludes specified items and should not be viewed as a substitute for GAAP earnings or cash flow.
Material changes and notable items
- Provider relief funding recognized was $43,000 in Q2 and $6.3 million for the six months of 2021, versus $25.5 million in Q2 and for the six months of 2020. The company also applied $10.3 million of accelerated Medicare payments and $3.8 million of Blue Shield advances to revenue during the first half of 2021.
- RadNet paid $64.9 million for imaging-business acquisitions in the first half, recording $29.4 million of acquired goodwill. Management said the acquisitions strengthened its New York City, New Jersey and California markets.
- Q2 debt restructuring and extinguishment expenses were $6.0 million. Refinancing costs included approximately $4.5 million expensed as restructuring costs and $1.5 million recorded as a loss on early debt extinguishment.
- Six-month results included an $11.3 million non-cash gain from changes in the fair value of ineffective interest-rate swaps; the comparable 2020 period had a $3.8 million expense. Stock-based compensation rose to $17.1 million, including $6.5 million of employee COVID-related bonus awards.
Outlook, risks and contingencies
No specific financial guidance was provided. Management said it expected existing capital resources, operating cash flow and borrowing capacity to be sufficient for at least the next 12 months, and expected 2020 cost-saving measures to continue benefiting 2021 results. It also cautioned that renewed pandemic-related losses could reduce service demand, affect cash flow and impair borrowing capacity or covenant compliance. Other identified uncertainties include payor reimbursement and collection trends, acquisition integration, and interest-rate exposure; a 1% increase in relevant benchmark rates was estimated to increase annual interest expense by approximately $7.8 million across the first-lien and SunTrust term loans, before considering hedging effects.
Provider relief funds may be audited by HHS and could be recouped if eligibility requirements are not met or amounts exceed qualifying lost revenue and expenses. RadNet reported ordinary-course legal proceedings and said it did not expect pending matters to have a material adverse effect, while noting outcomes remain uncertain. Subsequent to quarter-end, RadNet sold a portion of a subsidiary interest for $13.1 million, retaining 50.1%, and acquired business assets for approximately $5.2 million.
Key facts for investors to verify
- How much of the sharp year-over-year revenue and earnings rebound reflects normalized procedure volumes versus acquisitions and pandemic-distorted comparison periods.
- Whether operating cash flow can sustain acquisition, equipment and other capital needs after the prior-year CMS advance benefit is removed.
- Debt maturities, refinancing terms, covenant headroom and the effect of variable interest rates and swap accounting on reported earnings and cash interest.
- Eligibility support and potential audit or recoupment exposure for provider relief funding and deferred payroll taxes.
- Integration performance and returns on the 2021 acquisitions, and the financial effect of the post-quarter subsidiary interest sale and asset purchase.