RadNet, Inc 10-Q for FY2021 Q1
RadNet, Inc. (RDNT)
10-Q
2021-05-10
For: 2021-03-31
View Original
Added on
April 09, 2026
About this 10-Q
RadNet, Inc filed this 10-Q on May 10, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $315.32M
- up 12.0% from $281.56M a year earlier
- Net income
- $9.46M
- compared with a net loss of $16.36M a year earlier
- Diluted EPS
- $0.18
- compared with -$0.33 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2021
or
For the transition period from to
Commission File Number 001-33307
(Exact name of registrant as specified in charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(310 ) 478-7808
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Class Title | Trading Symbol | Registered Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding on May 6, 2021 was 52,700,039 shares.
RADNET, INC.
TABLE OF CONTENTS
| Page | |||||
ITEM 6. Exhibits | |||||
i
PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Due from affiliates | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Total property, equipment and right-of-use assets | |||||||||||
| OTHER ASSETS | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets | |||||||||||
| Deferred financing costs | |||||||||||
| Investment in joint ventures | |||||||||||
| Deferred tax assets, net of current portion | |||||||||||
| Deposits and other | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable, accrued expenses and other | $ | $ | |||||||||
| Due to affiliates | |||||||||||
| Deferred revenue | |||||||||||
| Current finance lease liability | |||||||||||
| Current operating lease liability | |||||||||||
| Current portion of notes payable | |||||||||||
| Total current liabilities | |||||||||||
| LONG-TERM LIABILITIES | |||||||||||
| Long-term finance lease liability | |||||||||||
| Long-term operating lease liability | |||||||||||
| Notes payable, net of current portion | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| EQUITY | |||||||||||
Common stock - $ | |||||||||||
| Additional paid-in-capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total RadNet, Inc.'s stockholders' equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
1
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Service fee revenue | $ | $ | |||||||||||||||||||||
| Revenue under capitation arrangements | |||||||||||||||||||||||
| Total service revenue | |||||||||||||||||||||||
| Provider relief funding | |||||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Cost of operations, excluding depreciation and amortization | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| (Gain) loss on sale and disposal of equipment and other | ( | ||||||||||||||||||||||
| Severance costs | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ||||||||||||||||||||||
| OTHER INCOME AND EXPENSES | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Equity in earnings of joint ventures | ( | ( | |||||||||||||||||||||
| Non-cash change in fair value of interest rate hedge | ( | ||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||
| Total other (income) expenses | ( | ||||||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ||||||||||||||||||||||
| (Provision for) benefit from income taxes | ( | ||||||||||||||||||||||
| NET INCOME (LOSS) | ( | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | $ | ( | ||||||||||||||||||||
| BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | $ | ( | ||||||||||||||||||||
| DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | $ | ( | ||||||||||||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
2
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||
| Change in fair value of cash flow hedge, net of taxes | ( | ||||||||||||||||||||||
| Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes | |||||||||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | ( | ||||||||||||||||||||||
| Less comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO | |||||||||||||||||||||||
| RADNET, INC. COMMON STOCKHOLDERS | $ | $ | ( | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
3
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the three months ended March 31, 2021 and March 31, 2020.
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Radnet, Inc.'s Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE - January 1, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under the equity compensation plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under the DeepHealth equity compensation plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interests | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Contribution from noncontrolling partner | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| BALANCE-MARCH 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| BALANCE - January 1, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under the equity compensation plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Change in fair value cash flow hedge, net of taxes | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| BALANCE-MARCH 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of operating lease right-of-use assets | |||||||||||
| Equity in earnings of joint ventures, net of dividends | ( | ( | |||||||||
| Amortization of deferred financing costs and loan discount | |||||||||||
| (Gain) loss on sale and disposal of equipment and other | ( | ||||||||||
| Amortization of cash flow hedge | |||||||||||
| Non-cash change in fair value of interest rate hedge | ( | ||||||||||
| Stock-based compensation | |||||||||||
Change in fair value of contingent consideration | |||||||||||
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Deferred taxes | ( | ||||||||||
| Operating lease liability | ( | ( | |||||||||
| Deferred revenue | |||||||||||
| Accounts payable, accrued expenses and other | |||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Purchase of imaging facilities and other acquisitions | ( | ( | |||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Proceeds from sale of equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Principal payments on notes and leases payable | ( | ( | |||||||||
| Payments on term loan debt | ( | ( | |||||||||
| Proceeds from revolving credit facility | |||||||||||
| Payments on revolving credit facility | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ( | ||||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | |||||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
5
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
Supplemental Schedule of Non-Cash Investing and Financing Activities
We acquired equipment and certain leasehold improvements for approximately $28.8 million and $30.8 million during the three months ended March 31, 2021 and 2020, respectively, which were not paid for as of March 31, 2021 and 2020, respectively. The offsetting amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other.
On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, partnership agreement with Simi Valley Hospital and Health Services ("Simi Adventist"). Of the total combined assets of $0.4 million, RadNet transferred $0.3 million and Simi Adventist contributed the remaining $0.1 million.
6
RADNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services with operations in seven U.S. states. At March 31, 2021, we operated, directly or indirectly through joint ventures with hospitals, 346 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians the convenience of a single location to serve the needs of multiple procedures. In addition to our imaging services, we design and develop software applications, artificial intelligence tools and other computerized systems for the diagnostic imaging industry. Our operations comprise a single segment for financial reporting purposes.
The consolidated financial statements include the accounts of RadNet, Inc as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report.
Accounting regulations stipulate that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics which evidence a controlling financial interest, is considered a variable interest entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity.
VIEs that we consolidate as the primary beneficiary consist of professional corporations which are owned or controlled by individuals within our senior management, namely Howard G. Berger, M.D., our President and Chief Executive Officer, and John V. Crues, III, M.D., RadNet's Medical Director, both of whom are members of our Board of Directors. Dr. Berger owns, indirectly, 99 % of the equity interests in Beverly Radiology Medical Group III (BRMG) and a controlling interest in two professional corporations in New York City. BRMG is responsible for the professional medical services at nearly all of our facilities located in California. Dr. Crues owns six professional corporations which provide medical services in Delaware, Maryland, New Jersey and New York. Additionally, Dr. Crues is a 1 % owner of BRMG. These VIEs are collectively referred to as the consolidated medical group ("the Group").
RadNet provides non-medical, technical and administrative services to the Group for which it receives a management fee, pursuant to the related management agreements. Through the management agreements we have exclusive authority over all non-medical decision making related to the ongoing business operations and we determine the annual budget. The Group has insignificant operating assets and liabilities, and de minimis equity. Through management agreements with us, substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group.
The Group on a combined basis recognized $46.1 million and $39.6 million of revenue, net of management services fees to RadNet, for the three months ended March 31, 2021 and 2020, respectively and $46.1 million and $39.6 million of operating expenses for the three months ended March 31, 2021 and 2020, respectively. RadNet recognized $179.0 million and $147.9 million of total billed net service fee revenue for the three months ended March 31, 2021, and 2020, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue.
The cash flows of the Group are included in the accompanying condensed consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. In our condensed consolidated balance sheets at March 31, 2021 and December 31, 2020, we have included approximately $89.9 million and $82.3 million, respectively, of
7
accounts receivable and approximately $20.5 million and $15.2 million of accounts payable and accrued liabilities related to the Group, respectively.
The creditors of the Group do not have recourse to our general credit and there are no other arrangements that could expose us to losses on their behalf. However, we may be required to provide financial support to cover any operating expenses in excess of operating revenues.
We also own a 49 % economic interest in ScriptSender, LLC, which provides secure data transmission services of medical information. Through a management agreement, RadNet provides management and accounting services and receives an agreed upon fee. ScriptSender, LLC is dependent on RadNet to finance its own activities, and as such we determined that it is a VIE but we are not a primary beneficiary since we do not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance.
At all of our centers not serviced by the Group we have entered into long-term contracts (typically up to 40 years) with independent radiology groups to provide physician services at those centers. These radiology practices provide professional services, including supervision and interpretation of diagnostic imaging procedures, in our diagnostic imaging centers. The radiology practices maintain full control over the provision of professional services. Under these arrangements, in addition to obtaining technical fees for the use of our diagnostic imaging equipment and the provision of technical services, we provide management services and receive a fee based on the value of the services we provide. We own the diagnostic imaging equipment and, therefore, receive 100% of the technical reimbursements associated with imaging procedures. The radiology practice groups retain the professional reimbursements associated with imaging procedures after deducting management service fees paid to us and we have no economic controlling interest in these radiology practices as such, the financial results of these practices are not consolidated in our financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for conformity with U.S. generally accepted accounting principles for complete financial statements; however, in the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended March 31, 2021 and 2020 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2020.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
During the period covered in this report, there have been no material changes to the significant accounting policies we use and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2020. The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2020.
REVENUES - Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period when our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and
8
office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect.
Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans.
Our total service revenues during the three months ended March 31, 2021 and 2020 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Commercial insurance | $ | $ | |||||||||||||||||||||
| Medicare | |||||||||||||||||||||||
| Medicaid | |||||||||||||||||||||||
| Workers' compensation/personal injury | |||||||||||||||||||||||
| Other patient revenue | |||||||||||||||||||||||
| Management fee revenue | |||||||||||||||||||||||
| Teleradiology and Software revenue | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Service fee revenue | |||||||||||||||||||||||
| Revenue under capitation arrangements | |||||||||||||||||||||||
| Total service revenue | $ | $ | |||||||||||||||||||||
COVID-19 PANDEMIC AND CARES ACT FUNDING - On March 11, 2020 the World Health Organization (WHO) designated COVID-19 as a global pandemic. To aid businesses and stimulate the national economy, Congress passed the The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was signed in to law on March 27, 2020.
Through March 31, 2021, we have received since inception of the various programs established by the CARES Act, $39.5 million of accelerated Medicare payments, $32.5 million from general distribution and $4.0 million from the Paycheck Protection Program. In addition, we have received $5.0 million in advance payments from insurer Blue Shield.
The accelerated Medicare and Blue Shield payments are recorded to Deferred Revenue in our condensed consolidated balance sheet and will be applied to revenue as services are performed beginning in 2021. For the three months ended March 31, 2021, $2.5 million of the accelerated Medicare and $2.5 million of the Blue Shield funds have been applied to revenue.
The amounts obtained from general distribution were accounted for as government grants and recognized as other revenue and displayed as Provider relief funding in our condensed consolidated statements of operations, of which $6.2 million of the total $32.5 million was received in the three months ended March 31, 2021.
The $4.0 million secured from the Paycheck Protection Program was accounted for as debt and in December 2020 we met the eligibility requirements under the government guidelines for forgiveness and the loans were written off to gain on extinguishment of debt.
The CARES Act also provides for a payment deferral of the employer portion of Social Security tax incurred during the pandemic, allowing half of such payroll taxes to be deferred until December 2021 and the remaining half until December 2022. At March 31, 2021, the Company had in total $16.3 million of deferred Social Security taxes. These payment deferrals
9
We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Proceeds on notes receivables are reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. At March 31, 2021 we have $20.5 million remaining to be collected on these agreements. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis.
| Balance as of December 31, 2020 | $ | ||||
| Goodwill acquired through acquisitions | |||||
| Goodwill attributable to formation of Simi Valley Imaging Group LLC | |||||
| Other Adjustments | ( | ||||
| Balance as of March 31, 2021 | $ | ||||
10
asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized.
We recorded income tax expense of $4.4 million, or an effective tax rate of 24.1 %, for the three months ended March 31, 2021 compared to a benefit from income taxes of $4.4 million, or an effective tax rate of 23.8 % for the three months ended March 31, 2020. The income tax rates for the three months ended March 31, 2021 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; and (iii) excess tax benefits attributable to share-based compensation.
We believe no significant changes in the unrecognized tax benefits will occur within the next 12 months.
On March 27, 2020, the President of the United States signed into law the CARES Act, which among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company’s current tax provision.
11
DERIVATIVE INSTRUMENTS
In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $500,000,000 , consisting of two agreements of $50,000,000 each and two agreements of $200,000,000 each. The 2019 Swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month LIBOR rates at 1.96 % for the $100,000,000 notional and at 2.05 % for the $400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates remain above the arranged rates.
At inception, we designated our 2019 Swaps as cash flow hedges of floating-rate borrowings. In accordance with accounting guidance, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. The cash flows for both our $400,000,000 notional interest rate swap contract locked in at 2.05 % due October 2025 and our $100,000,000 notional interest rate swap contract locked in at 1.96 % do not match the cash flows for our First Lien Term Loans and so we have determined that they are not currently effective as cash flow hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $400,000,000 notional and after July 1, 2020 for the $100,000,000 notional will be recognized in earnings. As of July 1, 2020, the total change in fair value relating to swaps included in other comprehensive income was approximately $24.4 million, net of taxes. This amount will be amortized to interest expense through October 2023 at approximately $0.4 million per month and continuing at approximately $0.3 million through October 2025.
A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2019 Swaps which remain ineffective is as follows (amounts in thousands):
| For the three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||
| Account | January 1, 2021 Balance | Amount of comprehensive loss recognized on derivative net of taxes | Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes | March 31, 2021 Balance | Location | |||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss, net of taxes | $ | ( | $ | $ | $ | ( | Equity | |||||||||||||||||||||||||
| For the twelve months ended December 31, 2020 | ||||||||||||||||||||||||||||||||
| Account | January 1, 2020 Balance | Amount of comprehensive loss recognized on derivative net of taxes | Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes | December 31, 2020 | Location | |||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss, net of taxes | $ | ( | $ | ( | $ | $ | ( | Equity | ||||||||||||||||||||||||
12
A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps which remain ineffective is as follows (amounts in thousands):
| For the three months ended March 31, 2021 | ||||||||||||||||||||||||||
| Ineffective interest rate swap | Amount of gain recognized in income on derivative (current period ineffective portion) | Location of gain recognized in Income on derivative (current period ineffective portion) | Amount of loss reclassified from accumulated OCI into income (prior period effective portion) | Location of loss reclassified from accumulated OCI into income (prior period effective portion) | ||||||||||||||||||||||
| Interest rate contracts | $ | Other income (expense) | $ | ( | Interest Expense | |||||||||||||||||||||
See Fair Value Measurements section below for the fair value of the 2019 Swaps at March 31, 2021.
FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement:
Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.
Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data.
Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment.
Derivatives:
The tables below summarize the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our condensed consolidated balance sheets, as follows (in thousands):
| As of March 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Current and long term liabilities | |||||||||||||||||||||||
| 2019 Swaps - Interest Rate Contracts | $ | $ | $ | $ | |||||||||||||||||||
| As of December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Current and long term liabilities | |||||||||||||||||||||||
| 2019 Swaps - Interest Rate Contracts | $ | $ | $ | $ | |||||||||||||||||||
The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward LIBOR curve. The forward LIBOR curve is readily available in the public markets or can be derived from information available in the public markets.
Long Term Debt:
The table below summarizes the estimated fair value compared to our face value of our long-term debt as follows (in thousands):
| As of March 31, 2021 | |||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair Value | Total Face Value | |||||||||||||||||||||||||
| First Lien Term Loans and SunTrust Term Loan | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
13
| As of December 31, 2020 | |||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair Value | Total Face Value | |||||||||||||||||||||||||
| First Lien Term Loans and SunTrust Term Loan | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
As of March 31, 2021 and at December 31, 2020 our Barclays revolving credit facility had no no
The estimated fair value of our long-term debt, which is discussed in Note 5, Credit Facilities and Notes Payable, was determined using Level 2 inputs primarily related to comparable market prices.
We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment. Additionally, we consider the carrying amount of our finance lease obligations to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net income (loss) attributable to RadNet, Inc.'s common stockholders | $ | $ | ( | ||||||||||||||||||||
| BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS | |||||||||||||||||||||||
| Weighted average number of common shares outstanding during the period | |||||||||||||||||||||||
| Basic net income (loss) per share attributable to RadNet, Inc.'s common stockholders | $ | $ | ( | ||||||||||||||||||||
| DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS | |||||||||||||||||||||||
| Weighted average number of common shares outstanding during the period | |||||||||||||||||||||||
| Add nonvested restricted stock subject only to service vesting | |||||||||||||||||||||||
| Add additional shares issuable upon exercise of stock options and warrants | |||||||||||||||||||||||
| Weighted average number of common shares used in calculating diluted net income per share | |||||||||||||||||||||||
| Diluted net income (loss) per share attributable to RadNet, Inc.'s common stockholders | $ | $ | ( | ||||||||||||||||||||
| Stock options and non vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive: | |||||||||||||||||||||||
| Nonvested restricted stock subject to service vesting | |||||||||||||||||||||||
| Shares issuable upon the exercise of stock options: | |||||||||||||||||||||||
14
As of March 31, 2021, we have three equity investments for which a fair value is not readily determinable and therefore the total amounts invested are recognized at cost as follows:
Medic Vision Imaging Solutions Ltd., based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. Our investment of $1.2 million represents a 14.21 % equity interest in the company. No observable price changes or impairment in our investment was identified as of March 31, 2021.
Turner Imaging Systems, based in Utah, develops and markets portable X-ray imaging systems that provide a user the ability to acquire X-ray images wherever and whenever they are needed. On February 1, 2018, we purchased 2.1 million preferred shares in Turner Imaging Systems for $2.0 million. On January 1, 2019 we funded a convertible promissory note in the amount of $0.1 million that converted to additional 80,000 shares December 21, 2019. No observable price changes or impairment in our investment was identified as of March 31, 2021.
WhiteRabbit.ai Inc., based in California, is currently developing an artificial intelligence suite which aims to improve the speed and accuracy of cancer detection in radiology and improve patient care. On November 5, 2019 we acquired an equity interest in the company for $1.0 million and also loaned the company $2.5 million in support of its operations. No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of March 31, 2021.
INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35 % to 55 %. These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling financial interest in such ventures. We evaluate our investment in joint ventures, including cost in excess of book value (equity method goodwill) for impairment whenever indicators of impairment exist. No indicators of impairment existed as of March 31, 2021.
Joint venture investment and financial information
The following table is a summary of our investment in joint ventures during the three months ended March 31, 2021 (in thousands):
| Balance as of December 31, 2020 | $ | ||||
| Equity in earnings in these joint ventures | |||||
| Balance as of March 31, 2021 | $ | ||||
We charged management service fees from the centers underlying these joint ventures of approximately $5.2 million and $2.6 million for the three months ended March 31, 2021 and 2020, respectively.
15
The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2021 and December 31, 2020 and income statement data for the three months ended March 31, 2021 and 2020 (in thousands):
| Balance Sheet Data: | March 31, 2021 | December 31, 2020 | |||||||||
| Current assets | $ | $ | |||||||||
| Noncurrent assets | |||||||||||
| Current liabilities | ( | ( | |||||||||
| Noncurrent liabilities | ( | ( | |||||||||
| Total net assets | $ | $ | |||||||||
| Book value of RadNet joint venture interests | $ | $ | |||||||||
| Cost in excess of book value of acquired joint venture interests and other | |||||||||||
| Total value of RadNet joint venture interests | $ | $ | |||||||||
| Income statement data for the three months ended March 31, | 2021 | 2020 | |||||||||
| Net revenue | $ | $ | |||||||||
| Net income | $ | $ | |||||||||
NOTE 3 – RECENT ACCOUNTING AND REPORTING STANDARD
Accounting standards adopted
In January 2021, the FASB issued ASU 2021-01 ("ASU 2021-01"), Reference Rate Reform (Topic 848), Scope. ASU 2021-01 provides clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the potential impact of ASU 2021-01 on our financial statements.
In March 2020, the FASB issued ASU 2020-04 ("ASU 2020-04"), Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the potential impact of ASU 2020-04 on our financial statements.
In January 2020, the FASB issued ASU 2020-01 ("ASU 2020-01"), Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020. The adoption did not have a material impact on our financial statements.
In December 2019, the FASB issued ASU 2019-12 ("ASU 2019-12"), Income Taxes (Topic 740). ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other areas of the standard. ASU 2019-12 is effective beginning in the first quarter of 2021. The adoption did not have a material impact on our financial statements.
NOTE 4 – FACILITY ACQUISITIONS
16
During the first quarter of 2021, we completed the acquisition of certain assets of the following entities, all located in the New York city area. We made a preliminary fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):
| Entity Acquired | Total Purchase Consideration | Property & Equipment | Right of Use Assets | Goodwill | Intangible Assets | Other Assets | Right of Use Liabilities | ||||||||||||||||
| Personal Health Imaging PLLC | $ | $ | $ | $ | $ | $ | $ | ( | |||||||||||||||
| ZP Elmont LLC | ( | ||||||||||||||||||||||
| ZP Freeport LLC | ( | ||||||||||||||||||||||
| Broadway Medical Imaging LLC | ( | ||||||||||||||||||||||
| 3235 Hempstead LLC | ( | ||||||||||||||||||||||
| SLZM Realty LLC | ( | ||||||||||||||||||||||
| 2012 Sunrise Merrick LLC | ( | ||||||||||||||||||||||
| ZP Bayside LLC | ( | ||||||||||||||||||||||
| ZP Laurelton LLC | ( | ||||||||||||||||||||||
| ZP Smith LLC | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ( | |||||||||||||||
Formation of majority owned subsidiary
On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, a partnership with Simi Valley Hospital and Health Services ("Simi Adventist"). The operation will offer multi-modality imaging services out of two locations in Ventura County, California. Total investment in the venture is $0.4 million. RadNet contributed $0.3 million in assets for a 60 % economic interest and Simi Adventist contributed assets totaling $0.1 million for a 40 % economic interest.
NOTE 5 – CREDIT FACILITIES AND NOTES PAYABLE
As of March 31, 2021 and December 31, 2020 our debt obligations consisted of the following (in thousands):
| March 31, 2021 | December 31, 2020 | ||||||||||
| First Lien Term Loans collateralized by RadNet's tangible and intangible assets | $ | $ | |||||||||
| Discounts on First Lien Term Loans | ( | ( | |||||||||
| SunTrust Term Loan Agreement collateralized by NJIN's tangible and intangible assets | |||||||||||
| Total debt obligations | |||||||||||
| Less: current portion | ( | ( | |||||||||
| Long term portion debt obligations | $ | $ | |||||||||
17
| Face Value | Discount | Total Carrying Value | |||||||||||||||
| First Lien Term Loans | $ | $ | ( | $ | |||||||||||||
| SunTrust Term Loan | |||||||||||||||||
| Total Term Loans | $ | $ | ( | $ | |||||||||||||
We had no 195.0 million Barclays Revolving Credit Facility at March 31, 2021 and have reserved $7.9 million for certain letters of credit. The remaining $187.1 million of our Barclays Revolving Credit Facility was available to draw upon as of March 31, 2021. We had no outstanding balance under our $30.0 million SunTrust Revolving Credit Facility at March 31, 2021. As of March 31, 2021, we were in compliance with all covenants under our credit facilities.
Senior Secured Credit Facilities
Barclays Credit Facilities:
At March 31, 2021, our Barclays credit facilities were comprised of one tranche of term loans (“First Lien Term Loans”) in the principal amount described in the table above and a revolving credit facility of $195.0 million (the “Barclays Revolving Credit Facility”) both of which are provided pursuant to the Amended and Restated First Lien Credit and Guaranty Agreement dated July 1, 2016, among RadNet, Barclays Bank plc, as administrative agent, and the lenders identified therein (as amended, the "First Lien Credit Agreement"). Deferred financing costs at March 31, 2021, net of accumulated amortization, was $1.6 million and is specifically related to our Barclays Revolving Credit Facility.
Our First Lien Term Loans bear interest at either an Adjusted Eurodollar Rate or a Base Rate, plus an applicable margin according to the following schedule:
| First Lien Leverage Ratio | Eurodollar Rate Spread | Base Rate Spread | ||||||
> | ||||||||
> | ||||||||
> | ||||||||
≤ | ||||||||
At March 31, 2021 the effective Adjusted Eurodollar Rate and the Base Rate for the First Lien Term Loans was 1.00 % and 3.25 %, respectively and the applicable margin for Adjusted Eurodollar Rate and Base Rate borrowings was 3.50 % and 2.50 %, respectively.
The First Lien Credit Agreement provides for quarterly payments of principal under the First Lien Term Loans in the amount of approximately $9.7 million. The First Lien Term Loans will mature on July 1, 2023 unless otherwise accelerated under the terms of the First Lien Credit Agreement.
SunTrust Credit Facilities:
At March 31, 2021, our SunTrust credit facilities, which relate to our consolidated subsidiary NJIN, were comprised of one term loan in the principal amount described in the table above (the "SunTrust Term Loan") and a revolving credit facility of $30.0 million (the "SunTrust Revolving Credit Facility") both of which are provided pursuant to the Amended and Restated Revolving Credit and Term Loan Agreement dated August 31, 2018, among NJIN, as borrower, with SunTrust Bank, as administrative agent, and the lenders identified therein (as amended, the "SunTrust Credit Agreement"). Our SunTrust Term Loan bears interest at either an Adjusted LIBOR or a Base Rate (each as defined in the SunTrust Credit Agreement), plus an applicable margin according to the following schedule:
18
| Pricing Level | Leverage Ratio | Applicable Margin for Eurodollar Loans | Applicable Margin for Base Rate Loans | Applicable Margin for Letter of Credit Fees | Applicable Percentage for Commitment Fee | ||||||||||||
| I | Greater than or equal to | per annum | per annum | per annum | per annum | ||||||||||||
| II | Less than | per annum | per annum | per annum | per annum | ||||||||||||
| III | Less than | per annum | per annum | per annum | per annum | ||||||||||||
| IV | Less than | per annum | per annum | per annum | per annum | ||||||||||||
| V | Less than | per annum | per annum | per annum | per annum | ||||||||||||
The loans and other obligations outstanding under the SunTrust Credit Agreement currently bear interest at a three month LIBOR election at 0.25 % plus an applicable margin and fees based on Pricing Level III described above.
The scheduled amortization of the SunTrust Term Loan began December 31, 2018 with quarterly payments of $0.8 million, representing annual amortization equal to 5.0 % of the original principal amount of the SunTrust Term Loan. At scheduled intervals, the quarterly amortization increases by $0.4 million, with the remaining balance to be paid at maturity. The SunTrust Term Loan will mature on August 31, 2023 unless otherwise accelerated under the terms of the SunTrust Credit Facility.
Revolving Credit Facilities
Barclays Revolving Credit Facility
Revolving loans borrowed under the Barclays Revolving Credit Facility bear interest at either an Adjusted Eurodollar Rate or a Base Rate (in each case, as more fully defined in the First Lien Credit Agreement) plus an applicable margin. The applicable margin for borrowing under the Barclays Revolving Credit Facility varies based on our leverage ratio in accordance with the same schedule set forth above for First Lien Term Loans. As of March 31, 2021, the effective interest rate payable on revolving loans under the Barclays Revolving Credit Facility was 5.75 %.
For letters of credit issued under the Barclays Revolving Credit Facility, letter of credit fees accrue at the applicable margin for Adjusted Eurodollar Rate, currently 3.50 % , and fronting fees accrue at 0.25 % per annum, in each case on the average aggregate daily maximum amount available to be drawn under all letters of credit issued under the First Lien Credit Agreement. In addition, a commitment fee of 0.50 % per annum accrues on the unused revolver commitments under the Barclays Revolving Credit Facility.
The Barclays Revolving Credit Facility will terminate on the earlier of July 1, 2023 or termination due to specific events of default pursuant to the First Lien Credit Agreement.
Our Barclays Revolving Credit Facility was amended in August 2020 to add $57.5 million of revolving commitments, which additional commitments increased the maximum borrowing capacity to $195.0 million. Total issue costs added in relation to the eighth amendment amounted to approximately $0.7 million and was capitalized as deferred financing costs and will be amortized over the remaining term of the First Lien Credit Agreement.
SunTrust Revolving Credit Facility
The SunTrust Credit Agreement established a $30.0 million revolving credit facility available to NJIN for funding requirements. The SunTrust Revolving Credit Facility terminates on the earliest of (i) August 31, 2023, (ii) the voluntary termination thereof by NJIN pursuant to Section 2.8 of the SunTrust Credit Agreement, or (iii) the date on which all amounts outstanding under the SunTrust Credit Agreement have been declared or have automatically become due and payable (whether
19
by acceleration or otherwise). As of March 31, 2021, NJIN had no borrowings under the SunTrust Revolving Credit Facility.
Recent Amendments to credit facilities:
Barclays Credit Facilities:
On April 23, 2021, after the period covered by this report, we entered into the Second Amended and Restated First Lien Credit and Guaranty Agreement which provides for $725.0 million of senior secured first lien term loans and a $195.0 million senior secured revolving credit facility. See Note 7, Subsequent Events, for more information.
On August 28, 2020, RadNet Management, Inc. and RadNet, Inc. entered into Amendment No. 8, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the "Eighth Amendment"). The Eighth Amendment amends the First Lien Credit Agreement to add $57.5 million of revolving commitments to the Barclays Revolving Credit Facility increasing the maximum borrowing capacity under the revolving credit facility to $195.0 million while leaving the maturity date of July 1, 2023 unchanged. Total issue costs added in relation to the Eighth Amendment amounted to approximately $0.7 million and was capitalized as deferred financing costs and will be amortized over the remaining term of the First Lien Credit Agreement.
On April 18, 2019 we entered into the following two amendments to the First Lien Credit Agreement: (i) Amendment No. 6, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the “Sixth Amendment”); and (ii) Amendment No. 7 to Credit and Guaranty Agreement (the “Seventh Amendment”). Among other things, The Sixth Amendment amended the First Lien Credit Agreement to issue $100.0 million in incremental First Lien Term Loans and to add an additional $20.0 million of revolving commitments to the Barclays Revolving Credit Facility. The Seventh Amendment amended the First Lien Credit Agreement to extend the maturity date of the Barclays Revolving Credit Facility by an additional two years to July 1, 2023, unless sooner terminated in accordance with the terms of the First Lien Credit Agreement. Total issue costs added in relation to the Sixth and Seventh Amendments in 2019 amounted to approximately $4.4 million. Of this amount, $2.1 million was identified and capitalized as discount on debt, $0.7 million was capitalized as deferred financing costs, and $1.6 million was expensed. Amounts capitalized will be amortized over the remaining term of the First Lien Credit Agreement.
NOTE 6 – STOCK-BASED COMPENSATION
Stock Incentive Plans
We have one long-term equity incentive plan which we refer to as the 2006 Equity Incentive Plan, which we first amended and restated as of April 20, 2015 and again on March 9, 2017 (the "Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017. We have reserved for issuance under the Restated Plan 14,000,000 shares of common stock. We can issue options (incentive and non-qualified), stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan.
Options
Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options generally vest over 3 to 5 years and expire 5 to 10 years from the date of grant.
As of March 31, 2021, we had outstanding options to acquire 527,899 shares of our common stock, of which options to acquire 433,202 shares were exercisable. The following summarizes all of our option transactions for the three months ended March 31, 2021:
| Outstanding Options Under the 2006 Plan | Shares | Weighted Average Exercise price Per Common Share | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | |||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | |||||||||||||||||||||||||
| Exercisable at March 31, 2021 | ||||||||||||||||||||||||||
20
Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on March 31, 2021 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on March 31, 2021. No options were exercised during the three months ended March 31, 2021. As of March 31, 2021, total unrecognized stock-based compensation expense related to non-vested employee awards was $0.5 million which is expected to be recognized over a weighted average period of approximately 1.30 years.
DeepHealth Options
During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted 412,434 options at a grant date fair value of $16.93 per share unit to DeepHealth employees in replacement of their stock options that were outstanding as of the closing date. As of March 31, 2021, total unrecognized stock based compensation expense related to non-vested DeepHealth options was approximately $3.4 million which is expected to be recognized over a weighted average period of approximately 2.07 years.
| Outstanding Options Under the Deep Health Plan | Shares | Weighted Average Exercise price Per Common Share | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||||
| Balance December 31, 2020 | $ | — | ||||||||||||||||||||||||
| Exercised | — | |||||||||||||||||||||||||
| Balance, March 31, 2021 | — | $ | ||||||||||||||||||||||||
| Exercisable at March 31, 2021 | — | |||||||||||||||||||||||||
Restricted Stock Awards
The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of March 31, 2021, we have issued a total of 7,152,934 RSA’s of which 410,352 were unvested at March 31, 2021. The following summarizes all unvested RSA’s activities during the three months ended March 31, 2021:
| RSA's | Weighted-Average Remaining Contractual Term (Years) | Weighted-Average Fair Value | |||||||||||||||
| RSA's unvested at December 31, 2020 | $ | ||||||||||||||||
| Changes during the period | |||||||||||||||||
| Granted | $ | ||||||||||||||||
| Vested | ( | $ | |||||||||||||||
| RSA's unvested at March 31, 2021 | $ | ||||||||||||||||
We determine the fair value of all RSA’s based on the closing price of our common stock on the award date.
Other stock bonus awards
The Restated Plan also permits the award of stock bonuses not subject to any future service period. These awards are valued and expensed based on the closing price of our common stock on the date of award. During the three months ended March 31, 2021 no such shares were granted.
Plan summary
In summary, of the 14,000,000 shares of common stock reserved for issuance under the Restated Plan, at March 31, 2021, we had issued 16,109,252 total shares between options, RSA’s and other stock awards. With options canceled and RSA’s forfeited amounting to 3,281,040 and 61,703 shares, respectively, there remain 1,233,491 shares available under the Restated Plan for future issuance.
The DeepHealth options were issued outside of the Restated Plan and are a direct result of our acquisition and not included in the share count of the Restated Plan.
21
NOTE 7 – SUBSEQUENT EVENTS
Refinancing of Barclays Credit Facilities:
The Second Amended and Restated First Lien Credit and Guaranty Agreement (the "Restated Credit Agreement"):
On April 23, 2021, we entered into the Restated Credit Agreement which provides for $725.0 million of senior secured first lien term loans and a $195.0 million senior secured revolving credit facility. The proceeds of the loans are being used to refinance the outstanding $611.0 million term and revolving loans, to pay fees and expenses associated with the refinancing transaction, to pay accrued interest on the previously existing facilities through the date of closing and to fund approximately $102.0 million to our balance sheet. The key terms of the Restated Credit Agreement are:
•Interest Rates: Borrowings under the Restated Credit Agreement bear interest at either the Eurodollar Rate or the Alternate Base Rate and the floor for the term loans bearing interest at the Eurodollar Rate was reduced from a minimum of 1.00 % to a minimum of 0.75 %.
•Maturity Dates: The maturity date for the term loans is April 23, 2028, and the maturity date for the revolving credit facility is April 23, 2026, in each case unless accelerated in accordance with the terms of the Restated Credit Agreement.
•Payments: We will be required to make quarterly payments of principal on the terms loans in the amount of approximately $1.8 million compared to approximately $9.7 million under the prior credit agreement.
Acquisitions:
In the months of April and May, 2021 we acquired certain business assets for purchase consideration of approximately $5.0 million.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission (SEC) on March 15, 2021.
Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect current views about future events and are based on our currently available financial, economic and competitive data and on current business plans. Actual events or results may differ materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology. Forward-looking statements in this current report include, among others, statements we make regarding
• our ability to successfully integrate new operations, to our business and the anticipated benefits to be derived from our investments, acquisitions, and joint ventures;
•anticipated trends in our revenues, operating expenses and liquidity and cash flows, including our financial guidance and anticipated effects of cost-savings efforts;
•the ongoing impact of the COVID-19 pandemic on our business, suppliers, payors, customers, referral sources, partners, patients and employees, including (i) government’s unprecedented action regarding existing
22
and potential restrictions and/or obligations related to citizen and business activity to contain the virus; (ii) the consequences of an economic downturn resulting from the impacts of COVID-19 and the possibility of a global economic recession; (iii) the impact of the volume of canceled or rescheduled procedures, whether as a result of government action or patient choice; (iv) measures we are taking to respond to the COVID-19 pandemic, including changes to business practices; (v) the impact of government and administrative regulation, guidance and appropriations; (vi) changes in our revenues due to declining patient procedure volumes, changes in payor mix; (vii) potential increased expenses or workforce disruptions related to our employees that could lead to unavailability of key personnel; (viii) workforce disruptions related to our key partners, suppliers, vendors and others we do business with; (ix) the impact of return to work orders in certain states in which we operate; and (x) increased credit and collectability risks; and
•our future liquidity and our continuing ability to service and remain in compliance with applicable debt covenants or refinance our current indebtedness.
Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2020 or supplemented by the information in Part II– Item 1A below. You should consider the inherent limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements.
These forward-looking statements speak only as of the date when they are made. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Overview
We are a leading national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States based on number of locations and annual imaging revenue. At March 31, 2021, we operated, directly or indirectly through joint ventures with hospitals, 346 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, often reducing the cost and amount of care for patients. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. In addition to our imaging services, we own and operate a number of technology businesses that are complementary to our imaging business. Our subsidiary eRAD, Inc., develops and sells computerized systems for the diagnostic imaging industry, which provide the technology to distribute, display, store and retrieve digital images. We have made a number of investments in Artificial Intelligence (AI) with our purchases of Nulogix and DeepHealth, combined with our investment in Whiterabbit.ai and our collaborative arrangement with Hologic. Our current AI focus is to develop solutions in machine learning to assist radiologists and other clinicians in interpreting images and improving patient care, initially in the field of mammography.
We derive substantially all of our revenue, directly or indirectly, from fees charged for the diagnostic imaging services performed at our facilities. The following table shows our facilities in operation and revenues for the three months ended March 31, 2021 and March 31, 2020:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Facilities in operation | 346 | 335 | |||||||||
| Net revenues (millions) | $ | 315 | $ | 282 | |||||||
Our revenue is derived from a diverse mix of payors, including private, managed care capitated and government payors. We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class. In addition, our experience with capitation arrangements over the last several years has provided us with the expertise to manage utilization and pricing effectively, resulting in a predictable stream of revenue.
23
Our total service revenue during the three months ended March 31, 2021 and 2020 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Commercial insurance | $ | 182,096 | $ | 155,461 | |||||||||||||||||||
| Medicare | 63,589 | 57,749 | |||||||||||||||||||||
| Medicaid | 8,451 | 6,628 | |||||||||||||||||||||
| Workers' compensation/personal injury | 10,399 | 10,274 | |||||||||||||||||||||
| Other patient revenue | 4,775 | 5,662 | |||||||||||||||||||||
| Management fee revenue | 5,219 | 2,567 | |||||||||||||||||||||
| Teleradiology and Software revenue | 2,426 | 3,770 | |||||||||||||||||||||
| Other | 2,622 | 6,222 | |||||||||||||||||||||
| Service fee revenue | 279,577 | 248,333 | |||||||||||||||||||||
| Revenue under capitation arrangements | 35,742 | 33,231 | |||||||||||||||||||||
| Total service revenue | $ | 315,319 | $ | 281,564 | |||||||||||||||||||
We typically experience some seasonality to our revenue stream. Although we had a resurgence in procedure volumes for the first quarter ended March 31, 2021, it is in this time period that we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year. It is common for inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures. Also, in recent years, we have observed greater participation in high deductible health plans by patients. As these high deductibles reset in January for most of these patients, we have observed that patients utilize medical services less during the first quarter, when securing medical care will result in significant out-of-pocket expenditures.
Recent Developments
The discussion of our results below centers on our performance in the first quarter ending March 31, 2021. During 2020, with the onset of the novel strain of the coronavirus ("COVID-19") and related responses, we began experiencing reduced procedure volumes at the end of the first quarter which intensified through mid year. Procedure volumes returned to 90% of pre-COVID-19 pace in the third quarter and remained consistent at that level through the fourth quarter. During 2020, in response to the pandemic, we adjusted our business operations, inclusive of concentrating patient traffic to larger imaging centers, negotiating payment terms with vendors and landlords, initiating employee furloughs, compensation reductions, and telecommuting.
As we enter 2021, the arrival of the mRNA vaccine to protect against the virus is a welcome development. As inoculations ramp up across the country and other mitigation procedures continue, we can begin to look forward to a return of normal business operations. We expect that the cost saving measures implemented in 2020 will be beneficial to our financial position in 2021, provided that procedure volumes continue to ramp back up to historic levels. Despite the impact of COVID-19, we continued to invest and position for future growth. We acquired 10 new centers in the New York City area during the quarter ended March 31, 2021.
Equity Investments, Acquisitions and Dispositions, and Joint Venture Activity
We have developed our medical imaging business through a combination of organic growth, equity investments, acquisitions and joint venture formations. The information below updates our activity of such matters contained in our annual report on Form 10-K for the year ended December 31, 2020.
Equity Investments
As of March 31, 2021, we have three equity investments for which a fair value is not readily determinable and therefore the total amounts invested are recognized at cost as follows:
24
Medic Vision Imaging Solutions Ltd., based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. Our investment of $1.2 million represents a 14.21% equity interest in the company. No observable price changes or impairment in our investment was identified as of March 31, 2021.
Turner Imaging Systems, based in Utah, develops and markets portable X-ray imaging systems that provide a user the ability to acquire X-ray images wherever and whenever they are needed. On February 1, 2018, we purchased 2.1 million preferred shares in Turner Imaging Systems for $2.0 million. On January 1, 2019 we funded a convertible promissory note in the amount of $0.1 million that converted to additional 80,000 shares December 21, 2019. No observable price changes or impairment in our investment was identified as of March 31, 2021.
WhiteRabbit.ai Inc., based in California, is currently developing an artificial intelligence suite which aims to improve the speed and accuracy of cancer detection in radiology and improve patient care. On November 5, 2019 we acquired an equity interest in the company for $1.0 million and also loaned the company $2.5 million in support of it operations. No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of March 31, 2021.
Facility acquisitions
During the first quarter of 2021, we completed the acquisition of certain assets of the following entities, all located in the New York city area. We made a preliminary fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):
| Entity Acquired | Total Purchase Consideration | Property & Equipment | Right of Use Assets | Goodwill | Intangible Assets | Other Assets | Right of Use Liabilities | ||||||||||||||||
| Personal Health Imaging PLLC | $ | 2,995 | $ | 576 | $ | 608 | $ | 2,355 | $ | 50 | $ | 14 | $ | (608) | |||||||||
| ZP Elmont LLC | 2,194 | 1,112 | 1,695 | 1,005 | 50 | 27 | (1,695) | ||||||||||||||||
| ZP Freeport LLC | 6,065 | 3,968 | 2,361 | 2,018 | 50 | 29 | (2,361) | ||||||||||||||||
| Broadway Medical Imaging LLC | 1,155 | 1,076 | 1,791 | 6 | 50 | 23 | (1,791) | ||||||||||||||||
| 3235 Hempstead LLC | 9,386 | 4,304 | 10,115 | 5,032 | 50 | — | (10,115) | ||||||||||||||||
| SLZM Realty LLC | 13,671 | 3,862 | 7,715 | 9,759 | 50 | — | (7,715) | ||||||||||||||||
| 2012 Sunrise Merrick LLC | 11,428 | 2,363 | 5,919 | 9,015 | 50 | — | (5,919) | ||||||||||||||||
| ZP Bayside LLC | 3,545 | 3,385 | 9,393 | 40 | 50 | 70 | (9,393) | ||||||||||||||||
| ZP Laurelton LLC | 2,658 | 2,530 | 5,157 | 32 | 50 | 46 | (5,157) | ||||||||||||||||
| ZP Smith LLC | 3,978 | 3,581 | 10,558 | 347 | 50 | — | (10,558) | ||||||||||||||||
| Total | $ | 57,075 | $ | 26,757 | $ | 55,312 | $ | 29,609 | $ | 500 | $ | 209 | $ | (55,312) | |||||||||
Formation of majority owned subsidiary
On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, a partnership with Simi Valley Hospital and Health Services ("Simi Adventist"). The operation will offer multi-modality imaging services out of two locations in Ventura County, California. Total investment in the venture is $0.4 million. RadNet contributed $0.3 million in assets for a 60% economic interest and Simi Adventist contributed assets totaling $0.1 million for a 40% economic interest.
Joint Venture Activity
25
The following table is a summary of our investment in joint ventures during the three months ended March 31, 2021 (in thousands):
| Balance as of December 31, 2020 | $ | 34,528 | |||
| Equity in earnings in these joint ventures | 2,285 | ||||
| Balance as of March 31, 2021 | $ | 36,813 | |||
We charged management service fees from the centers underlying these joint ventures of approximately $5.2 million and $2.6 million for the three months ended March 31, 2021 and 2020, respectively.
The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2021 and December 31, 2020 and income statement data for the three months ended March 31, 2021 and 2020 (in thousands):
| Balance Sheet Data: | March 31, 2021 | December 31, 2020 | |||||||||
| Current assets | $ | 33,265 | $ | 27,085 | |||||||
| Noncurrent assets | 68,493 | 68,686 | |||||||||
| Current liabilities | (13,929) | (12,545) | |||||||||
| Noncurrent liabilities | (21,371) | (21,582) | |||||||||
| Total net assets | $ | 66,458 | $ | 61,644 | |||||||
| Book value of RadNet joint venture interests | $ | 30,351 | $ | 28,079 | |||||||
| Cost in excess of book value of acquired joint venture interests | 6,462 | 6,449 | |||||||||
| Total value of RadNet joint venture interests | $ | 36,813 | $ | 34,528 | |||||||
| Income statement data for the three months ended March 31, 2021 | 2021 | 2020 | |||||||||
| Net revenue | $ | 31,718 | $ | 26,341 | |||||||
| Net income | $ | 4,803 | $ | 4,245 | |||||||
Critical Accounting Policies
The Securities and Exchange Commission defines critical accounting estimates as those that are both most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. In Note 2 to our consolidated financial statements in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2020, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates. The most significant areas involving management’s judgments and estimates are described below.
Use of Estimates
The financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our consolidated statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could materially differ from these estimates.
Revenues
Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period
26
our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations, changes in business and economic conditions, and the frequent changes in managed care contractual terms resulting from contract re-negotiations and renewals.
As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.
Our revenues are based upon our management's estimate of amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under Medicare, Medicaid, managed care and commercial insurance plans are based upon historical collection experience of the payments received from such payors in accordance with the underlying contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have price concessions applied. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect.
Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans. Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended March 31, 2021.
Provider Relief Fund (COVID-19 Stimulus Funding)
The Provider Relief Fund offers government assistance to eligible providers throughout the healthcare system in support of certain expenses or lost revenue attributable to the coronavirus pandemic. We have recorded provider relief funding in our condensed Consolidated Statements of Operations in the amount of $6.2 million for three months ended March 31, 2021. Generally, the department of Health and Human Services ("HHS") does not intend to recoup funds as long as a provider's lost revenue and increased expenses exceed the amount of provider relief funding one has received. HHS reserves the right to audit Relief Fund recipients in the future to ensure that this requirement is met and collect any Relief Fund amounts that were made in error or exceed lost revenue or increased expenses due to the pandemic. Failure to comply with the terms and conditions may be grounds for recoupment. In recognizing revenue associated with provider relief funding our management is required to assess whether our operations have meet the applicable requirements for the funding received. During the quarter ended March 31, 2021, we continued to evaluate our operating results in light of the most recent government guidance and based on our assessment, the amount of revenue recognized is appropriate.
Accounts Receivable
Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. Receivables generally are collected within industry norms for third-party payors. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience. Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended March 31, 2021.
Business Combination
27
We evaluate all acquisitions under the framework Clarifying the Definition of a Business in the accounting guidance.. Once a purchase has been determined to be the acquisition of a business, we are required to recognize the assets acquired and the liabilities assumed at their acquisition date fair values. Any portion of the purchase consideration transferred in excess of the net of the acquisition date fair values of the assets acquired and the liabilities assumed, is allocated to goodwill. The allocation requires our management to make estimates of the value of various assets acquired and liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
Goodwill and Indefinite Lived Intangibles
Goodwill at March 31, 2021 totaled $502.6 million. Indefinite Lived Intangible Assets at March 31, 2021 were $7.1 million and are associated with the value of certain trade name intangibles. Our management reviews the fair value of our reporting units on an annual basis to determine if an event has occurred which suggest that the fair value of a reporting unit may be impaired. When we determine the carrying value of a reporting unit exceeds its fair value, an impairment charge would be recognized and should not exceed the total amount of goodwill allocated to that reporting unit. The review of fair value requires our management to make assessments of the business and financial prospects for a particular reporting unit. We tested goodwill for impairment on October 1, 2020. We also continue at regular intervals to consider the current and expected future economic and market conditions surrounding the COVID-19 pandemic and to date have not had an indication of goodwill impairment being more likely than not through March 31, 2021.
Recent Accounting Standards
See Note 3, Recent Accounting and Reporting Standards to the financial statements included in this report for further information.
28
Results of Operations
The following table sets forth, for the three months ended March 31, 2021 and 2020, the percentage that certain items in the statements of operations bears to total service revenue, inclusive of revenue under capitation contracts.
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Service fee revenue | 88.7 | % | 88.2 | % | |||||||||||||||||||
| Revenue under capitation arrangements | 11.3 | % | 11.8 | % | |||||||||||||||||||
| Total service revenue | 100.0 | % | 100.0 | % | |||||||||||||||||||
| Provider relief funding | 2.0 | % | — | % | |||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Cost of operations, excluding depreciation and amortization | 89.5 | % | 95.0 | % | |||||||||||||||||||
| Depreciation and amortization | 7.2 | % | 7.8 | % | |||||||||||||||||||
| (Gain) loss on sale and disposal of equipment and other | (0.4) | % | 0.3 | % | |||||||||||||||||||
| Severance costs | 0.1 | % | 0.1 | % | |||||||||||||||||||
| Total operating expenses | 96.4 | % | 103.1 | % | |||||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | 5.6 | % | (3.1) | % | |||||||||||||||||||
| OTHER INCOME AND EXPENSES | |||||||||||||||||||||||
| Interest expense | 4.1 | % | 4.1 | % | |||||||||||||||||||
| Equity in earnings of joint ventures | (0.7) | % | (0.7) | % | |||||||||||||||||||
| Non-cash change in fair value of interest rate hedge | (3.6) | % | — | % | |||||||||||||||||||
| Other expenses | 0.1 | % | — | % | |||||||||||||||||||
| Total other (income) expenses | (0.2) | % | 3.4 | % | |||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 5.8 | % | (6.5) | % | |||||||||||||||||||
| (Provision for) benefit from income taxes | (1.4) | % | 1.6 | % | |||||||||||||||||||
| NET INCOME (LOSS) | 4.4 | % | (5.0) | % | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 1.4 | % | 0.8 | % | |||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | 3.0 | % | (5.8) | % | |||||||||||||||||||
We have developed our medical imaging business through a combination of organic growth, equity investments, acquisitions and joint venture formations. We have segregated some of our information to demonstrate which is attributable to centers that were in operation through the entirety of the comparison period, and which is attributable to those that were acquired or disposed of during the period. The discussion below shows a breakdown and analysis of revenue and expenses for the three months ended March 31, 2021 and 2020 for our operations at a total company and same center level.
Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Total Revenue inclusive of Provider Relief funding where applicable for 2021 and 2020
29
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Revenue | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total Revenue | $321,567 | $281,564 | $40,003 | 14.2% | ||||||||||
| Same Center Revenue | $304,696 | $277,990 | $26,706 | 9.6% | ||||||||||
Increased revenue was spurred by an overall same center 5.1% growth in procedure volumes over the same period in the prior year. On a same center basis, Mammography procedures rose 15.1%, followed by advanced radiology procedures of PET and CT, which expanded at a combined 8.7%. The growth in Mammography procedures was precipitated by our investment in the use of artificial intelligence, which is employed to keep track of patient data, catalog findings, and drive patient notification so a regular exam schedule is maintained. Assisting in the revenue increase was $6.2 million received in Provider Relief funding and annual contractual rate increases in capitation and fee for service plans. This same center comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2020. For the three months ended March 31, 2021, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $16.9 million. For the three months ended March 31, 2020, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $3.6 million.
Operating Expenses
Total operating expenses for the three months ended March 31, 2021 increased approximately $13.6 million, or 4.7%, from $290.3 million for the three months ended March 31, 2020 to $303.9 million for the three months ended March 31, 2021. The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Salaries and professional reading fees, excluding stock-based compensation | $ | 177,861 | $ | 167,528 | |||||||
| Stock-based compensation | 8,248 | 6,622 | |||||||||
| Building and equipment rental | 28,711 | 26,896 | |||||||||
| Medical supplies | 13,970 | 12,748 | |||||||||
Other operating expenses * | 53,491 | 53,623 | |||||||||
| Cost of operations | 282,281 | 267,417 | |||||||||
| Depreciation and amortization | 22,656 | 21,934 | |||||||||
| (Gain) loss on sale and disposal of equipment | (1,307) | 771 | |||||||||
| Severance costs | 285 | 218 | |||||||||
| Total operating expenses | $ | 303,915 | $ | 290,340 | |||||||
*Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.
The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):
Salaries and professional reading fees, excluding stock-based compensation and severance
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Salaries and Professional Fees | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total Salaries | $177,861 | $167,528 | $10,334 | 6.2% | ||||||||||
| Same Center Salaries | $168,803 | $164,287 | $4,516 | 2.8% | ||||||||||
The moderate rise in same center salaries expense corresponded to the added professional staff requisite for radiology study interpretation that stemmed from higher procedure volumes. This same center comparison excludes expenses from
30
centers that were acquired or divested subsequent to January 1, 2020. For the three months ended March 31, 2021, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $9.1 million. For the three months ended March 31, 2020, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was approximately $3.2 million.
Stock-based compensation
Stock-based compensation increased $1.6 million, or 24.6% to approximately $8.2 million for the three months ended March 31, 2021 compared to $6.6 million for three months ended March 31, 2020. This increase was driven by the higher fair value of RSA’s awarded and vested in the first quarter of 2021 as compared to RSA’s awarded and vested in the prior year’s first quarter.
Building and equipment rental
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Building & Equipment Rental | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total | $28,711 | $26,896 | $1,815 | 6.8% | ||||||||||
| Same Center | $25,685 | $25,671 | $14 | 0.1% | ||||||||||
This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020. For the three months ended March 31, 2021, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $3.0 million. For the three months ended March 31, 2020, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was approximately $1.2 million.
Medical supplies
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Medical Supplies Expense | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total | $13,970 | $12,748 | $1,222 | 9.6% | ||||||||||
| Same Center | $13,370 | $12,596 | $774 | 6.2% | ||||||||||
Higher same center medical supplies expense related to additional consumption of contrast agents in our advanced imaging modalities driven by volume increases of CT and PET procedures and cost of personal protective equipment in support of staff and patient safety. This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020. For the three months ended March 31, 2021, medical supplies expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.6 million. For the three months ended March 31, 2020, medical supplies expense from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.2 million.
Other operating expenses
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Other Operating Expenses | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total | $53,491 | $53,623 | $(133) | (0.3)% | ||||||||||
| Same Center | $49,900 | $52,594 | $(2,694) | (5.1)% | ||||||||||
Savings in same center other operating expenses reflects the cumulative effect of successful contract re-negotiations aimed to reduce charges across a range of vendors from repair and maintenance to professional services. This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020. For the three months ended March 31, 2021, other operating expense from centers that were acquired or divested subsequent January 1, 2020 and excluded from the above comparison was $3.6 million. For the three months ended March 31, 2020, other operating expense from centers that were acquired or divested subsequent to January 1, 2020 was $1.0 million.
Depreciation and amortization
31
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Depreciation & Amortization | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total | $22,656 | $21,934 | $723 | 3.3% | ||||||||||
| Same Center | $20,952 | $21,470 | $(518) | (2.4)% | ||||||||||
This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020. For the three months ended March 31, 2021, depreciation expense from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $1.7 million. For the three months ended March 31, 2020, depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.5 million.
Gain on sale and disposal of equipment and other
We recorded gains on the disposal of equipment and other items of approximately $1.3 million for the three months ended March 31, 2021 and a loss on sale and disposal of equipment of approximately $0.8 million for the three months ended March 31, 2020.
Non-cash change in fair value of interest rate hedge
We recorded a gain of $11.2 million for the ineffective portion of our 2019 Swaps for the three months ended March 31, 2021.
Other (income) expenses
We recorded other expenses of approximately $0.2 million for the three months ended March 31, 2021. Amounts for the corresponding period ending March 31, 2020 were immaterial.
Severance Costs
We incurred severance expenses of $0.3 million for the three months ended March 31, 2021 and $0.2 million for the three months ended March 31, 2020.
Interest expense
| In Thousands | Three Months Ended March 31, | |||||||||||||
| Interest Expense | 2021 | 2020 | $ Increase/(Decrease) | % Change | ||||||||||
| Total Interest Expense | $12,826 | $11,552 | $1,274 | 11.0 | % | |||||||||
| Interest related to derivatives* | $3,650 | $362 | ||||||||||||
| Interest related to amortization** | $1,147 | $1,081 | ||||||||||||
| Adjusted Interest Expense*** | $8,029 | $10,109 | $(2,080) | (20.6) | % | |||||||||
* Includes interest on current and prior derivative instruments not related to debt obligations.
** Includes combined noncash amortization of deferred loan costs and discount on issuance of debt.
***Includes interest related to our term loans, revolving credit line,notes, finance leases and other.
Excluding the effect of interest expense related to derivatives and amortization for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, interest expense decreased $2.1 million, or 20.6%. The reduction in interest expense corresponds to lowered variable LIBOR and Prime interest rates paid on our term loan and revolving debt based on market conditions. See “Liquidity and Capital Resources” below for more details on our credit facilities.
To mitigate our future interest expense exposure we have entered into certain interest rate swap agreements. See the Derivative Instruments section of Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in this report for more details on our derivative transactions.
Equity in earnings from unconsolidated joint ventures
32
For the three months ended March 31, 2021 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.3 million and for three months ended March 31, 2020 we recognized equity in earnings from unconsolidated joint ventures of $2.0 million, an increase of $0.3 million or 16.9%. The increase was mainly related to the equity in earnings received from our interest in the Arizona Diagnostic Radiology Group joint venture, which was formed in the fourth quarter of 2020.
Income tax provision
We recorded income tax expense of $4.4 million, or an effective tax rate of 24.1%, for the three months ended March 31, 2021 compared to a benefit from income taxes of $4.4 million, or an effective tax rate of 23.8% for the three months ended March 31, 2020. The income tax rates for the three months ended March 31, 2021 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; and (iii) excess tax benefits attributable to share-based compensation.
Adjusted EBITDA
We use both GAAP and non-GAAP metrics to measure our financial results. We believe that, in addition to GAAP metrics, certain non-GAAP metrics, such as Adjusted EBITDA assist us in measuring our business performance, cash generated from operations, leverage capacity and ability to service our debt obligations. We believe this information is useful to investors and other interested parties because we are highly leveraged and our non-GAAP metrics remove non-cash and certain other charges that occur in the affected period and provide a basis for measuring the Company's financial condition against other quarters.
We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and excluding losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, bargain purchase gains and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taking place during the period. We have not made specific adjustments to our calculation of Adjusted EBITDA in response to COVID 19. Our net income reflected below includes the effect of the $6.2 million in other revenue received under the Provider Relief Fund.
Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity. As Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation, this metric, as presented, may not be comparable to other similarly titled measures of other companies.
33
Adjusted EBITDA is most comparable to the GAAP financial measure, net income (loss) attributable to RadNet, Inc. common stockholders. The following is a reconciliation of GAAP net income (loss) attributable to RadNet, Inc. common stockholders to Adjusted EBITDA for the three months ended March 31, 2021 and 2020, respectively.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net income (loss) attributable to RadNet, Inc. common stockholders | $ | 9,458 | $ | (16,358) | |||||||||||||||||||
| Provision for (benefit from) income taxes | 4,376 | (4,381) | |||||||||||||||||||||
| Interest expense | 12,826 | 11,552 | |||||||||||||||||||||
| Severance costs | 285 | 218 | |||||||||||||||||||||
| Depreciation and amortization | 22,656 | 21,934 | |||||||||||||||||||||
| Non-cash employee stock-based compensation | 8,248 | 6,622 | |||||||||||||||||||||
| (Gain) loss on sale and disposal of equipment and other | (1,307) | 771 | |||||||||||||||||||||
| Non-cash change in fair value of interest rate hedge | (11,245) | — | |||||||||||||||||||||
| Other expenses | 206 | 6 | |||||||||||||||||||||
| Legal settlements | — | — | |||||||||||||||||||||
| Adjusted EBITDA | $ | 45,503 | $ | 20,364 | |||||||||||||||||||
Liquidity and Capital Resources
The following table summarizes of key balance sheet data related to our liquidity as of March 31, 2021 and December 31, 2020 and income statement data for the three months ended March 31, 2021 and 2020 (in thousands):
| Balance Sheet Data: | March 31, 2021 | December 31, 2020 | |||||||||
| Cash and cash equivalents | $ | 31,091 | $ | 102,018 | |||||||
| Accounts receivable | 146,665 | 129,585 | |||||||||
| Working capital (exclusive of current operating lease liabilities) | (109,730) | (61,896) | |||||||||
| Stockholders' equity | 281,358 | 258,303 | |||||||||
| Income statement data for the three months ended March 31 | 2021 | 2020 | |||||||||
| Total net revenue | $ | 315,319 | $ | 281,564 | |||||||
| Net income (loss) attributable to RadNet common stockholders | 9,458 | (16,358) | |||||||||
We operate in a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations. In addition to operations, we require a significant amount of capital for the initial start-up and development of new diagnostic imaging facilities, the acquisition of additional facilities and new diagnostic imaging equipment. Because our cash flows from operations have been insufficient to fund all of these capital requirements, we have depended on the availability of financing under credit arrangements with third parties.
As noted in our forward looking statements, we are uncertain of the duration and ultimate severity of the effects of the COVID 19 pandemic on our business. Although we have received government stimulus funding and are undertaking measures to reduce operating expenses, we may again experience operating losses as a result of the pandemic which can impact both the consumption and cost of our medical imaging services. We have credit available from our current credit facilities and borrowing under those facilities is subject to continued compliance with lending covenants. We currently meet those requirements, and expect that we will continue to do so for the foreseeable future, but substantial and sustained operating losses could impact our ability to borrow under those facilities. If we are not able to meet such requirements, we may be required to seek additional financing and there can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.
34
On a continuing basis, we also consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures and joint ventures. These types of transactions may result in future cash proceeds or payments but the general timing, size or success of any acquisition, divestiture or joint venture effort and the related potential capital commitments cannot be predicted. We expect to fund any future acquisitions primarily with cash flow from operations and borrowings, including borrowing from amounts available under our senior secured credit facilities or through new equity or debt issuances.
We and our subsidiaries or affiliates may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise.
Sources and Uses of Cash
The following table summarizes key components of our sources and uses of cash for the three months ended March 31, 2021 and 2020:
| Cash Flow Data | March 31, 2021 | March 31, 2020 | |||||||||
| Cash provided by operating activities | $ | 28,084 | $ | 40,913 | |||||||
| Cash used in investing activities | (87,348) | (55,059) | |||||||||
| Cash (used in) provided by financing activities | (11,651) | 68,262 | |||||||||
Cash provided by operating activities for the three months ended March 31, 2021 was $28.1 million and $40.9 million for the three months ended March 31, 2020. Our cash provided by operating activities for the period ended March 31, 2020 was benefited by the receipt of $39.5 million in CMS advances recorded as deferred revenue.
Cash used in investing activities for the three months ended March 31, 2021, included purchases of property and equipment for approximately $30.4 million and the acquisition of imaging and software business assets for $57.1 million. As part of our business operations we continually evaluate investment opportunities. As noted in Note 7, Subsequent Events, we have purchase commitments for acquisitions of $5.0 million.
Cash used in financing activities for the three months ended March 31, 2021, was due to principal payments on our term loans and equipment debt obligations.
We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Payments on the associated notes receivables will be reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. At March 31, 2021 we have $20.5 million, net of discount, remaining to be collected on these agreements. We do not utilize factoring arrangements as an integral part of our financing for working capital.
Senior Secured Credit Facilities
We maintain secured credit facilities with Barclays Bank PLC and with SunTrust Bank. The Barclays credit facilities are comprised of first lien term loans and a revolving credit facility. On August 28, 2020 we amended the Barclays credit facilities which extended and increased the amount available under the revolving line of credit to $195.0 million. The SunTrust credit facilities are comprised of a term loan and a revolving credit facility of $30.0 million. As of March 31, 2021, we were in compliance with all covenants under our credit facilities. Deferred financing costs at March 31, 2021, net of accumulated amortization, was $1.6 million and is specifically related to our Barclays revolving credit facility.
Included in our condensed consolidated balance sheets at March 31, 2021 are $651.6 million of total term loan debt (exclusive of unamortized discounts of $8.7 million) in thousands:
35
| Face Value | Discount | Total Carrying Value | |||||||||||||||
| First Lien Term Loans | $ | 601,330 | $ | (8,730) | $ | 592,600 | |||||||||||
| SunTrust Term Loan | 50,250 | — | 50,250 | ||||||||||||||
| Total Term Loans | $ | 651,580 | $ | (8,730) | $ | 642,850 | |||||||||||
At March 31, 2021, we had no borrowings under our Barclays or SunTrust revolving credit facilities. After reserves for outstanding letters of credit of $7.9 million on our Barclays Revolving Credit Facility, we have $187.1 million available for borrowing and $30.0 million available under our SunTrust Revolving Credit Facility. For more information on our secured credit facilities see Note 5 to our condensed consolidated financial statements in this quarterly report.
On April 23, 2021, after the period covered by this report, we entered into the Restated Credit Agreement which provides for $725.0 million of senior secured first lien term loans and a $195.0 million senior secured revolving credit facility. The proceeds of the loan were used to refinance the outstanding $611.0 million term and revolving loans, to pay fees and expenses associated with the refinancing transaction, to pay accrued interest on the previously existing facilities through the date of closing and to fund approximately $102.0 million to our balance sheet. In addition, the Restated Credit Agreement lowered our interest rates and reduced our principal payments from $9.7 million to $1.8 million per quarter. We expect our existing capital resources, anticipated cash from operations and our borrowing capacity under our credit facilities will be sufficient to sustain our operations for the next twelve months and the foreseeable future.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity: We pay interest on various types of debt instruments to our suppliers and lending institutions. The agreements entail either fixed or variable interest rates. Instruments which have fixed rates are mainly leases on radiology equipment. Variable rate interest obligations relate primarily to amounts borrowed under our outstanding credit facilities. Accordingly, our interest expense and consequently, our earnings, are affected by changes in short term interest rates. However due to our purchase of caps, described below, the effects of interest rate changes are limited.
We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the First Lien Term Loans. At March 31, 2021, we had $601.3 million outstanding subject to an adjusted Eurodollar election on First Lien Term Loans and our effective 6 month LIBOR rate plus applicable was 4.75%. A hypothetical 1% increase in the adjusted Eurodollar rates under the First Lien Credit Agreement over the current Eurodollar rate would result in an increase of $6.0 million in annual interest expense and a corresponding decrease in income before taxes. At March 31, 2021, we had $6.0 million outstanding subject to an adjusted prime election on First Lien Term Loans and our effective prime rate was 5.75%. A hypothetical 1% increase in the adjusted Prime rates under the First Lien Credit Agreement over the current Prime rate would result in an increase of $0.1 million in annual interest expense and a corresponding decrease in income before taxes.
At March 31, 2021, we had $50.3 million outstanding subject to an adjusted Eurodollar election on the SunTrust Restated Credit Agreement. We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the SunTrust Restated Credit Agreement. At March 31, 2021, our effective LIBOR rate plus applicable margin was 2.25%. A hypothetical 1% increase in the adjusted Eurodollar rates under the SunTrust Restated Credit Agreement would result in an increase of approximately $0.5 million in annual interest expense and a corresponding decrease in income before taxes.
In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $500,000,000, consisting of two agreements of $50,000,000 each and two agreements of $200,000,000 each. The 2019 Swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month LIBOR rates at 1.96% for the $100,000,000 notional and at 2.05% for the $400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates remain above the arranged rates.
ITEM 4. Controls and Procedures
36
Evaluation of Disclosure Controls and Procedures
We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the design and operation of our “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report for the purposes set forth above.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
37
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
We are engaged from time to time in the defense of lawsuits arising out of the ordinary course and conduct of our business. We do not believe that the outcome of any of our current litigation will have a material adverse impact on our business, financial condition and results of operations. However, we could be subsequently named as a defendant in other lawsuits that could adversely affect us.
ITEM 1A. Risk Factors
For information about the risks and uncertainties related to our business, please see the risk factors described in our annual report on Form 10-K for the year ended December 31, 2020. The risks described in our Form 10-K and Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
38
INDEX TO EXHIBITS
| Exhibit Number | Description | |||||||
| 10.17 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101 | The following financial information from RadNet, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 30, 2021 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Changes in Stockholders Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Exchange Act and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| RADNET, INC. | ||||||||
| (Registrant) | ||||||||
| Date: May 10, 2021 | By: | /s/ Howard G. Berger, M.D. | ||||||
| Howard G. Berger, M.D., President and Chief Executive Officer (Principal Executive Officer) | ||||||||
| Date: May 10, 2021 | By: | /s/ Mark D. Stolper | ||||||
| Mark D. Stolper, Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||
40
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Howard G. Berger, M.D., certify that:
1. I have reviewed this report on Form 10-Q of RadNet, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c. | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Dated: May 10, 2021
| /s/ Howard G. Berger, M.D. | |||||
| Howard G. Berger, M.D. | |||||
| President, Chief Executive Officer and Chairman of the Board of Directors | |||||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark D. Stolper, certify that:
1. I have reviewed this report on Form 10-Q of RadNet, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c. | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Dated: May 10, 2021
| /s/ Mark D. Stolper | |||||
| Mark D. Stolper | |||||
| Executive Vice President | |||||
| and Chief Financial Officer | |||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RadNet, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2021, as filed with the Securities and Exchange Commission on May 10, 2021 (the “Report”), I, Howard G. Berger, M.D., Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report.
| /s/ Howard G. Berger, M.D. | |||||
| Howard G. Berger, M.D. | |||||
| Chairman, President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| May 10, 2021 | |||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RadNet, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2021, as filed with the Securities and Exchange Commission on May 10, 2021 (the “Report”), I, Mark D. Stolper, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report.
| /s/ Mark D. Stolper | |||||
| Mark D. Stolper | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| May 10, 2021 | |||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be furnished to the Securities and Exchange Commission or its staff upon request.