UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
On August 9, 2021 RadNet, Inc. (“RadNet”) issued a press release and held a conference call regarding our 2021 financial results for the second quarter ended June 30, 2021. A copy of the press release is furnished as Exhibit 99.1 and a copy of the transcript of the conference call is furnished as Exhibit 99.2 to this Current Report.
The information in this Current Report, including Exhibit 99.1 and Exhibit 99.2 is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. The information in this Current Report, including Exhibit 99.1 and Exhibit 99.2 shall not be incorporated by reference into any registration statement or other document filed with the Commission.
Item 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
(d) Exhibits
Exhibit Number | Description of Exhibit |
99.1 | Press Release dated August 9, 2021 relating to RadNet, Inc.’s financial results for the quarter ended June 30, 2021. |
99.2 | Transcript of conference call. |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURE
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 hereunto duly authorized.
Date: August 9, 2021 | RADNET, INC. |
By: /s/ Mark D. Stolper Name: Mark D. Stolper
|
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EXHIBIT INDEX
Exhibit Number | Description of Exhibit |
99.1 | Press Release dated August 9, 2021 |
99.2 | Transcript of conference call. |
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Exhibit 99.1
FOR IMMEDIATE RELEASE
· | Revenue increased 75.2% to an all-time quarterly record of $333.9 million in the second quarter of 2021 from $190.6 million in the second quarter of 2020 |
· | Adjusted EBITDA(1) increased 150.7% to an all-time quarterly record of $56.6 million in the second quarter of 2021 from $22.6 million in the second quarter of 2020 |
· | Adjusting for one-time items impacting Net Income in the quarter, Adjusted Earnings Per Share(3) was $0.27 for the second quarter of 2021; This compares with Adjusted Net Loss(3) of $(0.14) per diluted share for the second quarter of 2020 |
· | Aggregate procedural volumes increased 92.7%; Same-center procedural volumes increased 80.5% compared to the second quarter of 2020 |
· | RadNet has completed deployment of its FDA approved DeepHealth Saige-QTM mammography AI software within its northeast and mid-Atlantic centers with positive physician reception |
· | RadNet further revises full-year 2021 guidance levels to increase Revenue, Adjusted EBITDA(1) and Free Cash Flow ranges |
LOS ANGELES, California, August 9, 2021 – RadNet, Inc. (NASDAQ: RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 353 owned and/or operated outpatient imaging centers, today reported financial results for its second quarter of 2021.
Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented, “I am extremely pleased with our financial results in the second quarter. We set all-time quarterly records for Revenue and Adjusted EBITDA(1), and achieved an Adjusted EBITDA(1) margin of 17.0%, higher by 5.1% and 2.1% from the second quarters of 2020 and 2019, respectively. The strong operating performance was the result of recovering procedural volumes in combination with lower costs as a result of actions we took during the COVID-19 period in 2020 and continued cost-containment measures implemented in 2021. Additionally, improvements in our revenue cycle and cash collections have contributed to our improving results and lower DSOs. We are seeing opportunity in virtually all aspects of our multi-faceted business. We project significant growth ahead from the strategic capital investments we are making in equipment, our development efforts in artificial intelligence, the pipeline for tuck-in acquisitions and discussions surrounding new hospital health system joint ventures.”
Dr. Berger continued, “Given the positive trends we are experiencing in our business and the strong financial performance of both the first and second quarters, we have elected to further revise our guidance levels upwards. The increased 2021 guidance ranges for Revenue, Adjusted EBITDA(1) and Free Cash Flow also anticipate improved operating margins. While our revised guidance is reflective of our confidence and optimism regarding the rest of the year’s performance, we remain cognizant of the possibility of an additional surge of COVID-19 or its Delta variant in any or all of our regional markets, and are prepared to respond appropriately,” added Dr. Berger.
Dr. Berger concluded, “On April 19th, we announced that we received FDA clearance for our DeepHealth AI mammography triage software, Saige-QTM, which is a worklist prioritization tool that enables radiologists to more effectively manage their mammography cases with the use of artificial intelligence. We are in the process of deploying this technology across our various markets and are pleased to announce that we have completed installation of this technology in our northeast and mid-Atlantic markets. We expect to complete nationwide deployment, to include our radiologists in California, by the end of the third quarter. Early feedback from our radiologists is excellent. While we are observing improved productivity, most importantly, we are providing our patients and payors with greater accuracy, fewer patient call-backs and the possibility of detecting breast disease one to two years earlier than otherwise possible. We continue to evaluate further areas of AI that can improve effectiveness, decrease costs and drive new revenue streams through providing innovative cost effective screening programs to large insurance companies who are interested in new population health models to improve patient care.”
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Second Quarter Financial Results
For the second quarter of 2021, RadNet reported Revenue of $333.9 million and Adjusted EBITDA(1) of $56.6 million. Revenue increased $143.4 million (or 75.2%) and Adjusted EBITDA(1) increased $34.0 million (or 150.7%) from the second quarter of 2020.
Adjusted Diluted Net Income Attributable to RadNet, Inc. Common Stockholders (Adjusted Earnings(3)) for the second quarter of 2021 was $14.2 million, or $0.27 per diluted share as compared with Adjusted Net Loss of $6.9 million, or $(0.14) per diluted share for the same period in 2020. Unadjusted for one-time items, Net Income Attributable to RadNet, Inc. Common Shareholders (“Net Income”) for the second quarter of 2021 was $2.9 million, or $0.05 per diluted share. This compares to Net Loss of $10.6 million, or $(0.21) per diluted share, in the second quarter of 2020. These per share values are based upon weighted average number of diluted shares outstanding of 53.1 million in the second quarter of 2021 and 50.7 million of diluted shares outstanding in the second quarter of 2020.
Affecting Net Income in the second quarter of 2021 were certain non-cash expenses and non-recurring items including: $---8.9 million of non-cash employee stock compensation expense; $268,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $1.6 million gain on the disposal of certain capital equipment; $1.2 million of non-cash loss from interest rate swaps; $6.0 million expense from debt restructuring and extinguishment as a result of our recent refinancing transaction; and $812,000 of amortization of deferred financing costs and loan discount related to our existing credit facilities.
For the second quarter of 2021, as compared with the prior year’s second quarter, MRI volume increased 88.1%, CT volume increased 67.6% and PET/CT volume increased 28.8%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 92.7% over the prior year’s second quarter. On a same-center basis, including only those centers which were part of RadNet for both the second quarters of 2021 and 2020, MRI volume increased 73.0%, CT volume increased 54.9% and PET/CT volume increased 26.5%. Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 80.5% from the prior year’s same quarter.
Six Month Financial Results
For the six months ended June 30, 2021, RadNet reported Revenue of $649.2 million and Adjusted EBITDA(1) of $102.1 million. Revenue increased $177.1 million (or 37.5%) and Adjusted EBITDA(1) increased $59.2 million (or 137.8%) from the same six month period last year.
For the six month period in 2021, RadNet reported Net Income of $12.3 million, an increase of approximately $39.3 million over the first six months of 2020. Per share diluted Net Income for the first six months of 2021 was $0.23, compared to a diluted Net Loss of $(0.53) in the same six month period of 2020 (based upon a weighted average number of diluted shares outstanding of 52.9 million in 2021 and 50.5 million in 2020).
Affecting Net Income for the six month period of 2021 were certain non-cash expenses and non-recurring items including: $17.1 million of non-cash employee stock compensation expense; $551,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $2.9 million gain on the disposal of certain capital equipment; $8.8 million of non-cash gain from interest rate swaps; $6.0 million expense from debt restructuring and extinguishment as a result of our recent refinancing transaction; and $2.0 million of amortization of deferred financing costs and loan discount related to our existing credit facilities.
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2021 Guidance Update
RadNet amends its previously announced guidance levels as follows:
Original Guidance Range | Revised Guidance Range After Q1 Results | Revised Guidance Range After Q2 Results | ||||
Total Net Revenue | $1,250 - $1,300 million | $1,275 - $1,325 million | $1,300 - $1,350 million | |||
Adjusted EBITDA(1) | $180 - $190 million | $187 - $197 million | $200 - $210 million | |||
Capital Expenditures(a) | $70 - $75 million | $72 - $77 million | $80 - $85 million | |||
Cash Interest Expense | $39 - $44 million | $35 - $40 million | $35 - $40 million | |||
Free Cash Flow (b)(2) | $60 - $70 million | $70 - $80 million | $75 - $85 million |
(a) | Net of proceeds from the sale of equipment, imaging centers and joint venture interests, and excludes New Jersey Imaging Network capital expenditures. |
(b) | Defined by the Company as Adjusted EBITDA(1) less Capital Expenditures and Cash Paid for Interest. |
Dr. Berger highlighted, “Based upon the strong financial results in our first and second quarters and our confidence in projected performance for the remainder of the year, we have increased guidance ranges for Revenue, Adjusted EBITDA(1) and Free Cash Flow (2). Additionally, we have raised our Capital Expenditures level to reflect additional investments in growth opportunities we have identified in several of our core regional markets.”
Conference Call for Today
Dr. Howard Berger, President and Chief Executive Officer, and Mark Stolper, Executive Vice President and Chief Financial Officer, will host a conference call to discuss its second quarter 2021 results on Monday, August 9th, 2021 at 7:30 a.m. Pacific Time (10:30 a.m. Eastern Time).
Conference Call Details:
Date: Monday, August 9, 2021
Time: 10:30 a.m. Eastern Time
Dial In-Number: 888-394-8218
International Dial-In Number: 646-828-8193
It is recommended that participants dial in approximately 5 to 10 minutes prior to the start of the 10:30 a.m. call. There will also be simultaneous and archived webcasts available at http://public.viavid.com/index.php?id=146019 or http://www.radnet.com under the “Investors” menu section and “News Releases” sub-menu of the website. An archived replay of the call will also be available and can be accessed by dialing 844-512-2921 from the U.S., or 412-317-6671 for international callers, and using the passcode 3277272.
Forward Looking Statements
This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are expressions of our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, and anticipated future conditions, events and trends. Forward-looking statements can generally be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements in this press release include, among others, statements we make regarding response to and the expected future impacts of COVID-19, including statements about our anticipated business results, balance sheet and liquidity and our future liquidity, burn rate and our continuing ability to service or refinance our current indebtedness.
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Forward-looking statements are neither historical facts nor assurances of future performance. Because forward-looking statements relate to the future, they are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
· | 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 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; |
· | the availability and terms of capital to fund our business; |
· | our ability to service our indebtedness, make principal and interest payments as those payments become due and remain in compliance with applicable debt covenants, in addition to our ability to refinance such indebtedness on acceptable terms; |
· | changes in general economic conditions nationally and regionally in the markets in which we operate; |
· | the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities; |
· | our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; |
· | volatility in interest and exchange rates, or credit markets; |
· | the adequacy of our cash flow and earnings to fund our current and future operations; |
· | changes in service mix, revenue mix and procedure volumes; |
· | delays in receiving payments for services provided; |
· | increased bankruptcies among our partner physicians or joint venture partners; |
· | the impact of the political environment and related developments on the current healthcare marketplace and on our business, including with respect to the future of the Affordable Care Act; |
· | the extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof by federal and state regulators or related litigation result in a reduction in coverage or reimbursement rates for our services, or other material impacts to our business; |
· | closures or slowdowns and changes in labor costs and labor difficulties, including stoppages affecting either our operations or our suppliers' abilities to deliver supplies needed in our facilities; |
· | the occurrence of hostilities, political instability or catastrophic events; |
· | the emergence or reemergence of and effects related to future pandemics, epidemics and infectious diseases; and |
· | noncompliance by us with any privacy or security laws or any cybersecurity incident or other security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information. |
Any forward-looking statement contained in this current report is based on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of changed circumstances, new information, future developments or otherwise, except as required by applicable law.
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Regulation G: GAAP and Non-GAAP Financial Information
This release contains certain financial information not reported in accordance with GAAP. The Company uses both GAAP and non-GAAP metrics to measure its financial results. The Company believes that, in addition to GAAP metrics, these non-GAAP metrics assist the Company in measuring its cash-based performance. The Company believes this information is useful to investors and other interested parties because it removes unusual and nonrecurring charges that occur in the affected period and provides a basis for measuring the Company's financial condition against other quarters. Such information should not be considered as a substitute for any measures calculated in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliation of this information to the most comparable GAAP measures is included in this release in the tables which follow.
About RadNet, Inc.
RadNet, Inc. is the leading national provider of freestanding, fixed-site diagnostic imaging services and related information technology solutions (including artificial intelligence) in the United States based on the number of locations and annual imaging revenue. RadNet has a network of 353 owned and/or operated outpatient imaging centers. RadNet's markets include California, Maryland, Delaware, New Jersey, New York, Florida and Arizona. Together with affiliated radiologists, and inclusive of full-time and per diem employees and technicians, RadNet has a total of approximately 8,300 employees. For more information, visit http://www.radnet.com.
CONTACTS:
RadNet, Inc.
Mark Stolper, 310-445-2800
Executive Vice President and Chief Financial Officer
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RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
June 30, 2021 | December 31, 2020 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 140,852 | $ | 102,018 | ||||
Accounts receivable | 157,328 | 129,585 | ||||||
Due from affiliates | 6,290 | 5,836 | ||||||
Prepaid expenses and other current assets | 30,449 | 32,985 | ||||||
Total current assets | 334,919 | 270,424 | ||||||
PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS | ||||||||
Property and equipment, net | 435,172 | 399,335 | ||||||
Operating lease right-of-use assets | 593,574 | 483,661 | ||||||
Total property, equipment and right-of-use assets | 1,028,746 | 882,996 | ||||||
OTHER ASSETS | ||||||||
Goodwill | 502,331 | 472,879 | ||||||
Other intangible assets | 51,783 | 52,393 | ||||||
Deferred financing costs | 2,386 | 1,767 | ||||||
Investment in joint ventures | 41,375 | 34,528 | ||||||
Deferred tax assets, net of current portion | 29,390 | 34,687 | ||||||
Deposits and other | 41,268 | 36,983 | ||||||
Total assets | $ | 2,032,198 | $ | 1,786,657 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable, accrued expenses and other | $ | 244,536 | 236,684 | |||||
Due to affiliates | 22,596 | 14,010 | ||||||
Deferred revenue | 31,947 | 39,257 | ||||||
Current finance lease liability | – | 2,578 | ||||||
Current operating lease liability | 71,399 | 65,794 | ||||||
Current portion of notes payable | 10,789 | 39,791 | ||||||
Total current liabilities | 381,267 | 398,114 | ||||||
LONG-TERM LIABILITIES | ||||||||
Long-term finance lease liability | – | 743 | ||||||
Long-term operating lease liability | 567,674 | 463,096 | ||||||
Notes payable, net of current portion | 749,079 | 612,913 | ||||||
Other non-current liabilities | 34,899 | 53,488 | ||||||
Total liabilities | 1,732,919 | 1,528,354 | ||||||
EQUITY | ||||||||
RadNet, Inc. stockholders' equity: | ||||||||
Common stock - $.0001 par value, 200,000,000 shares authorized; 52,678,030 and 51,640,537 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 5 | 5 | ||||||
Additional paid-in-capital | 324,954 | 307,788 | ||||||
Accumulated other comprehensive loss | (22,227 | ) | (24,051 | ) | ||||
Accumulated deficit | (105,668 | ) | (117,999 | ) | ||||
Total RadNet, Inc.'s stockholders' equity | 197,064 | 165,743 | ||||||
Noncontrolling interests | 102,215 | 92,560 | ||||||
Total equity | 299,279 | 258,303 | ||||||
Total liabilities and equity | $ | 2,032,198 | $ | 1,786,657 |
6 |
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
REVENUE | ||||||||||||||||
Service fee revenue | $ | 295,494 | $ | 155,698 | $ | 575,071 | $ | 404,031 | ||||||||
Revenue under capitation arrangements | 38,424 | 34,868 | 74,166 | 68,099 | ||||||||||||
Total service revenue | 333,918 | 190,566 | 649,237 | 472,130 | ||||||||||||
Provider relief funding | 43 | 25,475 | 6,291 | 25,475 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Cost of operations, excluding depreciation and amortization | 283,571 | 194,217 | 565,851 | 461,635 | ||||||||||||
Depreciation and amortization | 24,011 | 21,355 | 46,667 | 43,289 | ||||||||||||
(Gain) loss on sale and disposal of equipment and other | (1,567 | ) | (569 | ) | (2,874 | ) | 202 | |||||||||
Severance costs | 268 | 859 | 551 | 1,076 | ||||||||||||
Total operating expenses | 306,283 | 215,862 | 610,195 | 506,202 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | 27,678 | 179 | 45,333 | (8,597 | ) | |||||||||||
OTHER INCOME AND EXPENSES | ||||||||||||||||
Interest expense | 12,171 | 10,831 | 24,997 | 22,382 | ||||||||||||
Equity in earnings of joint ventures | (3,121 | ) | (945 | ) | (5,406 | ) | (2,900 | ) | ||||||||
Non-cash change in fair value of interest rate hedge | (35 | ) | 3,843 | (11,280 | ) | 3,843 | ||||||||||
Debt restructuring and extinguishment expenses | 6,044 | – | 6,044 | – | ||||||||||||
Other expenses (income) | 1,658 | (115 | ) | 1,867 | (108 | ) | ||||||||||
Total other (income) expenses | 16,717 | 13,614 | 16,222 | 23,217 | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 10,961 | (13,435 | ) | 29,111 | (31,814 | ) | ||||||||||
(Provision for) benefit from income taxes | (2,874 | ) | 4,475 | (7,249 | ) | 8,856 | ||||||||||
NET INCOME (LOSS) | 8,087 | (8,960 | ) | 21,862 | (22,958 | ) | ||||||||||
Net income attributable to noncontrolling interests | 5,214 | 1,634 | 9,531 | 3,994 | ||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 2,873 | $ | (10,594 | ) | $ | 12,331 | $ | (26,952 | ) | ||||||
BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 0.05 | $ | (0.21 | ) | $ | 0.24 | $ | (0.53 | ) | ||||||
DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 0.05 | $ | (0.21 | ) | $ | 0.23 | $ | (0.53 | ) | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||||||
Basic | 52,238,709 | 50,672,219 | 52,004,653 | 50,483,274 | ||||||||||||
Diluted | 53,133,091 | 50,672,219 | 52,890,561 | 50,483,274 |
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CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(IN THOUSANDS)
(unaudited)
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | 21,862 | $ | (22,958 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 46,667 | 43,289 | ||||||
Amortization of operating lease assets | 36,834 | 34,094 | ||||||
Equity in earnings of joint ventures | (5,406 | ) | (2,900 | ) | ||||
Amortization deferred financing costs and loan discount | 1,959 | 2,163 | ||||||
(Gain) loss on sale and disposal of equipment | (2,874 | ) | 202 | |||||
Loss on extinguishment of debt | 1,496 | – | ||||||
Amortization of cash flow hedge | 1,845 | 892 | ||||||
Non-cash change in fair value of interest rate hedge | (11,280 | ) | 3,843 | |||||
Stock-based compensation | 17,145 | 8,078 | ||||||
Change in fair value of contingent consideration | 1,292 | (97 | ) | |||||
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: | ||||||||
Accounts receivable | (28,156 | ) | 29,018 | |||||
Other current assets | 2,963 | 9,884 | ||||||
Other assets | (4,997 | ) | (4,257 | ) | ||||
Deferred taxes | 5,297 | (11,678 | ) | |||||
Operating leases | (36,564 | ) | (30,182 | ) | ||||
Deferred revenue | (7,147 | ) | 44,384 | |||||
Accounts payable, accrued expenses and other | 17,765 | 27,690 | ||||||
Net cash provided by operating activities | 58,701 | 131,465 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of imaging facilities and other acquisitions | (64,918 | ) | (4,188 | ) | ||||
Purchase of property and equipment | (53,799 | ) | (64,193 | ) | ||||
Proceeds from sale of equipment | 500 | 779 | ||||||
Equity contributions in existing joint ventures | (1,441 | ) | – | |||||
Net cash used in investing activities | (119,658 | ) | (67,602 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Principal payments on notes and leases payable | (3,304 | ) | (1,814 | ) | ||||
Payments on Term Loan Debt | (613,279 | ) | (21,648 | ) | ||||
Proceeds from issuance of new debt, net of issuing costs | 716,369 | – | ||||||
Proceeds from payment protection plan | – | 4,023 | ||||||
Proceeds from revolving credit facility | 128,300 | 250,900 | ||||||
Payments on revolving credit facility | (128,300 | ) | (250,900 | ) | ||||
Proceeds from issuance of common stock upon exercise of options | 26 | – | ||||||
Net cash provided by (used in) financing activities | 99,812 | (19,439 | ) | |||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (21 | ) | (6 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 38,834 | 44,418 | ||||||
CASH AND CASH EQUIVALENTS, beginning of period | 102,018 | 40,165 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 140,852 | $ | 84,583 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for interest | $ | 13,774 | $ | 22,826 |
8 |
RADNET, INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON SHAREHOLDERS TO ADJUSTED EBITDA(1)
(IN THOUSANDS)
Three Months Ended | ||||||||
June 30, | ||||||||
2021 | 2020 | |||||||
Net Income (Loss) Attributable to RadNet, Inc. Common Shareholders | $ | 2,873 | $ | (10,594 | ) | |||
Plus Interest Expense | 12,171 | 10,831 | ||||||
Plus Provision (Benefit) for Income Taxes | 2,874 | (4,475 | ) | |||||
Plus Depreciation and Amortization | 24,011 | 21,355 | ||||||
Plus Other Expenses (Income) | 1,658 | (115 | ) | |||||
Plus Severance Costs | 268 | 859 | ||||||
Plus (Gain) on Sale of Equipment | (1,567 | ) | (569 | ) | ||||
Plus Debt Restructuring and Loss on Extinguishment Expenses | 6,044 | – | ||||||
Plus Non-cash Change in Fair Value of Interest Rate Hedge | (35 | ) | 3,843 | |||||
Plus Other Adjustment to Joint Venture Investment | (565 | ) | – | |||||
Plus Non Cash Employee Stock Compensation | 8,897 | 1,456 | ||||||
Adjusted EBITDA(1) | $ | 56,629 | $ | 22,591 |
Six Months Ended | ||||||||
June 30, | ||||||||
2021 | 2020 | |||||||
Net Income (Loss) Attributable to RadNet, Inc. Common Shareholders | $ | 12,331 | $ | (26,952 | ) | |||
Plus Interest Expense | 24,997 | 22,382 | ||||||
Plus Provision (Benefit) for Income Taxes | 7,249 | (8,856 | ) | |||||
Plus Depreciation and Amortization | 46,667 | 43,289 | ||||||
Plus Other Expenses (Income) | 1,867 | (108 | ) | |||||
Plus Severance Costs | 551 | 1,076 | ||||||
Plus (Gain) Loss on Sale of Equipment | (2,874 | ) | 202 | |||||
Plus Debt Restructuring and Loss on Extinguishment Expenses | 6,044 | – | ||||||
Plus Non-cash Change in Fair Value of Interest Rate Hedge | (11,280 | ) | 3,843 | |||||
Plus Other Adjustment to Joint Venture Investment | (565 | ) | – | |||||
Plus Non Cash Employee Stock Compensation | 17,145 | 8,078 | ||||||
Adjusted EBITDA(1) | $ | 102,132 | $ | 42,954 |
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PAYOR CLASS BREAKDOWN
Second Quarter | |||
2021 | |||
Commercial Insurance | 57.7% | ||
Medicare | 21.4% | ||
Capitation | 11.5% | ||
Medicaid | 2.7% | ||
Workers Compensation/Personal Injury | 3.2% | ||
Other | 3.6% | ||
Total | 100.0% |
RADNET PAYMENTS BY MODALITY
Second Quarter | Full Year | Full Year | Full Year | |||||||||||||
2021 | 2020 | 2019 | 2018 | |||||||||||||
MRI | 36.7% | 35.4% | 35.8% | 35.2% | ||||||||||||
CT | 17.6% | 17.6% | 16.9% | 16.5% | ||||||||||||
PET/CT | 5.5% | 6.0% | 5.6% | 5.7% | ||||||||||||
X-ray | 7.2% | 7.3% | 8.1% | 8.4% | ||||||||||||
Ultrasound | 12.6% | 12.3% | 12.4% | 12.2% | ||||||||||||
Mammography | 14.6% | 15.7% | 15.2% | 15.8% | ||||||||||||
Nuclear Medicine | 1.1% | 1.0% | 1.0% | 1.1% | ||||||||||||
Other | 4.6% | 4.7% | 4.9% | 5.1% | ||||||||||||
100.0% | 100.0% | 100.0% | 100.0% |
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Footnotes
(1) The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and adjusted for losses or gains on the sale of equipment, other income or loss, debt extinguishments and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taken place during the period.
Adjusted EBITDA is reconciled to its nearest comparable GAAP financial measure. Adjusted EBITDA is a non-GAAP financial measure used as analytical indicator by RadNet management and the healthcare industry to assess business performance, and is a measure of leverage capacity and ability to service debt. 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.
(2) As noted above, the Company defines Free Cash Flow as Adjusted EBITDA less total Capital Expenditures (whether completed with cash or financed) and Cash Interest paid. Free Cash Flow is a non-GAAP financial measure. The Company uses Free Cash Flow because the Company believes it provides useful information for investors and management because it measures our capacity to generate cash from our operating activities. Free Cash Flow does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. In addition, our definition of Free Cash Flow may differ from definitions used by other companies.
Free Cash Flow 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.
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RADNET, INC. AND SUBSIDIARIES
SCHEDULE OF ADJUSTED EARNINGS AND EARNINGS PER SHARE (3)
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
Three Months Ended | ||||||||
June 30, | June 30, | |||||||
2021 | 2020 | |||||||
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 2,873 | $ | (10,594 | ) | |||
Add COVID-19-related stock awards to front-line employees | 6,503 | – | ||||||
Add non-cash revaluation of DeepHealth acquisiton shares | 1,093 | – | ||||||
Add non-cash impact of cash flow hedges (i) | 1,210 | 4,735 | ||||||
Add severance costs | 268 | 859 | ||||||
Add debt restructuring and extinguishment expenses | 6,044 | – | ||||||
Total adjustments - loss (gain) | 15,118 | 5,594 | ||||||
Subtract tax impact of Adjustments (ii) | (3,754 | ) | (1,863 | ) | ||||
Tax effected impact of adjustments | 11,364 | 3,731 | ||||||
TOTAL ADJUSTMENT TO NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON SHAREHOLDERS | 11,364 | 3,731 | ||||||
ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | 14,237 | (6,863 | ) | |||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
Diluted | 53,133,091 | 50,672,219 | ||||||
ADJUSTED DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 0.27 | $ | (0.14 | ) |
(i) Impact is the combination of (a) the gain in fair value of the hedges during the quarter of $35,000 in 2021 and loss of $3,843 in 2020 and (b) the amortization of the accumulation of the changes in fair value out of Other Comprehensive Income that existed prior to the hedges becoming ineffective of $1,245,000 in 2021 and $892,000 in 2020.
(ii) Tax effected using 24.83% blended federal and state effective tax rate for 2021 and 33.31% for 2020.
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Exhibit 99.2
C O R P O R A T E P A R T I C I P A N T S
Mark Stolper, Executive Vice President and Chief Financial Officer
Dr. Howard Berger, President and Chief Executive Officer
C O N F E R E N C E C A L L P A R T I C I P A N T S
Brian Tanquilut, Jefferies
Jonathan Ransom, Raymond James
Mitra Ramgopal, Sidoti & Co., LLC
P R E S E N T A T I O N
Operator
Good day and welcome to the RadNet, Inc. Second Quarter Financial Results Call.
Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, sir.
Mark Stolper
Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's second quarter 2021 financial results.
Before we begin today, we'd like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance, RadNet's ability to continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and Adjusted EBITDA for the acquired operations as estimated, among others, are forward-looking statements within the meaning of the Safe Harbor.
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Forward-looking statements are based on Management's current preliminary expectations and are subject to risks and uncertainties which may cause RadNet's actual results to differ materially from the statements contained herein. These risks and uncertainties include those risks set forth in RadNet's reports filed with the SEC from time to time, including RadNet's Annual Report on Form 10-K for the year ended December 31, 2020.
Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance which speaks only as of the date it is made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.
With that, I'd like to turn the call over to Dr. Berger.
Dr. Howard Berger
Thank you, Mark. Good morning, everyone, and thank you for joining us today.
On today's call, Mark and I plan to provide you with highlights from our second quarter 2021 results, give you more insight into factors which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest in our Company and for dedicating a portion of your day to participate in our conference call this morning.
Before we start, I would like to say, on behalf of myself and the entire team at RadNet, we hope all of you and your loved ones are healthy and staying safe. We are extremely grateful for all of our stakeholders, including our employees, business partners, lenders and shareholders, and wish you all well during these challenging times.
Let's begin. I'm extremely pleased with our performance this quarter. Our financial and operating metrics in the second quarter demonstrate continuing strengthening and improvement in our business that began in the third quarter of last year and as the result of a number of factors.
First, the cost saving measures that we implemented during the COVID-19 period in 2020, and further cost containment actions this year, have lowered our operating expenses and created efficiencies within our regionally clustered centers.
Second, our procedural volumes have substantially recovered as many of the municipalities and states in which we operate have loosened COVID-19 restrictions. We are observing that patients are returning to more regular office visits, utilizing health care with more normalcy. Obviously with the rise of the new Delta variant, we remain vigilant and ready to take further protective actions should new restrictions or stay-at-home orders be implemented.
Lastly, investments we made last year and during the first two quarters of this year, both with respect to capital expenditures and tuck-in acquisitions, are beginning to contribute to our financial results. We discussed previously the extraordinary investments we made in upgrading our mammography systems during 2020 to 3-D digital mammography, or tomosynthesis. While we do not believe mammography volumes have fully recovered from their COVID-19 impact, we are experiencing enhanced reimbursement from the volumes we are now performing on these newly upgraded 3-D systems.
Additionally, during the first quarter of this year, we acquired 10 facilities within the New York metropolitan market, and we completed an additional five tuck-in acquisitions during the second quarter in other parts of New York, New Jersey, and California. The newly acquired facilities had unique cost savings and consolidation opportunities with existing RadNet facilities. We expect significant improvement from the results later in the year when we have completed their integration processes.
As a result of all these factors, our results during the second quarter were the best of any quarter in the Company’s history. As compared with last year’s second quarter, which was impacted by COVID-19, revenue increased 75.2% and EBITDA more than 150%. I am particularly proud of the margin improvement we were able to demonstrate, achieving an EBITDA margin of 17%, higher by 5.1% and 2.1% from the second quarters of 2020 and 2019 respectively. The margin improvement is the result of both the return of our procedural volumes to more normalized levels as well as many of the cost saving measures we have put in place, which has included consolidating underperforming sites and changing key operational processes, both at the center level and within our Corporate Support departments.
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Adjusted earnings were also very strong on the quarter. We recognized adjusted net income per share during the quarter of $0.27. This is in contrast to an adjusted net loss per share in last year’s second quarter of $0.14. As a result of the strong performance in this year’s first and second quarters, and the confidence we are feeling for the remainder of the year, we have elected to, again, increase most of our key financial guidance levels for 2021. Mark in his prepared remarks will review the increases we made to our revenue, EBITDA and free cash flow guidance, which were outlined in our earnings press release this morning.
As many of you have seen, during the second quarter, on April 26, we announced the completion of the refinancing of our term loan and revolving line of credit. Based upon current and anticipated future leverage ratios, we expect to save up to $6 million annually in interest expense. Additionally, we no longer are subject to restrictive maintenance covenants, with respect to our term loan, and have substantially more operating and financial flexibility under the new credit agreement. This includes lowering our annual required amortization payments by over $30 million and adding over $110 million to our cash balance, which will enable us to accelerate growth. The success of this refinancing can partly be attributed to our strong operating performance and the effective deleveraging of our balance sheet.
As of the end of this quarter, we had $633.3 million in net debt, trailing 12-month EBITDA of $198.6 million, and a resulting leverage ratio of 3.19 times net debt to EBITDA. This is the lowest leverage we have had in our Company’s history.
Pro forma for recent acquisition, this ratio was even lower, which is indicative of our further expected deleveraging in the coming quarters. While we are committed to growing and expanding our business, we will also continue to follow the methodical and disciplined approach to managing our financial leverage.
Lastly, before I hand the call back over to Mark, I’d like to provide an update as to where we stand with our efforts in artificial intelligence. During the second quarter, on April 19, we announced that our artificial intelligence subsidiary, DeepHealth, received FDA clearance for its AI mammography triage software, Saige-Q. Saige-Q is a screening worklist prioritization tool that enables radiologists to more efficiently manage their mammography cases with the use of artificial intelligence. DeepHealth’s powerful new AI technology identifies suspicious screening exams that may need prioritized attention, allowing radiologists to optimize their workflow for efficiency and accuracy.
This technology is the first FDA-cleared triage product that supports both 3-D and 2-D mammography images. With over 1.5 million mammography exams we are performing annually in our markets, we are in the process of deploying this technology to our breast imagers nationwide. I am pleased to report that as of today, our Northeast and Mid-Atlantic mammographers are now utilizing Saige-Q. We expect, by the end of the third quarter, our California breast imagers will also be utilizing this technology. The early feedback we are receiving from our radiologists is excellent.
While we are observing improved productivity, most importantly we are providing our patients and payors with better accuracy, fewer patient callbacks, and the possibility of detecting disease one to two years earlier than might otherwise be possible. We continue to evaluate further areas of artificial intelligence that can both decrease our costs and drive new revenue streams through providing innovative cost-effective screening programs to large insurance companies who are interested in new population health models to improve patient care.
At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2021 performance. When he is finished, I will make some closing remarks.
Mark Stolper
Thank you, Howard.
I’m now going to briefly review our second quarter 2021 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our second quarter performance. I will also provide an update to 2021 financial guidance levels, which were released in conjunction with our 2020 year-end results in March, and which we amended in May upon releasing our first quarter financial results.
In my discussion, I will use the term Adjusted EBITDA, which is a non-GAAP financial measure. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations, and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments, and noncash equity compensation.
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Adjusted EBITDA includes equity and earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries and is adjusted for noncash or extraordinary and one-time events taking place during the period. A full quantitative reconciliation of Adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is included in our earnings release.
With that said, I'd now like to review our second quarter 2021 results.
For the second quarter of 2021, RadNet reported revenue of $333.9 million and Adjusted EBITDA of $56.6 million. Revenue increased $143.4 million, or 75.2%, and Adjusted EBITDA increased $34 million, or 150.7%. The significantly improvement performance is the result of increased procedural volumes, cost reductions instituted during the COVID-19 period, additional revenue from our migration to 3-D digital mammography, and the contribution from tuck-in acquisitions we completed during the first two quarters of this year.
Adjusted earnings for the second quarter of 2021 were $14.2 million, or $0.27 per diluted share, as compared with adjusted net loss of $6.9 million, or negative $0.14 per diluted share, for the same period in 2020. Unadjusted for one-time items, net income for the second quarter of 2021 was $2.9 million, or $0.05 per diluted share. This compares to a net loss of $10.6 million, or negative $0.21 per diluted share, in the second quarter of last year. These per-share values are based upon weighted average number of diluted shares outstanding of 53.1 million shares in the second quarter of 2021 and 50.7 million shares outstanding in the second quarter of 2020.
Affecting net income in the second quarter of 2021 were certain noncash expenses and nonrecurring items including the following. Eight-point-nine million dollars of noncash employee stock compensation expense, $268,000 of severance paid in connection with headcount reductions related to cost savings initiatives, $1.6 million gain on the disposal of certain capital equipment, $1.2 million of noncash loss from interest rate swaps, $6 million of expense from debt restructuring and extinguishment as a result of our recent refinancing transaction, and $812,000 of amortization of deferred financing costs and loan discounts related to our existing credit facilities.
For the second quarter of 2021, as compared with the prior-year second quarter, MRI volume increased 88.1%, CT volume increased 67.6%, and pet CT volume increased 28.8%. Overall volume, taking into account routine imaging exams, inclusive of X-ray, ultrasound, mammography and all other exams, increased 92.7% over the prior-year second quarter.
On a same-center basis, including only those centers which were part of RadNet for both the second quarters of 2021 and 2020, MRI volume increased 73%, CT volume increased 54.9%, and pet CT volume increased 26.5%. Overall same-center volume, taking into account all routine imaging exams, increased 80.5% from the prior-year same quarter.
In the second quarter of 2021 we performed 2,191,868 total procedures. The procedures were consistent with our multimodality approach, whereby 75.8% of all the work we did by volume was from routine imaging. Our procedures in the second quarter of 2021 were as follows. Three-hundred twenty-one-thousand seven-hundred and seventy-nine MRIs as compared with 171,047 MRIs in the second quarter of 2020, 197,375 CTs as compared with 117,730 CTs in the second quarter of 2020, 11,508 pet CTs as compared with 8,935 pet CTs in the second quarter of 2020, and 1,661,206 routine imaging exams compared with 1,137,281 of all these exams in the second quarter of 2020.
Overall GAAP interest expense for the second quarter of 2021 was $12.2 million. This compares with GAAP interest expense in the second quarter of last year of $10.8 million. Cash paid for interest during the period, which excludes noncash deferred financing expense and accrued interest, was $5.5 million as compared with $12.9 million in the second quarter of last year. The lower cash paid for interest in this year’s second quarter is the result of the timing of interest payments mainly due to our refinancing transaction in April.
With regards to our balance sheet, as of June 30, 2021, unadjusted for bond and term loan discounts, we had $633.3 million of net debt, which is our total debt at par value less our cash balance. This compares with $608.6 million of net debt at June 30, 2020. Note that this debt balance includes New Jersey Imaging Network’s debt of approximately $49.1 million for which RadNet is neither a borrower nor a guarantor. As of June 30, 2021, we were undrawn on our $195 million revolving line of credit and had a cash balance of $140.9 million.
At June 30, 2021, our accounts receivable balance was $157.3 million, an increase of $27.2 million from year-end 2020. The increase in accounts receivable is mainly the result of the significant increase in our procedural volumes and revenue this year relative to 2020 revenue.
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Our days sales outstanding, or DSO, remains near the lowest levels of our Company's history. Despite the increase in aggregate accounts receivable, our DSO was just 40.6 days at June 30, 2021.
Through June 30, 2021, we had total capital expenditures net of asset dispositions and the sale of imaging center assets and joint venture interests of $48.3 million.
At this time, I'd like to update and revise our 2021 financial guidance levels, which we released in conjunction with our fourth quarter and year-end 2020 results and amended after reporting our first quarter 2021 financial results.
For revenue, our original guidance level was $1.250 billion to $1.300 billion. Our new guidance level, we’ve increased both the low end and the top end of that guidance level by $50 million, to $1.3 billion to $1.350 billion of revenue.
For Adjusted EBITDA, our original guidance level was $180 million to $190 million. We’ve increased both the low end and the high end of that range by $20 million, to $200 million to $210 million of EBITDA.
For capital expenditures, our original guidance range was $70 million to $75 million. We’ve increased that to $80 million to $85 million.
For cash interest expense, our original guidance level was $39 million to $44 million. We’ve decreased our cash interest expense
guidance to $35 million to $40 million, which is reflective of the newer lower interest costs based upon our refinancing transaction in
April.
For free cash flow, our original guidance level was $60 million to $70 million. We’ve increased that to reflect our higher EBITDA projection, to $75 million to $85 million.
As just noted, we have increased our guidance ranges for revenue, Adjusted EBITDA, and free cash flow. Additionally, we’ve raised our capital expenditure level to reflect additional investments in growth opportunities we’ve identified in several of our core regional markets. Each quarter, we re-evaluate our actual and projected performance against guidance levels. We will continue to update these levels as appropriate, throughout the remainder of the year.
I’ll now take a few minutes to give you an update on 2022 reimbursement and discuss what we know with regards to 2022 anticipated Medicare rates. As a reminder, Medicare represents about 20% of our business mix.
With respect to Medicare reimbursement, several weeks ago, we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about this time every year. We’ve completed an initial analysis and compared those rates to 2021 rates. We volume-weighted our analysis using expected 2022 procedural volumes.
As you may recall, last year, CMS moved forward with increased reimbursement for evaluation and management CPT codes, which favor certain physician specialties that regularly bill for these services, particularly primary care doctors. CMS proposed doing so with budget neutrality, meaning that it proposed to reallocate reimbursement from physicians who rarely bill for E&M codes to physicians who regularly bill for these codes. As a result, radiology and most other specialties are experiencing cuts in reimbursement during 2021.
The cut that we are currently absorbing this year would’ve been higher if implemented as initially proposed last year, but Congressional action at the very end of last year partially mitigated this cut.
In this year’s proposed rule governing 2022 reimbursement, Medicare appears to effectively be phasing in the remainder of the cut avoided last year. The cut proposed for 2022 results from a decrease of the conversion factor in the Medicare fee schedule by about 3.8% along with additional decreases in technical and professional RVUs of certain radiology CPT codes mostly focused on MRI and CT.
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Our initial analysis of the proposal for next year implies that RadNet, on roughly $1.3 billion in revenue, would face approximately a $13 million revenue hit in 2022 from its Medicare business. Because the proposed cut and the conversion factor affects all physicians, not just radiologists, there are many lobbying groups from the various medical specialties aggressively opposing the proposed cut, including radiology’s two main lobbying forces, the Association for Quality Imaging, or AQI, and the American College of Radiology, the ACR.
At this time, our experts believe there is a possibility that the final rule, to be released in November, will be less severe than the current proposal. Furthermore, it remains a possibility that Congressional action this December could also mitigate these proposed cuts, like it did last year, particularly in light of a continuing COVID-19 and Delta variant situation.
In November, during our third quarter financial results call, we hope to have more to update you on about this matter.
I’d now like to turn the call back to Dr. Berger, who will make some closing remarks.
Dr. Howard Berger
Thank you, Mark.
Today RadNet is more multifaceted than at any other time in our history. We are growing our business in all of the seven states in which we operate, all of which have attractive demographics and a multitude of local market opportunities. We are now partnering on both coasts with some of the largest and most prestigious hospital and health systems in joint ventures that encompass approximately 25% of our facilities. We control our own IT infrastructure with our own suite of eRAD products and services that we sell and license to other industry participants. And we are making significant investment in the development of artificial intelligence, which we believe will have a transformative impact on our business and the diagnostic imaging industry in general.
Our multifaceted business is healthy and growing, and we are exceeding the expectations that we originally set forth in our initial guidance levels, which we increased after the first quarter’s results and further increased today. Growth is coming from virtually all areas of our business, with patient volume returning to more normal levels. And through implementing aggressive cost cutting and cost containment programs, our same-store growth and performance model has returned.
Investments we made in 3-D digital mammography technology are paying dividends with respect to increased reimbursement and improved patient care. New advances in equipment, contrast materials, radioactive isotopes, post-processing digitalization software and many others will continue to drive new applications and patient indications. Big pharma development for Alzheimer’s and other diseases in the future bring the promise of greater utilization of diagnostic imaging.
Most exciting to us is that our investments in artificial intelligence have the potential for driving growth like we have never experienced. Using artificial intelligence to create cost-effective screening programs for a variety of disease processes can uniquely impact population health. We are currently making inroads with breast cancer and mammography, utilizing artificial intelligence, and we envision similar potential for prostate, lung and colon cancer in the near future. We are evaluating further investments in artificial intelligence and look forward to updating you as they materialize.
Furthermore, the refinancing transaction in April positions us with significantly more available financial resources as a result of the
over $110 million we were able to fund to our balance sheet, the lowering of our annual interest costs, and the substantial reduction
of acquired amortization. This liquidity in combination with the lowest financial leverage in our Company’s history and our strong
free cash flow yield positions to us that are unique and give us the ability to execute on our growth opportunities, both organic and
external ones.
Strategic acquisitions will also continue to be an important aspect of our growth. We routinely have a pipeline of acquisitions that we are evaluating and processing. Today, the arbitrage between RadNet’s enterprise value and the multiples for which we can purchase targets is more attractive than ever. As long as this multiple arbitrage exists, we can continue to contribute to the equity value of RadNet through an acquisition strategy. We remain able to acquire smaller operators in our core markets at three to five times EBITDA. While larger targets might cause us to stretch beyond this evaluation level, they usually afford us more operating and cost synergies that, once achieved, serve to lower the acquisition multiples into this range over time.
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We will execute on these opportunities with this level of discipline when targets are available and in instances when we have motivated sellers.
In conclusion, we are excited and enthusiastic about the opportunities that lie ahead for RadNet, and we look forward to updating you further in the upcoming quarters regarding our progress.
Operator, we are now ready for the question-and-answer portion of the call.
Operator
Thank you. We can take our first question now from Brian Tanquilut of Jefferies. Please go ahead.
Brian Tanquilut
Hi, good morning guys. Congrats on a strong quarter.
I guess, Howard, my first question for you. Obviously a lot of discussion recently on the Delta variant and what it’s doing to operations for health care. You’re obviously in New York and California, so the states that have probably been more aggressive with measures against the Delta. So just curious, what are you seeing in terms of any impact on your referral flow or volume flow right now?
Also, you mentioned in your prepared remarks something about preparing to—if lockdowns are mandated again, that you’re preparing to make moves. Just curious, how are you guys strategizing around this, and what would be different this time around?
Dr. Howard Berger
Good morning, Brian. Thank you.
Well, firstly, I think we had seen, in the second quarter, a robust return to the pre-COVID volumes, and there was anticipation, and still is, that the third quarter will continue this recovery. What we are seeing is that the one area we’re focused on very keenly, as far as the company strategy, meaning mammography and breast cancer, seems to be a little slower to return.
We think this is because of two primary reasons.
Number one, there are people that are still reluctant to get elective procedures and visit health care facilities, given not only the concerns that they have about vaccinations and protective measures, but also, as we now see the increase in the amount of COVID-positive results, there is that hesitation.
Secondly, and perhaps uniquely with mammography, there have been a number of reports that women who are vaccinated do have a reaction, often in the auxiliary region on the arm that was injected. There has been some recommendation that they wait two to three months after vaccination so that the potential inflammatory response that’s often seen in lymph nodes near and around the breast have a chance to subside. We believe that these are the primary reasons why it might be a little slow to recover.
Returning to the other factors, we have now mandated mask wearing for all of our employees and all patients in all of our centers across the United States. In addition to that, all of our centers have been practicing social distancing, either in the waiting room itself, making certain that patients feel comfortable and are separated, as well as having barriers at our reception desks. Often, with some of our unique eRAD methods for screening patients, patients often wait outside and then are reminded when they are ready to come directly into the exam room for their procedures.
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Those are the recommendations that we have been following now, and policies, for several months. If there is a continuation of this surge, we believe that most of the measures that we put in place for safety measures and protective equipment simply can be followed, and I don’t believe we should have a problem with managing the health and safety of our patients that do choose to come. That is a risk, though, that, as the surge continues, it may influence patients to hold off on elective procedures.
We also have to be mindful of the fact that, in some of the states, fortunately, that we don’t have a tremendous presence, the increase of the surge has also resulted in using up the availability of hospital and ICU beds. If that were to occur, primarily in California and New Jersey, and in New York, then there might be a further shutdown of elective procedures, which quite often have imaging associated with them.
So far, through the months of September and early August, we have not seen that impact noticeably in any of our regions, but we’re monitoring it very closely.
Brian Tanquilut
Yes, thanks for those comments, Howard.
I guess, Mark, shifting gears a little bit, margins were really strong in the quarter, and I know you had cited that it’s the carryover impact of moves that you made last year. But as I think about the ability to sustain margins here going forward, and I know there’s a balancing act between as utilization picks back up or volumes pick back up, there’s the capitation side of the business on one hand, and then obviously just the flow-through to your fee-for-service business.
How are you thinking about margins going forward, and your ability to drive incremental margin expansion?
Mark Stolper
Sure. Well, if you look at our newly revised guidance measures, we are assuming increased margins relative to where we were at the end of last year thinking about 2021’s result. I think that, given the changes that we made in our cost structure last year, the consolidation of a number of different centers, the implementation of things like what Dr. Berger mentioned, virtual waiting rooms and other operating protocols to drive throughput in our facilities, some advances in equipment, particularly some investments we made in digital 3-D mammography that is resulting in higher reimbursement per scan on the mammography side, we have experienced a structural change in our margins and improvements of over 100 basis points relative to where we were in 2019 and ’18. I’m not going to compare it to last year, because it was such an extraordinary year with the COVID impact. So we think that this is sustainable.
Another reason for our improved results, our improvements in investments we made in our revenue cycle, in terms of collecting more of our cash up front, getting better yields in general from our AR. Our DSOs are at the lowest point in the Company’s history at around 40 days. Our cash collections have been extremely strong, which has also helped with deleveraging the balance sheet and providing us liquidity.
We think that we can sustain the margins that we’ve been producing so far in the first and the second quarter. With the advent or with the implementation of AI, which Dr. Berger also mentioned, on the mammography side, and hopefully if we get into other areas of AI, other screening tools and other modalities, that can also structurally lower our costs of performing the radiology services but also drive new revenue streams that can significantly benefit margins. At this point, we’re very optimistic.
Brian Tanquilut
Awesome. Last question for me. I think in Dr. Berger’s prepared remarks, he talked about investing more and expanding in AI into new areas. Anything you can share with us in terms of your AI strategy beyond mammography? I know you’ve talked about prostate and GI, but just anything you can share with us in terms of AI strategy, where you can take that.
8 |
Dr. Howard Berger
Yes, Brian, thanks again.
I think, as I have mentioned on previous closed calls, RadNet believes that imaging really is the gateway to population health. Within
that context, we believe that there should be aggressive and active efforts on screening tools, primarily for cancer and related to the
four major cancers that comprise about 80% of the diagnosed cancers on an annual basis, those being breast, prostate, lung and colon.
Given the fact that in our particular business where we do such a large volume of mammography already and we believe we are technologically and strategically positioned to do screening for lung cancer, colon cancer and prostate cancer, we are exploring avenues that will ramp up the ability for us to perform these screening tools on a mass scale, not only for the regions where RadNet owns centers, but the development of networks, perhaps across the country and perhaps outside of the country, where we believe these tools will have the same benefits for population health.
While I can’t comment on any specific avenues at this moment, rest assured that we are aggressively looking at both internal as well as external ways for us to ramp up the development of these tools, which we think will continue to have RadNet be the leader for this, not only in radiology, but also on a national scale.
I can’t emphasize enough how passionately and strongly we feel about this, both as far as the benefits to society as a whole, in terms of health care and managing the costs, but also the unique position that RadNet is in to both develop these internally, or perhaps continue acquisitions under our DeepHealth umbrella, like we did last year.
I think this will be more and more of an opportunity for us to demonstrate RadNet’s commitment to this as well as some of the unique tools, given that we also own our own IT infrastructure and enormous amounts of data which are critical for the development of these tools to leverage on. We hope to be able to update you on the progress towards these, perhaps as soon as our next quarter’s earnings call or sooner if something materializes sufficient for us to announce publicly.
Brian Tanquilut
Awesome. Thanks again and congrats again. Thanks, guys.
Dr. Howard Berger
Thanks, Brian.
Mark Stolper
Thanks, Brian.
Operator
We can now take our next question from John Ransom with Raymond James. Please go ahead.
Jonathan Ransom
Hi, good morning. A couple things for me.
Mark, your recent M&A, is that having any material effect on your outlook in the back half for the margins?
9 |
Mark Stolper
We’ve been fairly active this year in M&A. In the first quarter, we did five small tuck-in transactions, and then in the second quarter here, we did 10 additional facility acquisitions. As we’ve said publicly, we’re purely opportunistic in how we approach our acquisition strategy. We have a defined set of criteria by which we look for targets and acquire businesses.
We do not go out and knock on any doors proactively; we have a Business Development team that consists of one person. We only take, essentially, inbound calls, because we’re looking for motivated sellers in our markets where we can acquire them in the valuation range that we’ve historically been successful in affecting these transactions, which is in the three to five times range.
We’ll stretch, at times, for highly strategic acquisitions or acquisitions that are a little larger, but those generally come with greater synergies, and ultimately, we can average down those multiples through time and better performance and through the synergies.
A part of why we increased our guidance level was from the increasing procedural volumes that we’re seeing, both on a same-center basis as well as with new centers, including those acquisitions, as well as the cost savings. Yes, those facility acquisitions will contribute to our financial profile for the portion of the year that they’re within the RadNet umbrella; those are going to have more impact next year, as we’ll get the full impact of all of those centers in next year’s results.
Also, it generally takes a quarter to two, depending upon the size of the acquisition and the complexity, for us to integrate these acquired operations effectively into the RadNet way, for lack of a better term. This includes getting them on our eRAD IT backbone, it includes operational protocols, clinical protocols, right-sizing them, given our operational expertise. Yes, we will see some contribution, but it’ll be more significant next year.
Jonathan Ransom
If we’re thinking about kind of an early bridge to next year, you’ve got the $13 million headwind you mentioned. What’s the approximate EBITDA contribution full year next year from these acquisitions versus your partial year this year? How much is that is a good guide?
Mark Stolper
Yes. I mean, we haven’t, John, disclosed the EBITDA of any of these acquisitions publicly. But if you look at our cash flow statement for the first six months, there is a line item that says purchase of imaging facilities and other acquisitions; it’s about $65 million…
Jonathan Ransom
Mm-hmm.
Dr. Howard Berger
…of enterprise value. If you assume, let’s say, that’s done at a five times EBITDA, that can approximate give or take what the contribution of these acquired operations may look like next year.
Jonathan Ransom
Just to…
10 |
Mark Stolper
Or I wouldn’t say next—on an annual basis.
Jonathan Ransom
To show off my outstanding math skills, you’re buying about as much EBITDA as you’re losing from Medicare. I know you’ll get a partial year this year, but you’re bridging almost the full EBITDA gap from M&A from Medicare.
Mark Stolper
Yes, that’s correct. Yes. I hadn’t thought about that, John, because that wasn’t necessarily our intent in these acquisitions, but yes. We have other cost mitigants from operational changes, maybe some consolidation of additional centers that we think will fully mitigate the cut next year. We’re hopeful, as I said in my prepared remarks, that the final rule will be a little bit less severe given COVID-19 and other variants that are impacting all providers.
Furthermore, there’s the opportunity, potentially, that Congress rolls these cuts back, like they just last year, given the pressure that’s being put on them. Because remember, when they lower the conversion factor as is in this proposed rule, that’s not just impacting radiology; that’s impacting all medical specialties. On this particular cut, it’s not just the radiology lobbying groups that will be putting pressure on Congress; it’s essentially the entire AMA, maybe less the primary care physicians who are getting the increase in the E&M codes.
Jonathan Ransom
Got you. Then just a couple other clean-ups for me. Your AI, you mentioned your AI strategy details. Is that going to make any difference in your per-read cost fees in the intermediate term, or is that more of a longer-term efficiency tool?
Dr. Howard Berger
Good morning, John.
I think that’s more of a long-term benefit. The immediate benefits that we’re realizing now are primarily improvements in the accuracy and efficiency with which our mammographers are now able to read a mammogram. There are other developments in our pipeline or our pathway for mammography that we think will streamline that process and ultimately allow our mammographers to read a greater volume of the mammograms than they are currently capable of. I believe some of these new tools will probably start emerging next year, and when fully integrated with our IT platform, will, I believe, give us some of these efficiencies.
These efficiencies, by and large, are not just designed to reduce our professional costs, but really to allow the shortage of mammographers that exists on a national scale to handle larger volumes of mammograms that we expect to be able to drive into our centers as a result of other compliance tools and contracting that we want to do directly with the payors in facilitating greater efforts on their part through plan designs and other outreach programs to get somewhere between the 50% to maybe as many as 100% of the women who are not getting annual mammography.
Part of this effort on artificial intelligence is not only to raise quality, but to address the demand for really well-qualified breast imagers that remain a huge shortage on a national scale, not just for RadNet and its radiology partners.
11 |
Jonathan Ransom
Thanks for that.
Then Mark, just your capitation contracts, I know it’s a smaller and smaller piece every year as you buy more fee-for-service. Are they generally helping as volumes trend a little bit lower, or are they performing more or less in line?
Mark Stolper
Yes. I mean, capitation has remained fairly steady in the 11% to 12% of our business mix, and that has been scaling along with the rest of the Company as we’ve been growing the fee-for-service business.
Jonathan Ransom
Okay.
Mark Stolper
We continue to think that there is more opportunity within capitation, both for new contracts as well as potential increasing penetration of managed care, in California and other places, that will drive more risk-taking, risk-based contracts, which we enjoy very much, as it helps to cover a lot of the fixed costs of our facilities. It establishes relationships with many, many referring physicians who are obligated to send us these HMO patients that have other fee-for-service business that can be sent to our centers because of that relationship.
Also, the financial benefits from capitation, in terms of no DSOs, in terms of very low, if any, bad debt associated with these contracts, and other financial benefits.
We think that this can continue to be a growth engine for the Company. Obviously, as patients have returned to a more normal or regular way of utilizing health care and visiting their primary care and other specialists that they go see, we have seen utilization increase, as expected, for these contracts, but they haven’t been increasing to any extraordinary levels.
A lot of people have asked me, John, do we feel like we’re benefiting in our business from a pent-up demand that might have existed during COVID. Our answer is no, we think it’s more—we may have seen a little of that in the third and the fourth quarter last year, but we see, it’s really more towards a normal use of health care services.
The way we judge that is through our capitation contracts where we see all of the exams that a patient population utilizes, because it’s a closed patient population. We’ve seen increased utilization, but no unusual spikes, I would say.
Jonathan Ransom
Great. Are they all still in California, Mark, these capitation contracts?
Mark Stolper
The vast majority of them are in California. Of the roughly 1.9 million lives for which we’re responsible on an exclusive basis under these capitated arrangements for providing diagnostic imaging, a little over 1.7 of those exist in California. That’s really due, John, to the structure of how managed care contracts with large primary care physicians for patient care, here in California, where they’re passing on the burden and the financial responsibility for, essentially, non-hospital-based care to these large…
12 |
Jonathan Ransom
Mm-hmm.
Mark Stolper
…patient populations, to these larger medical groups. Then we sub-capitate with these large medical groups, where they shift the utilization responsibility for diagnostic imaging to us for a piece of the…
Jonathan Ransom
Yes.
Mark Stolper
…per-member, per-month fee that they’re receiving from the various HMOs. It’s very much…
Jonathan Ransom
Yes, and it…
Mark Stolper
…a California phenomenon. There are other states in the United States that do contract under this structure with HMOs. We see it a lot in Florida, you see it a lot in New Mexico, in Nevada. That’s catching on across the country where risk-taking, risk-sharing, population health is becoming more active.
We do have a very significant contract in New York with a division of EmblemHealth for New York metropolitan lives with their AdvantageCare physician group that has been a very successful contract for both us and Emblem.
Jonathan Ransom
Thanks so much, appreciate it.
Mark Stolper
Thank you.
Operator
We can take our next question from Mitra Ramgopal with Sidoti. Please go ahead.
13 |
Mitra Ramgopal
Yes, hi, good morning, and thanks for taking the questions. Just a couple for me.
I’m just curious, on the increased Capex, if maybe you can provide some color on some of the additional growth opportunities you’re seeing there.
Dr. Howard Berger
Good morning, Mitra.
Yes, most of that comes as a result of the acquisitions we did in the first and second quarter. It’s not at all uncommon for us that, in many of the acquisitions that we do, they have deferred or delayed capital investment. Given the fact that we’ve done through the year some 16 or 17 acquisitions, we do want to invest in those sites, for example in new mammography systems to elevate or increase their mammography capabilities, particularly with 3-D mammography which we’ve been able to demonstrate some very significant return on investment. That’s the primary reason that you’re seeing the capital expenditure increase.
Mitra Ramgopal
Okay, thanks.
On the procedural volume increases, I think most of it is a pent-up demand from COVID, but I was just wondering if you’re maybe seeing some of that volume coming from more procedures in the outpatient setting as United and Cigna start to increasingly seek to shift those procedures outside of the hospital. Maybe also, just from a competitive landscape, COVID probably shook up the environment as it relates to some of your competitors.
Dr. Howard Berger
Yes, I believe some of the increased volume is coming from that, Mitra. COVID seems to have really galvanized the health care insurers to really focus on this shift away from the more expensive hospital-based imaging to the freestanding facilities. But some of this is slow to adopt, as it has been, but we are getting more inbound calls from our insurance companies to help them facilitate those through plan design and other scheduling and authorization tools that we’re trying to ramp-up for them.
I believe that there will be a component of the increased volume that we see on a normal basis coming at the expense of some of the hospital systems. We also believe that as we implement more and more of our artificial intelligence, we will be giving the insurers additional justification for making those changes. I think there is a number of items that I think we’ll be able to look back, perhaps at the end of this year, when we look at the contribution to our fee-for-service business from the insurance companies and how that has changed. But the gut here, based on the calls that we’re getting and the participation that they’re asking from us at this point, indicates that we should be quite a beneficiary of that in our existing markets.
Mitra Ramgopal
Okay, thanks. Then final one, probably ahead of (audio interference) on this, but as it relates to the (audio interference) reimbursement for 2022, assume it goes through (audio interference), how comfortable you are as it relates to maybe being able to mitigate (phon) that impact, just from (audio interference) improving the benefit (audio interference) but from additional costs measures that you (audio interference) the ability to implement?
14 |
Dr. Howard Berger
Well, I think that there will be some measures on the cost cutting side of it that we will always look to try to implement, whether or not those reimbursement cuts are affected or not. But I think, given some of our unique capabilities where, as we’ve demonstrated perhaps, consolidation opportunities, I believe that will certainly help us mitigate that going into 2022.
Additionally, we shouldn’t dismiss the fact that this reduction in reimbursement is not unique to RadNet and that this impact will be felt throughout the system. We expect that, while it may take a little while, some of our competitors in the markets that we’re in right now, and perhaps other markets that we’ll take a look at more aggressively, will feel the need to begin further serious consideration on consolidation. Perhaps as the prior questioner was asking Mark, we believe that some of the mitigation may indeed come through the more opportunistic acquisitions that we think will ramp-up, actually, in 2022.
Mitra Ramgopal
Okay. Thanks again for taking the questions.
Dr. Howard Berger
Thank you, Mitra, take care.
Mark Stolper
Thank you.
Operator
We have no further questions at this time. I would now like to hand the call back to Dr. Berger for any additional or closing remarks.
Dr. Howard Berger
Thank you, Operator.
Again, I would like to take this opportunity to thank all of our shareholders for their continued support and the employees of RadNet for their dedication and hard work. Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders.
Thank you for your time and I look forward to our next call. Stay safe and good day.
Operator
This concludes today's call. Thank you for your participation.
15 |
Cover |
Aug. 09, 2021 |
---|---|
Cover [Abstract] | |
Document Type | 8-K |
Amendment Flag | false |
Document Period End Date | Aug. 09, 2021 |
Entity File Number | 001-33307 |
Entity Registrant Name | RadNet, Inc. |
Entity Central Index Key | 0000790526 |
Entity Tax Identification Number | 13-3326724 |
Entity Incorporation, State or Country Code | DE |
Entity Address, Address Line One | 1510 Cotner Avenue |
Entity Address, City or Town | Los Angeles |
Entity Address, State or Province | CA |
Entity Address, Postal Zip Code | 90025 |
City Area Code | (310) |
Local Phone Number | 445-2800 |
Written Communications | false |
Soliciting Material | false |
Pre-commencement Tender Offer | false |
Pre-commencement Issuer Tender Offer | false |
Title of 12(b) Security | Common Stock, $.0001 par value |
Trading Symbol | RDNT |
Security Exchange Name | NASDAQ |
Entity Emerging Growth Company | false |
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