Bay Street News

RadNet Reports Third Quarter Financial Results and Reaffirms Previously Announced 2018 Guidance Levels

LOS ANGELES, Nov. 09, 2018 (GLOBE NEWSWIRE) —  RadNet, Inc. (NASDAQ: RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 341 (adjusted for centers added on October 1, 2018 related to the previously announced Medical Arts Imaging and EmblemHealth transactions) owned and/or operated outpatient imaging centers, today reported financial results for its third quarter of 2018.

Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented, “I am pleased with our results this quarter. We compared favorably in all metrics relative to last year’s third quarter.  We demonstrated Revenue, Adjusted EBITDA(1) and earnings growth as well as positive same center revenue and procedural increases.”  

Dr. Berger continued, “Immediately after quarter-end, we completed two important initiatives that further our strategy in New York and set the stage for growth in the coming quarters.  First, under a capitation arrangement we announced in August, we commenced operations on October 1st to provide imaging to approximately 200,000 members of EmblemHealth’s AdvantageCare Physicians medical group in Long Island and the boroughs of New York City.  The contract included RadNet assuming operations in 26 AdvantageCare offices.  During this third quarter, we hired and trained the employees needed to staff the new offices and procured the equipment necessary to support the anticipated patient volumes.  While capitation has been an important and successful aspect of our operating strategy in California, this is our first inroad into risk-based contracting on the east coast.  We are in discussions with other east coast medical groups and payors about network contracting and population health opportunities and are very interested in expanding through managing the imaging for larger patient populations.”

Dr. Berger added, “The second transaction in New York, the acquisition of Medical Arts Imaging, was completed on October 1st and expanded our New York metropolitan network into Nassau and Suffolk counties of Long Island.  The ten centers of Medical Arts are instrumental in providing the capacity and coverage necessary to effectively service the EmblemHealth capitated members.  Expanding our platform into Long Island with EmblemHeatlh and Medical Arts has already surfaced additional opportunities to grow our operations in New York.  Launching this capitation contract and integrating both the Medical Arts and AdvantageCare locations into the RadNet network will be our primary area of focus for the remainder of the year.” 

Third Quarter Financial Results

For the third quarter of 2018, RadNet reported Revenue of $242 million, Adjusted EBITDA(1) of $38.1 million and Net Income of $5.0 million.  Revenue increased $14.5 million (or 6.4%) and Adjusted EBITDA(1) increased $2.0 million (or 5.5%) from last year’s same quarter.

Net Income increased $1.8 million over the third quarter of 2017.  Per share Net Income for the third quarter was $0.10, compared to per share Net Income in the third quarter of 2017 of $0.07 (based upon a weighted average number of diluted shares outstanding of 48.6 million and 47.6 million for these periods in 2018 and 2017, respectively).

Affecting Net Income in the third quarter of 2018 were certain non-cash expenses or non-recurring items including:  $1.7 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $82,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $373,000 gain on the sale or disposal of certain capital equipment; and $977,000 of amortization of deferred financing costs, other non-cash interest and loan discounts related to our credit facilities.

For the third quarter of 2018, as compared with the prior year’s third quarter, MRI volume increased 5.0%, CT volume increased 7.9% and PET/CT volume increased 14.0%.  Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 3.5% over the prior year’s third quarter.  On a same-center basis, including only those centers which were part of RadNet for both the third quarters of 2018 and 2017, MRI volume increased 0.1%, CT volume increased 1.5% and PET/CT volume decreased 2.7%.  Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 0.8% compared with the prior year’s same quarter.

Nine Month Financial Results

For the nine months ended September 30, 2018, RadNet reported Revenue of $717.9 million, Adjusted EBITDA(1) of $97.3 million and Net Income of $3.1 million.  Revenue increased $31.3 million (or 4.6%), Adjusted EBITDA(1) decreased $4.5 million (or -4.0%) and Net Income decreased $4.2 million over the first nine months of 2017 primarily as a result of the severe weather conditions which materially impact the first quarter results.  Net Income Per Share for the nine month period ended September 30, 2018 was $0.06 per diluted share, compared to Net Income of $0.16 per diluted share in corresponding nine month period of 2017 (based upon a weighted average number of fully diluted shares outstanding of 48.5 million and 47.2 million for these periods in 2018 and 2017, respectively).

Affecting operating results in the nine months ended September 30, 2018 were certain non-cash expenses or non-recurring items including:  $6.6 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $1.1 million of severance paid in connection with headcount reductions related to cost savings initiatives; $2.2 gain on the sale of certain capital equipment; and $2.9 million of amortization of deferred financing costs, other non-cash interest and loan discounts related to our credit facilities.

2018 Guidance Update

   

RadNet reaffirms its previously announced 2018 guidance ranges as follows:

   
Total Net Revenue $945 million – $970 million
Adjusted EBITDA(1) $140 million – $150 million
Capital Expenditures (a) $60 million – $65 million
Cash Interest Expense $33 million – $38 million
Free Cash Flow Generation (b) $45 million – $55 million

 

  1. Net of proceeds from the sale of equipment, imaging centers and joint venture interests.
  2. Defined by the Company as Adjusted EBITDA(1) less total capital expenditures and cash paid for interest (as adjusted for any extraordinary dividends from subsidiaries or joint ventures not captured in Adjusted EBITDA(1)).

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 third quarter 2018 results on Friday, November 9th, 2018 at 7:30 a.m. Pacific Time (10:30 a.m. Eastern Time).

Conference Call Details:

Date:  Friday, November 9, 2018
Time:  10:30 a.m. Eastern Time
Dial In-Number:  888-224-1005
International Dial-In Number:  323-994-2093

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=132050 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 5971938.

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 in the United States based on the number of locations and annual imaging revenue. RadNet has a network of 341 owned and/or operated outpatient imaging centers (adjusted for 36 centers acquired on October 1, 2018 related to the Medical Arts Imaging and EmblemHealth transactions). RadNet’s core markets include California, Maryland, Delaware, New Jersey and New York. In addition, RadNet provides radiology information technology solutions, teleradiology professional services and other related products and services to customers in the diagnostic imaging industry.  Together with affiliated radiologists, and inclusive of full-time and per diem employees and technicians, RadNet has a total of approximately 7,300 employees. For more information, visit http://www.radnet.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning successfully integrating acquired operations, successfully achieving 2018 financial guidance, achieving cost savings, successfully developing and integrating new lines of business, continuing to grow its business by generating patient referrals and contracts with radiology practices, and receiving third-party reimbursement for diagnostic imaging services, are forward-looking statements within the meaning of the Safe Harbor. Forward-looking statements are based on management’s current, preliminary expectations and are subject to risks and uncertainties, which may cause the Company’s actual results to differ materially from the statements contained herein. Further information on potential risk factors that could affect RadNet’s business and its financial results are detailed in its most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date they are 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.

CONTACTS:

RadNet, Inc.
Mark Stolper, 310-445-2800
Executive Vice President and Chief Financial Officer

                                                                                                                                                                                    

RADNET, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)  
                       
                September 30,   December 31,  
                  2018       2017    
                (unaudited)      
ASSETS  
CURRENT ASSETS                
  Cash and cash equivalents     $   27,227     $   51,322    
  Accounts receivable, net           156,401         155,518    
  Due from affiliates             754         2,343    
  Prepaid expenses and other current assets        40,135         26,168    
  Assets held for sale             2,499         –     
    Total current assets            227,016         235,351    
PROPERTY AND EQUIPMENT, NET         285,787         244,301    
OTHER ASSETS                
  Goodwill             274,361         256,776    
  Other intangible assets           39,010         40,422    
  Deferred financing costs           1,489         1,895    
  Investment in joint ventures         42,199         52,435    
  Deferred tax assets, net of current portion       23,040         30,852    
  Deposits and other             17,740         6,947    
    Total assets          $   910,642     $   868,979    
LIABILITIES AND EQUITY  
CURRENT LIABILITIES                
  Accounts payable, accrued expenses and other $   150,146     $   135,809    
  Due to affiliates             14,192         16,387    
  Deferred revenue             2,959         2,606    
  Current portion of deferred rent         2,720         2,714    
  Current portion of notes payable       30,118         30,224    
  Current portion of obligations under capital leases     3,258         3,866    
    Total current liabilities            203,393         191,606    
LONG-TERM LIABILITIES              
  Deferred rent, net of current portion       28,642         26,251    
  Notes payable, net of current portion       549,802         572,365    
  Obligations under capital lease, net of current portion     3,162         2,672    
  Other non-current liabilities         4,356         6,160    
    Total liabilities              789,355         799,054    
EQUITY                  
  RadNet, Inc. stockholders’ equity:          
  Common stock – $.0001 par value, 200,000,000 shares authorized;        
    48,334,925, and 47,723,915 shares issued and outstanding at                  
    September 30, 2018 and December 31, 2017, respectively     5         5    
  Additional paid-in-capital           237,072         212,261    
  Accumulated other comprehensive income (loss)     4,276         (548 )  
  Accumulated deficit             (147,051 )       (150,158 )  
    Total RadNet, Inc.’s stockholders’ equity       94,302         61,560    
  Noncontrolling interests           26,985         8,365    
    Total equity              121,287         69,925    
    Total liabilities and equity      $   910,642     $   868,979    
                       
   

 

RADNET, INC. AND SUBSIDIARIES    
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
(IN THOUSANDS EXCEPT SHARE DATA)    
(unaudited)    
                Three Months Ended   Nine Months Ended    
                September 30,   September 30,    
                  2018       2017       2018       2017      
NET REVENUE                            
    Service fee revenue, net of contractual allowances and discounts     $   211,313         $   638,119      
    Provision for bad debts                 (11,687 )           (35,187 )    
    Net service fee revenue         $   217,552         199,626     $   641,136         602,932      
    Revenue under capitation arrangements         24,596         27,981         76,799         83,702      
      Total net revenue           242,148         227,607         717,935         686,634        
OPERATING EXPENSES                            
    Cost of operations, excluding depreciation and amortization       208,511         198,109         634,200         602,174      
    Depreciation and amortization           17,480         17,053         53,422         50,319      
    (Gain) loss on sale and disposal of equipment         (373 )       420         (2,204 )       828      
    Severance costs             82         1,186         1,087         1,566      
      Total operating expenses         225,700         216,768         686,505         654,887      
INCOME FROM OPERATIONS           16,448         10,839         31,430         31,747      
                                 
OTHER INCOME AND EXPENSES                        
    Interest expense             10,663         10,169         31,343         30,712      
    Equity in earnings of joint ventures           (2,822 )       (3,450 )       (9,547 )       (8,372 )    
    Gain on sale of imaging centers           –          (845 )       –          (3,146 )    
    Other expenses (income)             7         4         13         (236 )    
      Total other expenses           7,848         5,878         21,809         18,958      
INCOME BEFORE INCOME TAXES           8,600         4,961         9,621         12,789      
    Provision for income taxes           (2,827 )       (1,112 )       (2,835 )       (4,177 )    
NET INCOME               5,773         3,849         6,786         8,612      
    Net income attributable to noncontrolling interests       734         623         3,679         1,286      
NET INCOME ATTRIBUTABLE TO RADNET, INC.                     
    COMMON STOCKHOLDERS       $   5,039     $   3,226     $   3,107     $   7,326        
                                   
BASIC  NET INCOME PER SHARE                         
    ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $   0.10     $   0.07     $   0.06     $   0.16      
DILUTED NET INCOME PER SHARE                         
    ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $   0.10     $   0.07     $   0.06     $   0.16      
WEIGHTED AVERAGE SHARES OUTSTANDING                      
    Basic               48,010,726         46,953,705         47,937,215         46,760,583      
    Diluted               48,615,392         47,577,750         48,481,305         47,239,360      
                                 

 

RADNET, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(IN THOUSANDS)  
(unaudited)  
                Nine Months Ended September 30,  
                  2018       2017      
 CASH FLOWS FROM OPERATING ACTIVITIES             
                         
   Net income        $   6,786     $   8,612      
   Adjustments to reconcile net income             
   to net cash provided by operating activities:             
   Depreciation and amortization        53,422         50,319      
   Provision for bad debts        –          35,187      
   Equity in earnings of joint ventures        (9,547 )       (8,372 )    
   Distributions from joint ventures        21,783         6,785      
   Amortization deferred financing costs and loan discount        2,924         2,509      
   (Gain) loss on sale and disposal of equipment        (2,204 )       828      
   Gain on sale of imaging centers        –          (3,146 )    
   Stock-based compensation        6,557         5,842      
   Non cash severance        –          1,047      
   Changes in operating assets and liabilities, net of assets             
   acquired and liabilities assumed in purchase transactions:             
   Accounts receivable        (9,641 )       (38,770 )    
   Other current assets        (5,680 )       2,981      
    Other assets        (1,209 )       309      
    Deferred taxes        1,531         2,031      
    Deferred rent        2,397         2,137      
    Deferred revenue        353         428      
    Accounts payable, accrued expenses and other        20,386         6,857      
    Net cash provided by operating activities        87,858         75,584      
 CASH FLOWS FROM INVESTING ACTIVITIES             
   Purchase of imaging facilities        (17,393 )       (22,904 )    
   Investment at cost        (2,200 )       (500 )    
   Purchase of property and equipment        (62,595 )       (52,807 )    
   Proceeds from sale of equipment        2,587         571      
   Proceeds from sale of imaging and medical practice assets        –          8,429      
   Cash distribution from new JV partner                  –          1,473      
   Equity contributions in existing and purchase of interest in joint ventures                  (2,000 )       (80 )    
   Net cash used in investing activities              (81,601 )       (65,818 )    
 CASH FLOWS FROM FINANCING ACTIVITIES             
   Principal payments on notes and leases payable        (4,374 )       (5,297 )    
   Proceeds from borrowings        –          170,000      
   Payments on Term Loan Debt                  (24,810 )       (188,396 )    
   Distributions paid to noncontrolling interests        (913 )       (1,065 )    
   Deferred financing costs and debt discount        –          (5,067 )    
   Proceeds from sale of noncontrolling interest, net of taxes        –          7,726      
   Contributions from noncontrolling partners        –          125      
   Purchase of non-controlling interests        (200 )       –       
   Proceeds from revolving credit facility        44,000         139,400      
   Payments on revolving credit facility        (44,000 )       (139,400 )    
   Proceeds from issuance of common stock upon exercise of options        10         –       
   Net cash used in financing activities              (30,287 )       (21,974 )    
 EFFECT OF EXCHANGE RATE CHANGES ON CASH        (65 )       38      
 NET DECREASE IN CASH AND CASH EQUIVALENTS        (24,095 )       (12,170 )    
 CASH AND CASH EQUIVALENTS, beginning of period        51,322         20,638      
 CASH AND CASH EQUIVALENTS, end of period    $   27,227     $   8,468      
                         
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION             
   Cash paid during the period for interest    $   27,136     $   29,134      
                         

 

RADNET, INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC.
COMMON SHAREHOLDERS TO ADJUSTED EBITDA(1)

(IN THOUSANDS)

                     
              Three Months Ended  
              September 30,  
                2018       2017    
                     
                     
Net Income Attributable to RadNet, Inc. Common Shareholders   $   5,039     $   3,226    
Plus Interest Expense             10,663         10,169    
Plus Provision for Income Taxes           2,827         1,112    
Plus Depreciation and Amortization           17,480         17,053    
Plus (Gain) Loss on Sale of Equipment           (373 )       420    
Plus Severance Costs             82         1,186    
Plus Other Expenses               7         4    
Plus Non-Cash Employee Stock-Based Compensation       1,667         1,528    
Plus Transaction Costs – EmblemHealth/ACP         681         –     
Plus Fees Related to Term Loan Refinancing         –          235    
Plus Expenses of Divested/Closed Operations         –          1,986    
Less Gain on Sale of Imaging Centers           –          (845 )  
  Adjusted EBITDA(1)       $    38,073     $    36,074    
                     
                     
              Nine Months Ended  
              September 30,  
                2018       2017    
                     
                     
Net Income Attributable to RadNet, Inc. Common Shareholders   $   3,107     $   7,326    
Plus Interest Expense             31,343         30,712    
Plus Provision for Income Taxes           2,835         4,177    
Plus Depreciation and Amortization           53,422         50,319    
Plus (Gain) Loss on Sale of Equipment           (2,204 )       828    
Plus Severance Costs             1,087         1,566    
Plus Other Expenses               13         14    
Plus Non-Cash Employee Stock-Based Compensation       6,557         5,842    
Plus Transaction Costs – EmblemHealth/ACP         681        
Plus Fees Related to Term Loan Refinancing         –          235    
Plus Expenses of Divested/Closed Operations         –          3,186    
Plus Reimbursable Legal Expenses           –          723    
Plus Gain on Sale of Equipment Attributable to Noncontrolling Interest     440         –     
Less Gain on Sale of Imaging Centers           –          (3,146 )  
  Adjusted EBITDA(1)       $    97,281     $    101,782    
                     

 

                 
PAYOR CLASS BREAKDOWN**
                 
                 
    Third Quarter            
    2018              
                 
Commercial Insurance   59.8 %            
Medicare   20.4 %            
Capitation   10.2 %            
Workers Compensation/Personal Injury   2.7 %            
Medicaid   3.7 %            
Other   3.3 %            
Total   100.0 %            
                 
                 
**Calculated as percentages of global payments received from consolidated imaging centers from that periods dates of services and excludes payments from hospital contracts, Breastlink operations, imaging center management fees, eRAD, Imaging on Call and other miscellaneous revenue.             
           
           

                   
RADNET PAYMENTS BY MODALITY *  
                   
                   
    Third Quarter   Full Year   Full Year   Full Year  
    2018     2017     2016     2015    
                   
MRI   35.0 %   34.9 %   34.7 %   35.3 %  
CT   16.7 %   16.2 %   15.8 %   15.7 %  
PET/CT   5.8 %   5.2 %   5.0 %   5.1 %  
X-ray   9.1 %   8.9 %   9.3 %   9.6 %  
Ultrasound   12.1 %   12.1 %   12.3 %   11.5 %  
Mammography   15.3 %   16.3 %   16.5 %   16.4 %  
Nuclear Medicine   1.2 %   1.1 %   1.2 %   1.3 %  
Other   4.9 %   5.2 %   5.2 %   5.1 %  
    100.0 %   100.0 %   100.0 %   100.0 %  
                   
                   
Note                  
* Based upon global payments received from consolidated Imaging Centers from that period’s dates of service.      
Excludes payments from hospital contracts, Breastlink, Imaging on Call, eRAD, Center Management Fees and other miscellaneous operating activities.  
                   

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, transaction expenses, 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.