Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-Q
___________________________
FORM
10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
from______________to______________
to
Commission file number:
333-261815
___________________________
AKUMIN INC.
(Exact name of registrant as specified in its charter)
___________________________
Ontario
Delaware
Not 88-4139425Applicable
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8300 W. Sunrise Boulevard
Plantation, Florida 33322
(844) 730-0050
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Shares, noStock, $0.01 par value
per share
AKU
AKU
The Nasdaq Stock Market
Common Shares, noStock, $0.01 par value
per share
AKU
AKU
The Toronto Stock Exchange
___________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated
filer
xSmaller reporting companyx
Emerging growth companyx
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act). Yes
o No x
As of May 10, 2022,8, 2023, there were 89,516,51390,498,491 shares of common sharesstock outstanding.


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Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q and
the information incorporated by reference in this Quarterly Report on
Form 10-Q
contain or incorporate by reference “forward-looking information” or “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. Forward-looking statements describe Akumin Inc.’s (together with its subsidiaries, the “Company”) future plans, strategies, expectations and objectives, and are generally identifiable by use of the words “may”, “will”, “should”, “continue”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan” or “project” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements include, but are not limited to, statements about:
expected performance and cash flows;
changes in laws and regulations affecting the Company;
expenses incurred by the Company as a public company;
future growth of the outpatient diagnostic imaging and radiation oncology markets;
changes in reimbursement rates by payors;
remediation and effectiveness of the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting;
the outcome of litigation and payment obligations in respect of prior settlements;
competition;
competition;
acquisitions and divestitures of businesses;
potential synergies from acquisitions;
non-wholly
owned and other business arrangements;
access to capital and the terms relating thereto;
technological changes in our industry;
successful execution of internal plans;
compliance with our debt covenants;
anticipated costs of capital investments; and
future compensation of our directors and executive officers.
Such statements may not prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. The following are some of the risks and other important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements:
our ability to successfully grow the market and sell our services;
general market conditions in our industry;
our ability to service existing debt;
our ability to acquire new centers and, upon acquisition, to successfully integrate marketmarkets and sell new services that we acquire;
our ability to achieve the financing necessary to complete our acquisitions;
our ability to enforce any claims relating to breaches of indemnities or representations and warranties in connection with any acquisition;
market conditions in the capital markets and our industry that make raising capital or consummating acquisitions difficult, expensive or both, or which may disrupt our annual operating budget and forecasts;
inflation, labor shortages, and adverse market conditions in the healthcare industry that may force us to scale back operations, divest existing centers and put any new acquisitions on hold for an indefinite period of time;
unanticipated cash requirements to support current operations, to expand our business or for capital expenditures;
1


delays or setbacks with respect to governmental approvals or manufacturing or commercial activities;
changes in laws and regulations;
the loss of key management, personnel or personnel;
customers;
the risk the Company is not able to arrange sufficient cost-effective financing to repay maturing debt and to fund expenditures, future operational activities and acquisitions, and other obligations;
1

the risks related to the additional costs and expenses associated with being a U.S. domestic issuer as opposed to a foreign private issuer; and
the risks associated with legislative and regulatory developments that may affect costs, revenues, the speed and degree of competition entering the market, global capital markets activity and general economic conditions in geographic areas where we operate (including the adverse impact of the coronavirus
(“COVID-19”)
pandemic on the Company).
;
the risks associated with macroeconomic conditions, including inflation and the threat of recession;
The existencethe risks associated with wage inflation and labor shortages among healthcare professionals;
financial market volatility and declines in financial market prices of equity securities, including the COVID-19 pandemic createsrisk of delisting from the Nasdaq Capital Market (“Nasdaq”);
the risk that the potential delisting from the Nasdaq and other changes to the Company’s liquidity and capital resources will have a unique environment in whichmaterial adverse effect on the Company’s ability to consider the likelihood of forward-looking statements being accurate,borrow funds and given the evolving circumstances
surrounding the COVID-19 pandemic, it
is difficultaccess to predict how significant private capital sources and public capital markets; and
the adverse impact of global events, including the pandemic will beongoing Russian-Ukrainian conflict, on the global and domestic economyour business and the business, operations and financial position of the Company.actions we may take in response thereto.
Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. Those assumptions and factors are based on information currently available to us, including information obtained from third-party industry analysts and other third-party sources. In some instances, material assumptions and factors are presented or discussed elsewhere in this Quarterly Report on
Form 10-Q in
connection with the statements or disclosure containing the forward-looking information. The reader is cautioned that the following list of material factors and assumptions is not exhaustive. The factors and assumptions include, but are not limited to:
no unforeseen changes in the legislative and operating framework for our business;
no unforeseen changes in the prices for our services in markets where prices are regulated;
no unforeseen changes in the regulatory environment for our services;
a stable competitive environment; and
no significant event occurring outside the ordinary course of business such as a foreign conflict, natural disaster, public health epidemic or other calamity.
Although we have attempted to identify important factors that could cause our actual results to differ materially from our plans, strategies, expectations and objectives, there may be other factors that could cause our results to differ from what we currently anticipate, estimate or intend. Forward-looking statements are provided to assist external stakeholders in understanding management’s expectations and plans relating to the future as of the date of the original document and may not be appropriate for other purposes. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required under applicable securities laws, we undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
We qualify all the forward-looking statements contained in this Quarterly Report on
Form 10-Q and
the information incorporated by reference in this Quarterly Report on
Form 10-Q by
the foregoing cautionary statements.
2

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AKUMIN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)
         
   
March 31,
  
December 31,
 
   
2022
  
2021
 
ASSETS
         
Current assets:         
Cash and cash equivalents  $40,242  $48,419 
Accounts receivable   126,480   121,525 
Prepaid expenses   8,409   8,196 
Other current assets   5,012   7,025 
          
Total current assets   180,143   185,165 
Property and equipment, net   247,138   259,122 
Operating lease
right-of-use
assets
   189,263   194,565 
Goodwill   840,874   840,353 
Other intangible assets, net   409,157   414,146 
Other assets   24,908   25,475 
          
Total assets  $1,891,483  $1,918,826 
          
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
Current liabilities:         
Accounts payable  $34,118  $34,326 
Current portion of long-term debt   15,667   14,789 
Current portion of obligations under finance leases   6,031   6,460 
Current portion of obligations under operating leases   20,764   20,794 
Other accrued liabilities   85,476   87,813 
          
Total current liabilities   162,056   164,182 
Long-term debt, net of current portion   1,209,700   1,197,596 
Obligations under finance leases, net of current portion   13,986   15,951 
Obligations under operating leases, net of current portion   179,654   184,375 
Other liabilities   36,829   35,574 
          
Total liabilities   1,602,225   1,597,678 
          
Redeemable noncontrolling interests   37,049   37,469 
Shareholders’ equity:         
Common stock, 0 par value; unlimited number of shares authorized; 89,516,513 and 89,026,997 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
   229,656   228,595 
Accumulated other comprehensive income   64   18 
Accumulated deficit   (154,235  (123,424
          
Total shareholders’ equity   75,485   105,189 
Noncontrolling interests   176,724   178,490 
          
Total equity   252,209   283,679 
          
Total liabilities, redeemable noncontrolling interests and equity  $ 1,891,483  $ 1,918,826 
          
March 31,
2023
December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents$45,399 $59,424 
Accounts receivable114,696 114,166 
Prepaid expenses8,325 8,003 
Other current assets8,097 10,352 
Total current assets176,517 191,945 
Property and equipment, net205,974 221,214 
Operating lease right-of-use assets160,250 166,823 
Goodwill769,110 769,110 
Other intangible assets, net387,354 392,095 
Other assets23,468 23,928 
Total assets$1,722,673 $1,765,115 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities: 
Accounts payable$25,458 $36,618 
Current portion of long-term debt20,432 19,961 
Current portion of obligations under finance leases7,751 7,800 
Current portion of obligations under operating leases15,775 17,223 
Accrued liabilities92,948 86,916 
Total current liabilities162,364 168,518 
Long-term debt, net of current portion1,262,708 1,254,652 
Obligations under finance leases, net of current portion17,600 19,505 
Obligations under operating leases, net of current portion154,964 160,475 
Other liabilities21,178 20,674 
Total liabilities1,618,814 1,623,824 
Redeemable noncontrolling interests28,657 30,337 
Stockholders’ deficit:
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding at March 31, 2023 and December 31, 2022— — 
Common stock, $0.01 par value; 300,000,000 shares authorized; 90,498,491 shares issued and outstanding at March 31, 2023; 89,811,513 shares issued and outstanding at December 31, 2022905 898 
Additional paid-in capital231,406 231,014 
Accumulated other comprehensive income45 73 
Accumulated deficit(315,333)(280,185)
Total stockholders’ deficit(82,977)(48,200)
Noncontrolling interests158,179 159,154 
Total equity75,202 110,954 
Total liabilities, redeemable noncontrolling interests and equity$1,722,673 $1,765,115 
See accompanying notes to the condensed consolidated financial statements.
4

AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited; in thousands, except per share amounts)
Three Months Ended March 31,
20232022
Revenues$187,592 $186,263 
Operating expenses:  
Cost of operations, excluding depreciation and amortization155,567 155,161 
Depreciation and amortization22,993 24,731 
Restructuring charges5,736 80 
Severance and related costs(49)2,238 
Settlements, recoveries and related costs1,448 (137)
Stock-based compensation399 1,061 
Other operating income, net(751)(7)
Total operating expenses185,343 183,127 
Income from operations2,249 3,136 
Other expense (income):
Interest expense30,697 28,681 
Other non-operating expense (income), net(132)324 
Total other expense, net30,565 29,005 
Loss before income taxes(28,316)(25,869)
Income tax expense874 563 
Net loss(29,190)(26,432)
Less: Net income attributable to noncontrolling interests5,958 4,379 
Net loss attributable to common stockholders$(35,148)$(30,811)
Comprehensive loss, net of taxes:
Net loss$(29,190)$(26,432)
Other comprehensive income (loss):
Unrealized gain (loss) on hedging transactions, net of taxes(14)29 
Reclassification adjustment for losses included in net loss, net of taxes(14)17 
Other comprehensive income (loss)(28)46 
Comprehensive loss, net of taxes(29,218)(26,386)
Less: Comprehensive income attributable to noncontrolling interests5,958 4,379 
Comprehensive loss attributable to common stockholders$(35,176)$(30,765)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.39)$(0.35)
         
   
Three Months Ended March 31,
 
   
2022
  
2021
 
Revenues  $186,263  $63,963 
Operating expenses:         
Cost of operations, excluding depreciation and amortization   157,479   55,142 
Depreciation and amortization   24,731   4,490 
Stock-based compensation   1,061   427 
Other operating losses (gains), net   (54  90 
          
Total operating expenses   183,217   60,149 
          
Income from operations   3,046   3,814 
Other expense (income):         
Interest expense   28,681   8,368 
Acquisition-related costs   382   1,279 
Settlement and related recoveries   (137  (24
Other
non-operating
gains, net
   (11  (3,366
          
Total other expense, net   28,915   6,257 
          
Loss before income taxes   (25,869  (2,443
Income tax expense    563   65 
          
Net loss   (26,432  (2,508
Less: Net income attributable to noncontrolling interests   4,379   369 
          
Net loss attributable to common shareholders  $(30,811 $(2,877
          
Comprehensive loss, net of taxes:         
Net loss  $(26,432 $(2,508
Other comprehensive income:         
Unrealized gain on hedging transactions, net of taxes   29   0   
Reclassification adjustment for losses included in net loss, net of
taxes
   17   0   
          
Other comprehensive income   46   0   
          
Comprehensive loss, net of taxes   (26,386  (2,508
Less: Comprehensive income attributable to noncontrolling interests   4,379   369 
          
Comprehensive loss attributable to common shareholders  $(30,765 $(2,877
          
Net loss per share attributable to common shareholders:         
Basic and diluted  $(0.35 $(0.04
          
See accompanying notes to the condensed consolidated financial statements.
5
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share amounts)
                             
   
Common Stock
   
Accumulated
Other
Comprehensive
   
Accumulated
  
Total
Shareholders’
  
Noncontrolling
  
Total
 
   
Shares
   
Amount
   
Income
   
Deficit
  
Equity
  
Interests
  
Equity
 
Balance, December 31, 2020   70,178,428   $160,965   $—     $(80,133 $80,832  $4,338  $85,170 
Net income (loss)   —      —      —      (2,877  (2,877  369   (2,508
Stock-based compensation   —      427    —      —     427   —     427 
Distributions paid to noncontrolling interests   —      —      —      —     —     (449  (449
                                 
Balance, March 31, 2021   70,178,428   $161,392   $—     $(83,010 $78,382  $4,258  $82,640 
                                 
                             
   
Common Stock
   
Accumulated
Other
Comprehensive
   
Accumulated
  
Total
Shareholders’
  
Noncontrolling
  
Total
 
   
Shares
   
Amount
   
Income
   
Deficit
  
Equity
  
Interests
  
Equity
 
Balance, December 31, 2021   89,026,997   $228,595   $18   $(123,424 $105,189  $178,490  $283,679 
Net income (loss), net of the net income attributable to redeemable noncontrolling interests   —      —      —      (30,811  (30,811  3,799   (27,012
Issuance of common stock under stock-based awards   489,516    —      —      —     —     —     —   
Stock-based compensation   —      1,061    —      —     1,061   —     1,061 
Other comprehensive income   —      —      46    —     46   —     46 
Distributions paid to noncontrolling interests   —      —      —      —     —     (5,726  (5,726
Other equity transactions   —      —      —      —     —     161   161 
                                 
Balance, March 31, 2022   89,516,513   $229,656   $64   $(154,235 $75,485  $176,724  $252,209 
                                 
See accompanying notes to the condensed consolidated financial statements.
65

AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSEQUITY
(Unaudited; in thousands)
thousands, except share amounts)
Common StockAdditional Paid-In CapitalAccumulated
 Other
 Comprehensive
Income (Loss)
Accumulated
Deficit
Total
 Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance, December 31, 202189,026,997 $890 $227,705 $18 $(123,424)$105,189 $178,490 $283,679 
Net income (loss), net of the net income attributable to redeemable noncontrolling interests— — — — (30,811)(30,811)3,799 (27,012)
Settlement of restricted share units489,516 (5)— — — — — 
Stock-based compensation— — 1,061 — — 1,061 — 1,061 
Other comprehensive income— — — 46 — 46 — 46 
Distributions paid to noncontrolling interests— — — — — — (5,726)(5,726)
Purchase accounting adjustments— — — — — — 161 161 
Balance, March 31, 202289,516,513 $895 $228,761 $64 $(154,235)$75,485 $176,724 $252,209 
         
   
Three Months Ended March 31,
 
   
2022
  
2021
 
Operating activities:
         
Net loss  $(26,432 $(2,508
Adjustments to reconcile net loss to net cash provided by operating
activities:
         
Depreciation and amortization   24,731   4,490 
Stock-based compensation   1,061   427 
Non-cash
interest expense
   12,105   0   
Amortization of deferred financing costs and accretion of discount on long-term debt   30   478 
Deferred income taxes   307   0   
Other
non-cash
items
   607   (3,276
Changes in operating assets and liabilities, net of acquisitions:         
Accounts receivable   (4,922  (1,902
Prepaid expenses and other assets   1,510   968 
Accounts payable and other liabilities   (207  8,627 
Operating lease liabilities and
right-of-use
assets
   528   445 
          
Net cash provided by operating activities   9,318   7,749 
          
Investing activities:
         
Purchases of property and equipment   (9,878  (1,173
Other investing activities   3   (4,588
          
Net cash used in investing activities   (9,875  (5,761
          
Financing activities:
         
Proceeds from revolving loan   10,000   0   
Principal payments on revolving loan   (10,000  0   
Proceeds from long-term debt   5,539   78,750 
Principal payments on long-term debt   (4,039  (99
Principal payments on finance leases   (2,394  (699
Payment of debt issuance costs   0     (1,162
Distributions paid to noncontrolling interests   (6,726  (449
          
Net cash provided by (used in) financing activities   (7,620  76,341 
          
Net increase (decrease) in cash and cash equivalents
   (8,177  78,329 
Cash and cash equivalents, beginning of period
   48,419   44,396 
          
Cash and cash equivalents, end of period
  $40,242  $122,725 
          
Supplemental disclosure of cash flow information:
         
Interest paid  $14,606  $195 
Income taxes paid, net   (10  (39
Supplemental disclosure of
non-cash
investing and financing activities:
         
Interest
payable-in-kind
on long-term debt
   12,105   0   
Property and equipment purchases in accounts payable and other accrued liabilities   6,118   306 
Common StockAdditional Paid-In CapitalAccumulated
 Other
 Comprehensive
Income (Loss)
Accumulated
Deficit
Total
 Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance, December 31, 202289,811,513 $898 $231,014 $73 $(280,185)$(48,200)$159,154 $110,954 
Net income (loss), net of the net loss attributable to redeemable noncontrolling interests— — — — (35,148)(35,148)4,812 (30,336)
Settlement of restricted share units686,978 (7)— — — — — 
Stock-based compensation— — 399 — — 399 — 399 
Other comprehensive income— — — (28)— (28)— (28)
Distributions paid to noncontrolling interests— — — — — — (5,787)(5,787)
Balance, March 31, 202390,498,491 $905 $231,406 $45 $(315,333)$(82,977)$158,179 $75,202 
See accompanying notes to the condensed consolidated financial statements.
7
6

AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Three Months Ended March 31,
20232022
Operating activities:
Net loss$(29,190)$(26,432)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization22,993 24,731 
Stock-based compensation399 1,061 
Non-cash interest expense13,757 12,105 
Amortization of deferred financing costs and accretion of discount/premium on long-term debt30 
Deferred income taxes734 307 
Distributions from unconsolidated investees183 520 
Earnings from unconsolidated investees(151)(240)
Other non-cash items, net(139)327 
Changes in operating assets and liabilities:  
Accounts receivable(655)(4,922)
Prepaid expenses and other assets1,287 1,510 
Accounts payable and other liabilities(5,610)(207)
Operating lease liabilities and right-of-use assets(307)528 
Net cash provided by operating activities3,304 9,318 
Investing activities:  
Purchases of property and equipment(2,508)(9,878)
Other investing activities325 
Net cash used in investing activities$(2,183)$(9,875)

See accompanying notes to the condensed consolidated financial statements.
7


AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited; in thousands)

Three Months Ended March 31,
20232022
Financing activities:
Proceeds from revolving loan$— $10,000 
Principal payments on revolving loan— (10,000)
Proceeds from long-term debt— 5,539 
Principal payments on long-term debt(4,580)(3,853)
Principal payments on finance leases(1,953)(2,580)
Distributions paid to noncontrolling interests(8,613)(6,726)
Net cash used in financing activities(15,146)(7,620)
Net decrease in cash and cash equivalents(14,025)(8,177)
Cash and cash equivalents, beginning of period59,424 48,419 
Cash and cash equivalents, end of period$45,399 $40,242 
Supplemental disclosure of cash flow information:  
Interest paid$15,662 $14,606 
Income taxes refunded, net of payments(35)(10)
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment purchases in accounts payable and accrued liabilities2,614 6,118 
Derecognition of operating lease right-of-use assets and lease liabilities associated with lease terminations3,282 110 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities1,373 801 
See accompanying notes to the condensed consolidated financial statements.
8


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 20222023
(Unaudited)

1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Akumin Inc. (the “Company” or “Akumin”) and do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation have been included. The results for the three months ended March 31, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2021.2022.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Certain reclassifications have been made to prior period condensed consolidated financial statements to conform to the current period presentation.
2. New Accounting Standards
Recently Adopted Accounting Standards
ASU
2021-04,
Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic
470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40)
In April 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2021-04,
Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic
470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40).
This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. The Company adopted this standard as of January 1, 2022 and it did not have a material impact on the Company’s condensed consolidated financial statements.
ASU
2021-10
,
Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued ASU
2021-10,
Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. ASU
2021-10
also adds a new Topic—ASC 832,
 Government Assistance
—to the FASB’s Codification. The disclosure requirements only apply to transactions with a government that are accounted for by analogizing to either a grant model or a contribution model. The guidance in ASU
2021-10
is effective for financial statements of all entities, including private companies, for annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted this standard as of January 1, 2022 and it did not have a material impact of the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Effective
ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASU
Accounting Standards Update ("ASU") 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, and related clarifying standards, which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. This ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2022. The Company is considered an Emerging Growth Company as classified by the Securities and Exchange Commission (“SEC”), which givesgave the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company is currently evaluating the impact of theadopted this standard on itsJanuary 1, 2023 using the modified retrospective approach and it did not have a material impact on the Company's condensed consolidated financial statements.statements, resulting in no adjustments to prior year earnings.
Recently Issued Accounting Standards Not Yet Effective
8

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. For all entities, the guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
ASU
2021-01,
Reference Rate Reform (Topic 848): Scope
In January 2021, the FASB issued ASU
2021-01,
Reference Rate Reform (Topic 848): Scope
. This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
ASU
2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805)
In October 2021, the FASB issued ASU
2021-08,
Business Combinations (Topic 805):
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
, creating an exception to the recognition and measurement principles in ASC 805,
Business Combinations
. The amendments require an acquirer to use the guidance in ASC 606,
Revenue from Contracts with Customers
, rather than using fair value, when recognizing and measuring contract assets and contract liabilities related to customer contracts assumed in a business combination. In addition, the amendments clarify that all contracts requiring the recognition of assets and liabilities in accordance with the guidance in ASC 606, such as contract liabilities derived from the sale of nonfinancial assets within the scope of ASC
610-20,
Gains and Losses from the Derecognition of Nonfinancial Assets
, fall within the scope of the amended guidance in ASC 805. The amendments do not affect the accounting for other assets or liabilities arising from revenue contracts with customers in a business combination, such as customer-related intangible assets and contract-based intangible assets, including
off-market
contract terms. This ASU is effective for public entities for fiscal years beginning after December 15, 2022, with early adoption permitted. For
9


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
all other entities, this ASU is effective for fiscal years beginning after December 15, 2023. The Company is considered an Emerging Growth Company as classified by the SEC, which gives the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
3. Alliance Acquisition
On September 1, 2021, the Company acquired all of the issued and outstanding common stock of Thaihot Investment Company US Limited, which owns 100% of the common stock of Alliance, from Thaihot Investment Co., Ltd. for a total purchase price of $785.6 million (the “Alliance Acquisition”). The acquisition included Alliance’s ownership interests in its joint ventures which had a fair value of $212.0 million on the acquisition date.
As of the acquisition date, the Company had preliminarily estimated the fair value of the assets acquired and liabilities assumed and allocated a portion of the total purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the acquisition. Noncontrolling interests have also been recorded at fair value as of the acquisition date. The fair value of the total enterprise applicable to joint ventures has been allocated to the individual joint ventures.
During the three months ended March 31, 2022, the Company updated the preliminary assessment of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in certain changes to the preliminary amounts previously recorded. These changes were composed primarily of (i) a decrease in property and equipment acquired of $0.5 million due to a refinement in the valuation analysis, (ii) a decrease in other liabilities of $0.2 million due to an adjustment in an estimated accrued liability and (iii) an increase in noncontrolling interest of $0.2 million due to a refinement in the valuation analysis.
The net effect of the changes to preliminary fair value of the assets acquired and liabilities assumed resulted in an increase in goodwill of $0.5 million. The final determination of the fair value of certain assets acquired and liabilities assumed, including deferred tax liabilities and the assignment of goodwill to reporting units, was not complete as of March 31, 2022, but will be finalized within the allowable one-year measurement period. 
9

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
The following table summarizes the revised preliminary assessment of fair value of the assets acquired and liabilities assumed as of the date of the acquisition:
     
(in thousands)
     
Assets acquired:     
Cash and cash equivalents  $26,125 
Net working capital   14,221 
Property and equipment   205,940 
Operating lease
right-of-use
assets
   69,919 
Goodwill   456,281 
Intangibles – Customer contracts   266,224 
Intangibles – Trade names   69,108 
Intangibles – Third party management agreements   10,200 
Intangibles – Certificates of need   69,558 
Other assets   8,170 
      
    1,195,746 
      
Liabilities assumed:     
Equipment debt   54,673 
Obligations under finance leases   9,041 
Obligations under operating leases   74,290 
Deferred tax liabilities   52,760 
Other liabilities   7,189 
      
    197,953 
      
Net assets acquired   997,793 
Less redeemable noncontrolling interests   37,040 
Less noncontrolling interests   175,137 
      
Purchase price  $785,616 
      
4. Variable Interest Entities
In accordance with consolidation guidance, a reporting entity with a variable interest in another entity is required to include the assets and liabilities and revenues and expenses of that separate entity (i.e., consolidate with the financial statements of the reporting entity) when the variable interest is determined to be a controlling financial interest. A reporting entity is considered to have a controlling financial interest in a variable interest entity (“VIE”) if (i) the reporting entity has the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the reporting entity has the obligation to absorb losses of the VIE that could be potentially significant to the VIE.
As a result of the financial relationship established between the Company and certain entities (the “Revenue Practices”) through respective management service agreements, the Revenue Practices individually qualify as VIEs as the Company, which provides them
non-medical,
technical and administrative services, has the power to direct their respective activities and the obligation to absorb their gains and losses. As a result, the Company is considered the primary beneficiary of the Revenue Practices, and accordingly, the assets and liabilities and revenues and expenses of the Revenue Practices are included in the condensed consolidated financial statements. The following information excludes any intercompany transactions and costs allocated by the Company to the Revenue Practices. As of March 31, 20222023 and December 31, 2021,2022, the Revenue Practices’ assets included in the Company’s condensed consolidated balance sheets were $22.7$34.0 million and $20.4$36.0 million, respectively, and liabilities included in the Company’s condensed consolidated balance sheets were $0.1$2.4 million and $0.6$1.4 million, respectively. The assets of the Revenue Practices can only be used to settle their obligations. During the three months ended March 31, 20222023 and 2021,2022, the Revenue Practices’ revenues were $46.0$43.4 million and $39.0$46.0 million, respectively, and the net cash provided by operating activities was $46.3$41.8 million and $51.2$46.3 million, respectively.
1
0

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
5.4. Property and Equipment
Property and equipment consistconsists of the following:
(in thousands)March 31,
2023
December 31,
2022
Medical equipment$245,836 $244,517 
Leasehold improvements43,684 43,382 
Equipment under finance leases46,545 44,845 
Office and computer equipment18,644 17,742 
Transportation and service equipment11,562 11,672 
Furniture and fixtures3,439 3,362 
Construction in progress2,845 4,636 
372,555 370,156 
Less accumulated depreciation166,581 148,942 
$205,974 $221,214 
         
(in thousands)
  
March 31,
2022
   
December 31,
2021
 
Medical equipment  $233,510   $227,796 
Leasehold improvements   40,764    39,763 
Equipment under finance leases   33,196    34,597 
Office and computer equipment   17,794    16,701 
Transportation and service equipment   8,980    8,996 
Furniture and fixtures   3,336    3,130 
Construction in progress   7,257    6,423 
           
    344,837    337,406 
Less accumulated depreciation   97,699    78,284 
           
   $247,138   $259,122 
           
Depreciation expense was $18.3 million and $19.7 million for the three months ended March 31, 20222023 and 2021 was $19.7 million and $3.8 million,2022, respectively.
As of March 31, 20222023 and December 31, 2021,2022, the equipment under finance leases had a net book value of $19.6$26.5 million and $22.2$26.3 million, respectively.
6.
10


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
5. Goodwill
Changes in the carrying amount of goodwill are as follows:
             
(in thousands)
  
Radiology
   
Oncology
   
Total
 
Balance, December 31, 2021  $681,993   $158,360   $840,353 
Adjustments   360    161    521 
                
Balance, March 31, 2022  $682,353   $158,521   $840,874 
                
The Company tests its goodwill and indefinite-lived intangible assets annually or more frequently depending on certain impairment indicators. Such indicators include a significant decline in expected future cash flows due to changes in company-specific factors or the broader business climate. As of March 31, 2022,2023, there were no indications of impairment of the Company’sCompany's goodwill balances.
1
1

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the three months ended March 31, 2022
2023, there was no change in the carrying value of goodwill.
(Unaudited)
7.6. Other Intangible Assets
Other intangible assets consist of the following:
(dollars in thousands)Weighted
Average
Useful
Life
(in years)
March 31, 2023December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Other
Intangible
Assets, Net
Gross
Carrying
Amount
Accumulated
Amortization
Other
Intangible
Assets, Net
Finite-lived intangible assets:
Customer contracts20$263,388 $(20,910)$242,478 $263,388 $(17,588)$245,800 
Trade names1877,135 (12,245)64,890 77,135 (11,063)66,072 
Management agreements1710,200 (950)9,250 10,200 (800)9,400 
Other55,719 (4,541)1,178 5,719 (4,454)1,265 
Total $356,442 $(38,646)317,796 $356,442 $(33,905)322,537 
Certificates of Need69,558 69,558 
Total other intangible assets$387,354 $392,095 
                             
   
Weighted
Average
Useful

Life

(in years)
   
March 31, 2022
   
December 31, 2021
 
(dollars in thousands)
  
Gross
Carrying
Amount
   
Accumulated
Amortization
  
Other
Intangible
Assets, Net
   
Gross
Carrying
Amount
   
Accumulated
Amortization
  
Other
Intangible
Assets, Net
 
Finite-lived intangible assets:                                 
Customer contracts   20   $266,224   $(7,764 $258,460   $266,224   $(4,437 $261,787 
Trade names   18    77,466    (7,337  70,129    77,466    (6,054  71,412 
Management agreements   17    10,200    (350  9,850    10,200    (200  10,000 
Other   4    4,814    (3,654  1,160    4,814    (3,425  1,389 
                                  
Total       $358,704   $(19,105  339,599   $358,704   $(14,116  344,588 
                                  
Certificates of Need                 69,558             69,558 
                                  
Total other intangible assets                $409,157            $414,146 
                                  
The Company performs an impairment test when indicators of impairment are present. As of March 31, 2022,2023, there were no indications of impairment of the Company’sCompany's other intangible assets balances.
The aggregate amortization expense for the Company’s finite-lived intangible assets was $5.0$4.7 million and $0.7$5.0 million for the three months ended March 31, 20222023 and 2021,2022, respectively.
Estimated annual amortization expense related to finite-lived intangible assets is presented below:
     
(in thousands)
 
Year ending December 31: 
2022 (remaining nine months)  $14,825 
2023   18,837 
2024   18,132 
2025   17,475 
2026   17,421 
Thereafter   252,909 
      
   $339,599 
      
8.11


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
7. Long-Term Debt
Long-term debt consists of the following:
         
   
March 31,
   
December 31,
 
(in thousands)
  
2022
   
2021
 
2028 Senior Notes  $375,000   $375,000 
2025 Senior Notes   475,000    475,000 
Subordinated Notes   384,575    372,470 
Equipment Debt   60,327    58,827 
           
    1,294,902    1,281,297 
Debt discount and deferred issuance costs   (69,535   (68,912
           
    1,225,367    1,212,385 
Less current portion   15,667    14,789 
           
Long-term debt, net of current portion  $1,209,700   $1,197,596 
           
1
2

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
(in thousands)March 31,
2023
December 31,
2022
2028 Senior Notes$375,000 $375,000 
2025 Senior Notes475,000 475,000 
Subordinated Notes437,061 423,303 
Equipment Debt68,173 72,754 
1,355,234 1,346,057 
Debt discount/premium and deferred issuance costs(72,094)(71,444)
1,283,140 1,274,613 
Less current portion20,432 19,961 
Long-term debt, net of current portion$1,262,708 $1,254,652 
During the three months ended March 31, 2022,2023, the Company elected to pay interest
in-kind
on the Subordinated Notes pursuant to the original agreement and, accordingly, $12.1$13.8 million of accrued interest was added to the principal balance of the Subordinated Notes.
The minimum annual principal payments with respect to long-term debt as of March 31, 2022 are as follows:
     
(in thousands)
    
Year ending December 31:     
2022 (remaining nine months)  $11,485 
2023   16,900 
2024   14,140 
2025   485,404 
2026   3,732 
Thereafter   763,241 
      
   $1,294,902 
      
Certain of the debt obligations are subject to covenants with which the Company must comply on a quarterly or annual basis. The Company was in compliance with, or had received waivers for, all such covenants as of March 31, 2022.
9. Finance Leases
The information pertaining to obligations under finance leases is as follows:
         
(in thousands)
  
March 31,
2022
   
December 31,
2021
 
Obligations under finance leases  $20,017   $22,411 
Less current portion   6,031    6,460 
           
Non-current
obligations under finance leases
  $13,986   $15,951 
           
The components of finance lease cost recognized in the condensed consolidated statements of operations and comprehensive loss are as follows.
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Amortization expense for equipment under finance leases  $1,271   $916 
Interest expense on finance lease liabilities   298    181 
           
Finance lease cost  $1,569   $1,097 
           
1
3
2023.

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
Undiscounted cash flows for finance leases recorded in the condensed consolidated balance sheet as of March 31, 2022 are as follows.
     
(in thousands)
    
Year ending December 31:     
2022 (remaining nine months)  $5,213 
2023   5,666 
2024   5,236 
2025   3,411 
2026   1,760 
Thereafter   665 
      
Total minimum lease payments   21,951 
Less amount of lease payments representing interest   1,934 
      
Present value of future minimum lease payments   20,017 
Less current portion   6,031 
      
Non-current
obligations under finance leases
  $13,986 
      
The lease term and discount rates are as follows:
         
   
Three Months Ended March 31,
 
   
2022
  
2021
 
Weighted average remaining lease term – finance leases (years)   3.7   4.8 
Weighted average discount rate – finance leases   5.0  4.6
Supplemental cash flow information related to finance leases is as follows:
        
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Operating cash flows from finance leases  $298   $181 
Equipment acquired in exchange for finance lease obligations   0    617 
10. Operating
Leases
The information pertaining to obligations under operating leases is as follows:
         
   
March 31,
   
December 31,
 
(in thousands)
  
2022
   
2021
 
Obligations under operating leases  $200,418   $205,169 
Less current portion   20,764    20,794 
           
Non-current
obligations under operating leases
  $179,654   $184,375 
           
1
4

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
The components of operating lease cost recognized in the condensed consolidated statements of operations and comprehensive loss are as follows.
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Operating lease cost  $9,666   $5,094 
Variable lease cost   1,936    959 
Short-term lease cost   475    43 
           
Total operating lease cost  $12,077   $6,096 
           
Undiscounted cash flows for operating leases recorded in the condensed consolidated balance sheet as of March 31, 2022 are as follows.
     
(in thousands)
    
Year ending December 31:     
2022 (remaining nine months)  $20,485 
2023   34,247 
2024   30,930 
2025   27,895 
2026   23,377 
Thereafter   178,953 
      
Total minimum lease payments   315,887 
Less amount of lease payments representing interest   115,469 
      
Present value of future minimum lease payments   200,418 
Less current portion   20,764 
      
Non-current
obligations under operating leases
  $179,654 
      
The lease term and discount rates are as follows:
         
   
Three Months Ended March 31,
 
   
2022
  
2021
 
Weighted average remaining lease term – operating leases (years)   11.4   12.5 
Weighted average discount rate – operating leases   7.7  7.4
Supplemental cash flow information related to operating leases is as follows:
         
   
Three Months
Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Operating cash flows from operating leases  $9,130   $4,649 
Right-of-use
assets acquired in exchange for operating lease obligations
   801    656 
1
5

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
11. Other8. Accrued Liabilities
Other accruedAccrued liabilities consist of the following:
(in thousands)March 31,
2023
December 31,
2022
Accrued compensation and related expenses$20,833 $25,655 
Accrued interest expense19,541 18,183 
Other52,574 43,078 
$92,948 $86,916 
         
   
March 31,
   
December 31,
 
(in thousands)
  
2022
   
2021
 
Accrued compensation and related expenses  $34,283   $26,486 
Accrued interest expense   18,821    16,840 
MAAPP funds (Note 23)   1,093    2,398 
Other   31,279    42,089 
           
Total  $85,476   $87,813 
           
12.9. Redeemable Noncontrolling Interests
The Company has noncontrolling interests with redemption features. These redemption features could require the Company to make an offer to purchase the noncontrolling interests in the case of certain events, including (i) the expiration or termination of certain operating agreements of the joint venture, or (ii) the noncontrolling interests’
tax-exempt
status is jeopardized by the joint venture.
As of March 31, 2022,2023, the Company holds redeemable noncontrolling interests of $37.0$28.7 million, which are not currently redeemable or probable of becoming redeemable. The redemption of these noncontrolling interests is not solely within the Company’s control, therefore, they are presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The Company does not believe it is probable the redemption features related to these noncontrolling interest securities will be triggered as the triggering events are generally not probable until they occur. As such, these noncontrolling interests have not been remeasured to redemption value.
12


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
The following is a rollforward of the activity in the redeemable noncontrolling interests for the three months ended March 31, 2022:2023:
     
(in thousands)
    
Balance, December 31, 2021  $37,469 
Net income attributable to redeemable noncontrolling interests   580 
Distribution paid to redeemable noncontrolling interests   (1,000
      
Balance, March 31, 2022  $37,049 
      
1
6
(in thousands)
Balance, December 31, 2022$30,337 
Net income attributable to redeemable noncontrolling interests1,146 
Distributions paid to redeemable noncontrolling interests(2,826)
Balance, March 31, 2023$28,657 

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
13.10. Financial Instruments
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following table summarizes the valuation of the Company’s financial instruments that are reported at fair value on a recurring basis:
Fair Value as of March 31, 2023Fair Value as of December 31, 2022
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Current and long-term assets:
Interest rate contracts$— $37 $— $37 $— $52 $— $52 
Long-term liabilities:
Derivative in subordinated notes$— $— $6,089 $6,089 $— $— $6,132 $6,132 
                                 
   
Fair Value as of March 31, 2022
   
Fair Value as of December 31, 2021
 
(in thousands)
  
Level 1
   
Level 2
   
Level 3
   
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Current and long-term assets:                                        
Interest rate contracts  $0     $25   $0     $25   $0     $3   $0     $3 
Current and long-term liabilities:                                        
Derivative in subordinated notes  $0     $0     $7,692   $7,692   $0     $0     $7,522   $7,522 
Interest rate contracts  $0     $14   $0     $14   $0     $53   $0     $53 
The derivative in subordinated notes relates to the Change of Control Redemption Election included in the Subordinated Notes (see Note 8)7). The fair value of the Change of Control Redemption Election liability was determined using a probability weighted scenario analysis regarding a potential change of control during the seven years from initiation date. The estimated fair values of the Change of Control Redemption Election as of March 31, 20222023 and December 31, 20212022 use unobservable inputs for probability weighted time until an exit event of 4.13.4 years and 4.23.5 years, respectively, and an exit event probability weighting of 24.3%22.3% and 24.5%22.9%, respectively.
The following is a reconciliation of the opening and closing balances for the liability related to the embedded derivative included in the Subordinated Notessubordinated notes liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2022:2023:
(in thousands)
Balance, December 31, 2022$6,132 
Change in fair value(43)
Balance, March 31, 2023$6,089 
     
(in thousands)
    
Balance, December 31, 2021  $7,522 
Change in fair value   170 
      
Balance, March 31, 2022  $7,692 
      
The decrease in the fair value of the derivative in subordinated notes liability was recorded as a gain and included in other non-operating expense (income), net in the Company's condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023.
The Company’s interest rate contracts are primarily
pay-fixed,
receive-variable interest rate swaps related to certain of the Company’s equipment debt. The amount that the Company expects to reclassify from accumulated other comprehensive income to interest expense over the next twelve months is immaterial.
13


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
Assets and Liabilities for which Fair Value is only Disclosed
The estimated fair values of other current and
non-current
liabilities are as follows:
(in thousands)March 31,
2023
December 31,
2022
2028 Senior Notes$262,463 $228,894 
2025 Senior Notes374,063 339,385 
Subordinated Notes283,587 254,951 
Equipment Debt58,705 58,698 
$978,818 $881,928 
         
   
March 31,
   
December 31,
 
(in thousands)
  
2022
   
2021
 
2028 Senior Notes  $292,500   $345,938 
2025 Senior Notes   389,500    446,500 
Subordinated Notes   310,376    323,620 
Equipment Debt   59,118    56,879 
           
Total  $1,051,494   $1,172,937 
           
As of March 31, 20222023 and December 31, 2021,2022, the estimated fair values of the 2028 Senior Notes and 2025 Senior Notes were determined using Level 2 inputs and the estimated fair values of the Subordinated Notes and Equipment Debt were determined using Level 3 inputs.
1
7

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities, and the current portion of lease liabilities approximates their fair value given their short-term nature. The carrying value of the
non-current
portion of lease liabilities approximates their fair value given the difference between the discount rates used to recognize the liabilities in the condensed consolidated balance sheets and the normalized expected market rates of interest is insignificant.
Financial instruments are classified into one of the following categories: amortized cost, fair value through earnings and fair value through other comprehensive income. The following table summarizes information regarding the carrying value of the Company’s financial instruments:
(in thousands)March 31,
2023
December 31,
2022
Financial assets measured at amortized cost:
Cash and cash equivalents$45,399 $59,424 
Accounts receivable114,696 114,166 
$160,095 $173,590 
Financial liabilities measured at amortized cost:  
Accounts payable$25,458 $36,618 
Current portion of long-term debt20,432 19,961 
Current portion of leases23,526 25,023 
Non-current portion of long-term debt1,262,708 1,254,652 
Non-current portion of leases172,564 179,980 
Accrued liabilities92,948 86,916 
$1,597,636 $1,603,150 
Financial liabilities measured at fair value through earnings:  
Derivative in subordinated notes$6,089 $6,132 
Financial assets measured at fair value through other comprehensive income:  
Interest rate contracts$37 $52 
         
   
March 31,
   
December 31,
 
(in thousands)
  
2022
   
2021
 
Financial assets measured at amortized cost:          
Cash and cash equivalents  $40,242   $48,419 
Accounts receivable   126,480    121,525 
           
   $166,722   $169,944 
           
Financial liabilities measured at amortized cost:          
Accounts payable  $34,118   $34,326 
Current portion of long-term debt   15,667    14,789 
Current portion of leases   26,795    27,254 
Non-current
portion of long-term debt
   1,209,700    1,197,596 
Non-current
portion of leases
   193,640    200,326 
Other accrued liabilities   85,476    87,813 
           
   $1,565,396   $1,562,104 
           
Financial liabilities measured at fair value through earnings:          
Derivative in subordinated notes  $7,692   $7,522 
           
Financial assets measured at fair value through other comprehensive income:          
Interest rate contracts  $25   $3 
           
Financial liabilities measured at fair value through other comprehensive income:          
Interest rate contracts  $14   $53 
           
14


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
The Company measures certain
non-financial
assets at fair value on a nonrecurring basis, primarily intangible assets, goodwill and long-lived assets in connection with acquisitions and periodic evaluations for potential impairment. The Company estimates the fair value of these assets using primarily unobservable inputs; therefore, these are considered Level 3 fair value measurements.
Interest Rate Risk
Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Changes in lending rates can cause fluctuations in interest payments and cash flows. Certain of the Company’s equipment debt arrangements have interest rate swap agreements to hedge the future variable cash interest payments in order to avoid volatility in operating results due to fluctuations in interest rates. As of March 31, 20222023 and December 31, 2021,2022, the Company had $1.2$0.4 million and $1.8 million, respectively, of variable interest rate equipment debt that is not hedged. In addition, the Company is exposed to variable interest rates related to the 2020 Revolving Facility, which had no outstanding balance as of March 31, 20222023 or December 31, 2021.2022. The Company’s exposure to interest rate risk from a 1% increase or decrease in the variable interest rates is not material.
1
8
11. Stockholders' Equity

TableIn connection with the Domestication in 2022, the Company amended its Certificate of ContentsIncorporation to provide for the issuance of up to 300,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of undesignated preferred stock, par value $0.01 per share. The effect of the change in the common stock from no par value to $0.01 par value per share has been reflected in the condensed consolidated financial statements on a retroactive basis for all periods presented.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
14. Stock-Based Awards
The Company may grant stock-based awards to employees, directors and consultants under the Amended and Restated Restricted Share Unit Plan, adopted as of November 14, 2017 (the “RSU Plan”) and the Amended and Restated Stock Option Plan, adopted as of November 14, 2017 (the “Stock Option Plan” and together with the RSU Plan, the “2017 Stock Plans”). Under the 2017 Stock Plans, the collective maximum number of shares reserved for issuance is equal to 10% of the number of capital shares of the Company that are outstanding from time to time. As of March 31, 20222023 and December 31, 2021,2022, shares of common sharesstock reserved for issuance under the 2017 Stock Plans were 8,951,6519,049,849 and 8,902,699,8,981,151, respectively. The 2017 Stock Plans are administered by the Board of Directors, which has authority to select eligible persons to receive awards and to determine the terms and conditions of the awards.
Restricted Share Units
Restricted stockshare units (“RSUs”) represent a right to receive a share of common stock at a future vesting date with no cash payment from the holder. RSUs granted generally vest over two years from the date of grant. A summary of RSU activity is as follows:
             
   
Number of

RSUs
   
Weighted-

Average

Grant Date

Fair Value
   
Aggregate

Fair Value

(in thousands)
 
Outstanding and unvested at December 31, 2021   2,029,032   $2.41      
Granted   799,085    1.10   $875 
Vested   (489,516   3.19   $1,561 
                
Outstanding and unvested at March 31, 2022   2,338,601   $1.80   $4,210 
                
15


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
follows:
Number of
RSUs
Weighted-
Average
Grant Date
Fair Value
Aggregate
Fair Value
(in thousands)
Outstanding and unvested at December 31, 20222,143,601$1.77 
Granted350,0001.08 $378 
Vested(686,978)2.34 $1,605 
Cancelled(57,078)1.10 $(63)
Outstanding and unvested at March 31, 20231,749,545$1.43 $2,504 
Stock Options
Stock options are awarded as consideration in exchange for services rendered to the Company. Stock options granted generally have terms of 7 to 10 years and vest over 3 years. A summary of the stock option activity is as follows:
Number of
Options
Weighted-
Average
Exercise price
Weighted-
 Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 20225,348,120$2.56 3.3$378 
Outstanding at March 31, 20235,348,120$2.56 3.1$311 
Exercisable at March 31, 20235,325,020$2.55 3.1$311 
                 
   
Number of
Options
   
Weighted-
Average
Exercise price
   
Weighted-
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value

(in thousands)
 
Outstanding at December 31, 2021   5,680,120   $2.54    4.4   $2,344 
                     
Outstanding at March 31, 2022   5,680,120   $2.54    4.1   $1,144 
                     
Exercisable at March 31, 2022   5,084,519   $2.45    4.0   $1,144 
                     
Aggregate intrinsic value for outstanding and exercisable stock options in the table above represents the difference between the closing stock price on March 31, 20222023 and the exercise price multiplied by the number of
in-the-money
options.
No stock options were granted during the three months ended March 31, 2022.2023.
Stock-Based Compensation Expense
During the three months ended March 31, 2022 and 2021, the Company recorded total stock-based compensation expense related to all stock-based awards of $1.1 million and $0.4 million, respectively.
As of March 31, 2022, there was $3.1 million of total unrecognized compensation costs related to outstanding stock-based awards. These costs are expected to be recognized over a weighted-average period of 1.9 years.
19

Table of Contents
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
15.12. Commitments and Contingencies
Purchase Commitments
The Company has certain binding purchase commitments primarily for the purchase of equipment from various suppliers. As of March 31, 2022,2023, the obligations for these future purchase commitments totaled $35.7$39.4 million, of which $24.7$31.1 million is expected to be paid during the remaining nine months of 20222023 and $11.0$8.3 million is expected to be paid thereafter.
Guarantees and Indemnities
In the normal course of business, the Company has made certain guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. The Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims arising from a breach of representations or covenants. In addition, the Company has entered into indemnification agreements with its executive officers and directors and the Company’s bylaws contain similar indemnification obligations. Under these arrangements, the Company is obligated to indemnify, to the fullest extent permitted under applicable law, its current or former officers and directors for various amounts incurred with respect to actions, suits or proceedings in which they were made, or threatened to be made, a party as a result of acting as an officer or director.
16


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made related to these indemnifications have been immaterial. As of March 31, 2022,2023, the Company has determined that no liability is necessary related to these guarantees and indemnities.
Legal Matters
On November 22,December 20, 2021, an alleged shareholder of the Company filed a putative class action claim with the Ontario Superior Court of Justice against the Company and certain of its directors and officers alleging violations of Securities Act (Ontario), negligent misrepresentation and other related claims. The claims generally allege that certain of the Company’s prior public financial statements misrepresented the Company’s revenue, accounts receivable and the value of its assets based upon the Company’s August 12, 2021, October 12, 2021 and November 8, 2021 disclosures relating to a review of certain procedures related to its financial statements and to the restatement of the Company’s financial statements affecting accounts receivablethat were filed in 2021. On February 17, 2023, the plaintiff delivered a motion record for certification and net book value of property and equipment. The claim does not quantify a damage request. Defendants have not yet respondedfor leave to the claim. On December 20, 2021, a second statement of claim was filed by a new plaintiff making similar allegations. Because the two statements of claim involve similar subject matter and somecommence action under Part XXIII.1 of the same class members,Securities Act (Ontario). The Company plans to defend the second Ontario plaintiff firm requested a motion for carriage under the Class Proceedings Act, 1992 (Ontario) so the court could determine which plaintiff firm will have carriage of the class action proceedings. That carriage motion was heard by the court on March 31, 2022 and, on April 27, 2022, the court rendered a decision in favor of the second plaintiff. As such, the second plaintiff has been awarded carriage of the class action claim and the action by the first plaintiff is stayed.motion, which has not yet been scheduled for hearing.
Other Matters
The Company is party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, management evaluates the developments on a regular basis and accrues a liability when it believes a loss is probable and the amount can be reasonably estimated. Management believes that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on the Company’s business and condensed consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s results of operations and financial condition could be materially and adversely affected.
2
0

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
16.13. Supplemental Revenue Information
Revenues consist primarily of net patient fees received from various payors and patients based on established contractual billing rates, less allowances for contractual adjustments and implicit price concessions. Revenues are also derived directly from hospitals and healthcare providers.
Other revenue consists of miscellaneous fees under contractual arrangements, including service fee revenue under capitation arrangements with third-party payors, management fees, government grants and fees for other services provided to third parties.
The following table summarizes the components of the Company’s revenues by payor category:
Three Months Ended March 31,
(in thousands)20232022
Patient fee payors:
Commercial$65,522 $69,101 
Medicare21,420 21,172 
Medicaid3,405 3,102 
Other patient revenue2,595 3,274 
92,942 96,649 
Hospitals and healthcare providers92,462 87,459 
Other revenue2,188 2,155 
$187,592 $186,263 
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Patient fee payors:          
Commercial  $69,101   $50,799 
Medicare   21,172    8,184 
Medicaid   3,102    1,831 
Other patient revenue   3,274    2,652 
           
    96,649    63,466 
Hospitals and healthcare providers   87,459    0   
Other revenue   2,155    497 
           
   $186,263   $63,963 
           
17.
17


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
14. Cost of Operations, excluding Depreciation and Amortization
The following table summarizes the components of the Company’s cost of operations, excluding depreciation and amortization:
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Employee compensation  $77,365   $23,118 
Third-party services and professional fees   29,177    6,859 
Rent and utilities   12,477    7,684 
Reading fees   11,498    9,984 
Administrative   11,624    4,356 
Medical supplies and other   15,338    3,141 
           
   $157,479   $55,142 
           
18. Other Operating and
Non-Operating
Losses (Gains)
Three Months Ended March 31,
(in thousands)20232022
Employee compensation$71,527 $75,127 
Third-party services and professional fees30,829 29,177 
Rent and utilities12,341 12,477 
Reading fees11,599 11,498 
Administrative10,421 11,624 
Medical supplies and other18,850 15,258 
$155,567 $155,161 
Other operating losses (gains)
15. Supplemental Statement of Operations Information
Restructuring Charges
Restructuring charges consist of the following:
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Loss on disposal of property and equipment, net  $202   $90 
Other, net   (256   —   
           
   $(54  $90 
           
Three Months Ended March 31,
(in thousands)20232022
Transformation costs$5,720 $— 
Other16 80 
$5,736 $80 
2
1
Transformation costs consist of third-party consulting fees associated with a significant project to identify, plan, and implement various business improvement initiatives designed to enhance growth opportunities and improve operations. The project is expected to continue into 2024. The consulting agreement provides for fixed fees totaling $12.5 million, milestone fees totaling up to $7.0 million that are earned upon the achievement of certain milestones, and performance fees totaling up to $15.0 million that are earned based on the achievement of certain performance results during the period of the contract. The Company recognizes the fixed fees over the contract period as the services are rendered. Milestone and performance fees that are probable of ultimately being paid are recognized based on a percentage of achievement of the related milestone or performance result. As of March 31, 2023, the accounts payable and accrued liability balance for unpaid transformation consulting costs was $2.3 million and $6.9 million, respectively.
Severance and Related Costs

TableSeverance and related costs represent costs associated with employees whose employment with the Company has been terminated and are generally paid in the year recorded. In connection with certain terminated employees, severance benefits are being paid over periods of Contents12 to 18 months. As of March 31, 2023, the unpaid balance of severance and related costs totaled $3.0 million, which will be paid during the next twelve months.




18


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 20222023
(Unaudited)
Other Operating and Non-Operating Expense (Income)
Other
non-operating
losses (gains) consist operating income, net consists of the following:
Three Months Ended March 31,
(in thousands)20232022
Gain from insurance proceeds$(776)$— 
Loss on sale of accounts receivable124 — 
Loss (gain) on disposal of property and equipment, net(69)202 
Other, net(30)(209)
$(751)$(7)
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Earnings from equity method investments  $(240  $0   
Fair value adjustment on derivative   170    —   
Gain on conversion of debt to equity investment (Note 19)   0      (3,360
Other, net   59    (6
           
   $(11  $(3,366
           
Other non-operating expense (income), net consists of the following:
19.
Three Months Ended March 31,
(in thousands)20232022
Acquisition-related costs$143 $382 
Fair value adjustment on derivative in subordinated notes(43)170 
Earnings from unconsolidated investees(151)(240)
Other, net(81)12 
$(132)$324 
16. Investments in Unconsolidated Investees
Effective March 1, 2021, the Company completed a common equity investment in an artificial intelligence business (“AI business”) as part of a private placement offering for $4.6 million. The AI business develops artificial intelligence aided software programs for use in medical businesses, including outpatient imaging services provided by the Company. As a result of the investment, a previous investment in a convertible note instrument issued by the AI business to the Company in May 2020 converted to common equity. The Company’s total common equity investment is estimated to be valued athas a carrying value
of $7.9 million as of March 31, 2023 and represents a 34.5% interest in the AI business on a
non-diluted
basis. In addition, the Company holds share purchase warrants which, subject to the occurrence of certain events and certain assumptions, and the payment of $0.4 million, would entitle the Company to acquire an additional 2.4% ownership interest in the AI business common equity. During the three months ended March 31, 2021, the Company recognized a gain of $3.4 million on the conversion of the convertible note instrument to common equity and the share purchase warrants. This gain is included in other
non-operating
losses (gains) in the condensed consolidated statements of operations and comprehensive loss.
The Company has a 15% direct ownership in an unconsolidated investee and provides management services under a management agreement with the investee. The Company provides services as part of its ongoing operations for and on behalf of the unconsolidated investee, which reimburses the Company for the actual amount of the expenses incurred. The Company records the expenses in cost of operations and the reimbursement as revenue in the condensed consolidated statementstatements of operations and comprehensive loss.
The financial position and results of
operations
of
these
unconsolidated investees are not material to the Company’s condensed consolidated financial statements.
17. Income Taxes
The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to Canadian tax after the Domestication on September 30, 2022.
20. Income Taxes19


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
The effective tax rate for the three months ended March 31, 2022 and 20212023 differs from the CanadianU.S. federal statutory rate of 26.5%21.0% primarily due to earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory tax rate, as well as the impact of valuation allowances applied against losses in jurisdictions for which no tax benefit or expense is recognized.
22


Table of Contents
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022
(Unaudited)
21.18. Basic and Diluted Loss per Share
The loss per share is calculated by dividing the net loss attributable to common shareholdersstockholders by the weighted average common shares outstanding during the period.
Three Months Ended March 31,
(in thousands, except share and per share amounts)20232022
Net loss attributable to common stockholders$(35,148)$(30,811)
Weighted average common shares outstanding:
Basic and diluted89,819,146 89,074,282 
Net loss per share attributable to common stockholders:
Basic and diluted$(0.39)$(0.35)
Employee stock options, warrants and restricted share units excluded from the computation of diluted per share amounts as their effect would be antidilutive2,301,518 1,844,044 
         
   
Three Months Ended March 31,
 
(in thousands, except share and per share amounts)
  
2022
   
2021
 
Net loss attributable to common shareholders  $30,811   $(2,877
           
Weighted average common shares outstanding:          
Basic and diluted   89,074,282    70,178,428 
           
Net loss per share attributable to common shareholders:          
Basic and diluted  $(0.35  $(0.04
           
Employee stock options, warrants and restricted stock units excluded from the computation of diluted per share amounts as their effect would be antidilutive   1,844,044    1,811,298 
           
22.19. Segment Information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. Prior to the Alliance Acquisition, the Company had one reportable segment, which was outpatient diagnostic imaging services. As a result of the acquisition, theThe Company operates in two reportable segments: Radiology and Oncology. All intercompany revenues, expenses, payables and receivables are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segment’s performance is evaluated based on revenue and adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and ("Adjusted EBITDA.EBITDA").
The following table summarizes the Company’s revenues by segment:
Three Months Ended March 31,
(in thousands)20232022
Radiology$157,401 $155,340 
Oncology30,191 30,923 
$187,592 $186,263 
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Radiology  $155,340   $63,963 
Oncology   30,923    —   
           
   $186,263   $63,963 
           
Adjusted EBITDA is defined as net income before interest expense, income tax expense (benefit), depreciation and amortization, impairment charges, restructuring charges, severance and related costs, settlements and related costs (recoveries), stock-based compensation, acquisition-related costs,loss (gain) on sale of accounts receivable, losses (gains) on disposal of property and equipment, settlement and relatedacquisition-related costs, (recoveries), financial instrumentsinstrument revaluation and related losses (gains), loss on extinguishment of debt, severance and related costs, restructuring charges, asset impairments,adjustments, deferred rent expense, other losses (gains), deferred rent expense and
one-time
adjustments. Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDAit should not be considered in isolation or as alternativesan alternative to net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in the condensed consolidated financial statements as an indicatorindicators of financial performance or liquidity. Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation and may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA is the most frequently used measure of each segment’s performance and is commonly used in setting performance goals.
2
320

Table of Contents

AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 20222023
(Unaudited)
The following table summarizes the Company’s Adjusted EBITDA by segment:
Three Months Ended March 31,
(in thousands)20232022
Adjusted EBITDA:
Radiology$30,326 $28,589 
Oncology9,848 10,033 
Corporate(7,033)(6,604)
$33,141 $32,018 
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Adjusted EBITDA:          
Radiology  $28,589   $10,843 
Oncology   10,033    0   
Corporate   (6,604   (1,640
           
   $32,018   $9,203 
           
A reconciliation of the net lossincome (loss) to total Adjusted EBITDA is shown below:
Three Months Ended March 31,
(in thousands)20232022
Net loss$(29,190)$(26,432)
Interest expense30,697 28,681 
Income tax expense874 563 
Depreciation and amortization22,993 24,731 
Restructuring charges5,736 80 
Severance and related costs(49)2,238 
Settlements, recoveries and related costs1,448 (137)
Stock-based compensation399 1,061 
Loss on sale of accounts receivable124 — 
Loss (gain) on disposal of property and equipment, net(69)202 
Acquisition-related costs143 382 
Fair value adjustment on derivative(43)170 
Deferred rent expense185 332 
Other, net(107)147 
Adjusted EBITDA$33,141 $32,018 
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Net loss  $(26,432  $(2,508
Interest expense   28,681    8,368 
Income tax expense   563    65 
Depreciation and amortization   24,731    4,490 
           
EBITDA   27,543    10,415 
Adjustments:          
Stock-based compensation   1,061    427 
Acquisition-related costs   382    1,279 
Loss on disposal of property and equipment, net   202    90 
Settlement and related recoveries   (137   (24
Gain on conversion of debt to equity investment   —      (3,360
Severance, restructuring and other charges   2,453    —   
Other losses (gains), net   182    (69
Deferred rent expense   332    445 
           
Adjusted EBITDA  $32,018   $9,203 
           
The following table summarizes the Company’s total assets by segment:
         
   
March 31,
   
December 31,
 
(in thousands)
  
2022
   
2021
 
Identifiable assets:          
Radiology  $1,434,449   $1,451,905 
Oncology   432,931    440,416 
Corporate   24,103    26,505 
           
Total  $1,891,483   $1,918,826 
           

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(in thousands)March 31,
2023
December 31,
2022
Identifiable assets:
Radiology$1,371,908 $1,400,938 
Oncology332,295 346,337 
Corporate18,470 17,840 
$1,722,673 $1,765,115 
21


AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 20222023
(Unaudited)
The following table summarizes the Company’s capital expenditures by segment:
Three Months Ended March 31,
(in thousands)20232022
Capital expenditures:
Radiology$1,976 $8,812 
Oncology500 976 
Corporate32 90 
$2,508 $9,878 
         
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Capital expenditures:          
Radiology  $8,812   $1,173 
Oncology   976    —   
Corporate   90    —   
           
Total  $9,878   $1,173 
           
23. CARES Act
The CARES Act provided for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP”) during the
COVID-19
pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. During 2020, the Company applied for and received approval to receive $3.1 million of MAAPP funds from CMS. The Company recorded these payments as a liability until all performance obligations have been met, as the payments were made on behalf of patients before services were provided. MAAPP funds received are required to be applied to future Medicare billings commencing in April 2021 with all such remaining amounts required to be repaid by September 2022. In connection with the Alliance Acquisition, the Company assumed an obligation totaling $3.3 million related to MAAPP funds received by Alliance. As of March 31, 2022 and December 31, 2021, the Company had a total remaining balance of $1.1 million and $2.4 million, respectively, of MAAPP funds to be applied to future Medicare claims.
The CARES Act also provided for the deferred payment of the employer portion of Social Security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of March 31, 2022 and December 31, 2021, $4.3 million related to these deferred payments are included in other accrued liabilities in the condensed consolidated balance sheets.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form
10-Q
and our audited consolidated financial statements and related notes included in our Annual Report on Form
10-K
for the year ended December 31, 2021.2022. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and in Item 1A “Risk Factors” and elsewhere in our Annual Report on Form
10-K
for the year ended December 31, 2021.2022.
Overview
On September 1, 2021, we acquired all of the issued and outstanding common stock of Thaihot Investment Company US Limited, which owns 100% of the common stock of Alliance HealthCare Services, Inc. (“Alliance”), through our wholly owned indirect subsidiary Akumin Corp. (the “Alliance Acquisition”). Alliance is a leading national provider of radiology and oncology solutions to hospitals, health systems and physician groups. With the acquisition of Alliance, weWe provide fixed-site outpatient diagnostic imaging services through a network of approximately 200180 owned and/or operated imaging locations; and outpatient radiology and oncology services and solutions to approximately 1,0001,100 hospitals and health systems across 48 states. Our imaging procedures include magnetic resonance imaging (“MRI”), computerizedcomputed tomography (“CT”), positron emission tomography (“PET” and “PET/CT”), ultrasound, diagnostic radiology
(X-ray),
mammography and other related procedures. Our cancer care services include a full suite of radiation therapy and related offerings.
We are significantly diversified across business lines, geographies, modality offerings and reimbursement sources. The diversity of our business provides a number of advantages, including having no material revenue concentration with any health system or hospital customer and no material concentration with any commercial payor.
We currently operate in two reportable business segments: radiology and oncology. The following table summarizes our revenues by segment as a percentage of total revenue:
Three Months Ended March 31,
20232022
Radiology84 %83 %
Oncology16 %17 %
100 %100 %
   
Three Months Ended March 31,
 
   
2022
  
2021
 
Radiology
   83  100
Oncology
   17  —   
  
 
 
  
 
 
 
   100  100
  
 
 
  
 
 
 
Revenues consist primarily of net patient fees received from various payors and patients based on established contractual billing rates, less allowances for contractual adjustments and implicit price concessions. Revenues are also derived directly from hospitals and healthcare providers.
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The following table summarizes the components of our revenues by payor category:
Three Months Ended March 31,
(in thousands)20232022
Patient fee payors:
Commercial$65,522 $69,101 
Medicare21,420 21,172 
Medicaid3,405 3,102 
Other patient revenue2,595 3,274 
92,942 96,649 
Hospitals and healthcare providers92,462 87,459 
Other revenue2,188 2,155 
$187,592 $186,263 

23
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Patient fee payors:
    
Commercial
  $69,101   $50,799 
Medicare
   21,172    8,184 
Medicaid
   3,102    1,831 
Other patient revenue
   3,274    2,652 
  
 
 
   
 
 
 
   96,649    63,466 
Hospitals and healthcare providers
   87,459    —   
Other revenue
   2,155    497 
  
 
 
   
 
 
 
  $186,263   $63,963 
  
 
 
   
 
 
 


Summary of Factors Affecting Our Performance
Pricing
Continued expansion of health maintenance organizations, preferred provider organizations and other managed care organizations have influence over the pricing of our services because these organizations can exert great control over patients’ access to our services and reimbursement rates for accessing those services.
Competition
The market for outpatient diagnostic imaging and oncology services is highly competitive. We compete principally on the basis of our reputation, our ability to provide multiple modalities at many of our centers, the location of our centers and the quality of our outpatient diagnostic imaging and oncology services. We compete locally with groups of individual healthcare providers, established hospitals, clinics and other independent organizations that own and operate imaging and radiation therapy equipment.
We also face competition from other outpatient diagnostic imaging companies and oncology service providers in acquiring outpatient diagnostic imaging and oncology centers, which makes it more difficult to find attractive products on acceptable terms. Accordingly, we may not be able to acquire rights to additional outpatient diagnostic imaging and oncology centers on acceptable terms.
Our multi-modality imaging offering provides a
one-stop-shop
for patients and referring physicians and diversifies our revenue sources. Our scalable and integrated operating platform is expected to create value from future acquisitions, cost efficiencies and organic growth.
Seasonality
We experience seasonality in the revenues and margins generated for our services. First and fourth quarter revenues are typically lower than those from the second and third quarters. First quarter revenue is affected primarily by fewer calendar days and inclement weather, typically resulting in fewer patients being scanned or treated during the period. Fourth quarter revenues are affected by holiday and client and patient vacation schedules, resulting in fewer scans or treatments during the period. The variability in margins is higher than the variability in revenues due to the fixed nature of our costs. We also experience fluctuations in our revenues and margins due to acquisition activity and general economic conditions, including recession or economic slowdown.
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Industry Trends
Our revenue is impacted by changes to U.S. healthcare laws, our partners’ and contractors’ healthcare costs, and/or reimbursement rates by payors.
Inflation

Inflationary pressures impact us primarily in the area of labor, fuel and medical supplies. The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. Suppliers and third-party service providers pass along rising costs to us in the form of higher prices. Managing these costs remains a significant challenge and priority for us.
Labor Shortages

Labor shortages among healthcare providers resulting from the COVID-19 pandemic and new variants, including burnout and attrition, has led to increased difficulty in hiring and retaining staff as well as increased labor costs and wage inflation. The shortage of clinical labor has also impacted our ability to generate same-store revenue growth.

24


Acquisitions and NewNew/Closed Facilities
The timing of acquisitions, and the opening of new fixed-site facilities, impactsand the closure of existing facilities impact our revenue and the comparability of our results from period to period. The following table shows the number of our radiology diagnostic imaging sites and oncology radiation therapy sites:
March 31,
2023
December 31,
2022
Radiology sites180181
Oncology sites3030
210211


   
March 31,
   
December 31,
 
   
2022
   
2021
 
Radiology sites
   201    199 
Oncology sites
   33    34 
  
 
 
   
 
 
 
   234    233 
  
 
 
   
 
 
 

Recent Developments
COVID-19
Commencing during the first quarter of 2020 and continuing through the present, a pandemic relating to the novel coronavirus known as
COVID-19
occurred causing significant financial market disruption and social dislocation. The pandemic is dynamic, with various cities, counties, states and countries around the world responding or having responded in different ways to address and contain the outbreak, including the declaration of a global pandemic by the World Health Organization, a National State of Emergency in the United States, and state and local executive orders and ordinances forcing the closure of
non-essential
businesses and persons not employed in or using essential services to “stay at home” or “shelter in place.” At this stage, while there are signs of improvement, we are uncertain as to how long the pandemic, or a more limited epidemic, will last, what regions will be most affected, to what extent containment measures will be applied, or the nature and timing of possible vaccinations. Imaging and radiation therapy centers are healthcare facilities and are generally considered an essential service with the expectation that they continue to operate during the pandemic.
We instituted several realignment and cost containment measures to respond to the drop in volume that resulted from the
COVID-19
pandemic and related government orders. Our cost containment measures included the temporary closure of certain of our imaging centers to consolidate volume to nearby centers and reduced operating hours at the remainder of our imaging centers, with the highest number of centers closed in
mid-April
2020. At that same time, we furloughed or laid off a portion of our workforce, reduced work hours for our hourly personnel and reduced salaries of employees, as well as negotiated deferral of certain costs due to landlords and other vendors.
In light of the improving business environment, we gradually increased our workforce during 2021. Effective January 1, 2021, all reduced salaries had been returned to normal levels. Clinical operations have resumed to normal operating hours as patient volumes allow and substantially all of the clinics that had temporarily closed due to the
COVID-19
pandemic have resumed normal operations. If the future economic or legislative environment related to the
COVID-19
pandemic again leads to weakened business volume, we might
re-institute
cost containment measures similar to those described above in order to preserve our liquidity.
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Results of Operations
The following table presents our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021.
operations:
Three Months Ended March 31,
(in thousands)20232022
Revenues$187,592 $186,263 
Operating expenses:  
Cost of operations, excluding depreciation and amortization155,567 155,161 
Depreciation and amortization22,993 24,731 
Restructuring charges5,736 80 
Severance and related costs(49)2,238 
Settlements, recoveries and related costs1,448 (137)
Stock-based compensation399 1,061 
Other operating income, net(751)(7)
Total operating expenses185,343 183,127 
Income from operations2,249 3,136 
Other expense (income):
Interest expense30,697 28,681 
Other non-operating expense (income), net(132)324 
Total other expense, net30,565 29,005 
Loss before income taxes(28,316)(25,869)
Income tax expense874 563 
Net loss(29,190)(26,432)
Less: Net income attributable to noncontrolling interests5,958 4,379 
Net loss attributable to common stockholders$(35,148)$(30,811)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.39)$(0.35)
   
Three Months Ended March 31,
 
(in thousands)
  
2022
  
2021
 
Revenues
  $186,263  $63,963 
Operating expenses:
   
Cost of operations, excluding depreciation and amortization
   157,479   55,142 
Depreciation and amortization
   24,731   4,490 
Stock-based compensation
   1,061   427 
Other operating losses (gains), net
   (54  90 
  
 
 
  
 
 
 
Total operating expenses
   183,217   60,149 
  
 
 
  
 
 
 
Income from operations
   3,046   3,814 
Other expense (income):
   
Interest expense
   28,681   8,368 
Acquisition-related costs
   382   1,279 
Settlement and related recoveries
   (137  (24
Other
non-operating
gains, net
   (11  (3,366
  
 
 
  
 
 
 
Total other expense, net
   28,915   6,257 
  
 
 
  
 
 
 
Loss before income taxes
   (25,869  (2,443
Income tax expense
   563   65 
  
 
 
  
 
 
 
Net loss
   (26,432  (2,508
Less: Net income attributable to noncontrolling interests
   4,379   369 
  
 
 
  
 
 
 
Net loss attributable to common shareholders
  $(30,811 $(2,877
  
 
 
  
 
 
 
Net loss per share attributable to common shareholders:
   
Basic and diluted
  $(0.35 $(0.04
  
 
 
  
 
 
 
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Revenues
The following table summarizes our revenues by segment:
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Radiology
  $155,340   $63,963 
Oncology
   30,923    —   
  
 
 
   
 
 
 
  $186,263   $63,963 
  
 
 
   
 
 
 
Revenues for the three months ended March 31, 2022 were $186.3 million and increased by $122.3 million, or 191%, from the three months ended March 31, 2021. This increase includes $113.9 million of revenues contributed by Alliance during the three months ended March 31, 2022. The remaining increase in revenues during the three months ended March 31, 2022 included a $3.5 million revenue contribution from other acquisitions completed in 2021.
The following table summarizes statistical information regarding our radiology scan volumes and oncology patient starts:
Three Months Ended March 31,
(in thousands)20232022Change% Change
MRI scans217 214 %
PET/CT scans36 32 13 %
Oncology patient starts2.610 2.544 0.066 %
The following table summarizes our revenues by segment:
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
   
Change
   
% Change
 
MRI scans
   214    87    127    146
PET/CT scans
   32    2    30    1,500
Other modalities
   294    259    35    14
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
   540    348    192    55
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Oncology patient starts
   3    —      3    nmf 
  
 
 
   
 
 
   
 
 
   
 
 
 
Three Months Ended March 31,
(in thousands)20232022
Radiology$157,401 $155,340 
Oncology30,191 30,923 
$187,592 $186,263 
Cost of Operations, excluding Depreciation and Amortization26



Cost of operations, excluding depreciation and amortization, for the three months ended March 31, 2022 was $157.5 million and increased by $102.3 million, or 186%, from the three months ended March 31, 2021. This increase includes $91.5 million of costs incurred by Alliance during the three months ended March 31, 2022. The following table summarizes the components of our cost of operations, excluding depreciation and amortization:
Three Months Ended March 31,
(in thousands)20232022
Employee compensation$71,527 $75,127 
Third-party services and professional fees30,829 29,177 
Rent and utilities12,341 12,477 
Reading fees11,599 11,498 
Administrative10,421 11,624 
Medical supplies and other18,850 15,258 
$155,567 $155,161 
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Employee compensation
  $77,365   $23,118 
Third-party services and professional fees
   29,177    6,859 
Rent and utilities
   12,477    7,684 
Reading fees
   11,498    9,984 
Administrative
   11,624    4,356 
Medical supplies and other
   15,338    3,141 
  
 
 
   
 
 
 
  $157,479   $55,142 
  
 
 
   
 
 
 
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Revenues
30
Revenues for the three months ended March 31, 2023 were $187.6 million and increased by $1.3 million, or 1%, from the three months ended March 31, 2022. This increase was primarily due to higher PET/CT and MRI volumes resulting in a $2.1 million increase in radiology revenue, partly offset by a $0.7 million decrease in oncology revenue.

TableCost of ContentsOperations, excluding Depreciation and Amortization
Cost of operations, excluding depreciation and amortization, for the three months ended March 31, 2023 was $155.6 million and increased by $0.4 million, or 0.3%, from the three months ended March 31, 2022. This increase was a result of higher medical supplies and others costs and third-party services and professional fees, partly offset by lower employee compensation and administrative expenses.
Employee Compensation
Employee compensation for the three months ended March 31, 20222023 was $77.4$71.5 million and increaseddecreased by $54.2$3.6 million, or 235%5%, from the three months ended March 31, 2021.2022. This increase includes $48.9 million of costs incurred by Alliance during the three months ended March 31, 2022. The remaining increasedecrease was primarily driven by other acquisitions completed during 2021workforce reductions implemented after the first quarter of 2022, partly offset by wage inflation and easing of the cost containment measures takenhigher compensation to attract and retain clinic staff due to labor shortages in 2020 in response to the
COVID-19certain markets and merit increases.
pandemic. See “Recent Developments –
COVID-19”
above.
Third-Party Services and Professional Fees
Third-party services and professional fees for the three months ended March 31, 20222023 were $29.2$30.8 million and increased by $22.3$1.7 million, or 325%6%, from the three months ended March 31, 2021.2022. This increase includes $19.1 million of costs incurred by Alliance during the three months ended March 31, 2022. The remaining increase in these fees was primarily due to other acquisitions completed during 2021higher equipment maintenance expenses and higher professional fees.information technology related services.
Rent and Utilities
Rent and utilities for the three months ended March 31, 20222023 were $12.5$12.3 million and increaseddecreased by $4.8$0.1 million, or 62%1%, from the three months ended March 31, 2021. The increase was driven primarily by rent and utilities incurred by Alliance during the three months ended March 31, 2022. Rent and utilities are largely a fixed cost.
Reading Fees
Reading fees for the three months ended March 31, 20222023 were $11.5$11.6 million and increased by $1.5$0.1 million, or 15%1%, from the three months ended March 31, 2021.2022. Our reading fees are primarily based on the volume of procedures performed. The increase in reading fees was driven by other acquisitions completed during 2021 and an increase in same-store volumes.
27


Administrative Expenses
Administrative expenses for the three months ended March 31, 20222023 were $11.6$10.4 million and increaseddecreased by $7.3$1.2 million, or 167%10%, from the three months ended March 31, 2021.2022. This increase includes $6.0 milliondecrease was due to cost containment measures put in place after the first quarter of 2022 affecting marketing and advertising, travel and related costs, incurred by Alliance during the three months ended March 31, 2022. The remaining increase was driven primarily by higher insurance costs.and other administrative expenses.
Medical Supplies and Other Expenses
Medical supplies and other expenses for the three months ended March 31, 20222023 were $15.3$18.9 million and increased by $12.2$3.6 million, or 388%24%, from the three months ended March 31, 2021.2022. The increase was driven primarily by medical suppliesdue to cost inflation and other expenses incurred by Alliance during the three months ended March 31, 2022.increased spend on specialty tracers used in PET/CT scans.
Depreciation and Amortization
Depreciation and amortization for the three months ended March 31, 20222023 was $24.7$23.0 million and increaseddecreased by $20.2$1.7 million, or 451%7%, from the three months ended March 31, 2021.2022. This increase isdecrease was primarily due to $19.9 million oflower depreciation for office and amortizationcomputer equipment resulting from fully depreciated assets.
Restructuring Charges
Restructuring charges for Alliance during the three months ended March 31, 2023 were $5.7 million compared to $0.1 million for the three months ended March 31, 2022.
Restructuring charges are composed primarily of transformation costs of $5.7 million. See further discussion in Note 15 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q.
Severance and Related Costs
Severance and related costs for the three months ended March 31, 2023 were $0.0 million compared to $2.2 million for the three months ended March 31, 2022. These costs include severance and benefits costs paid to terminated employees. See further discussion in Note 15 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q.
Other Expense (Income)
Other operating income, net for the three months ended March 31, 2023 was $0.8 million compared to $0.0 million for the three months ended March 31, 2022. This increase was primarily due to a gain on insurance proceeds.
Interest expense for the three months ended March 31, 20222023 was $28.7$30.7 million and increased by $20.3$2.0 million, or 243%7%, from the three months ended March 31, 2021.2022. This increase iswas primarily due to thehigher interest associated withexpense on the 2028 Senior Notes and Subordinated Notes resulting from interest paid in-kind that were issued during 2021 in connection withis added to the acquisition of Alliance.
principal.
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Acquisition-related costsOther non-operating income for the three months ended March 31, 2022 were $0.42023 was $0.1 million compared to $1.3$0.3 million expense for the three months ended March 31, 2021. This decrease is2022. The increase in non-operating income, net was due primarily due to reduced acquisition-related activities.
Other
non-operating
gains fora favorable change in the three months ended March 31, 2022 were $0.0 millionfair value adjustment of the derivative associated with the Subordinated Notes compared to $3.4 million for the three months ended March 31, 2021. The other
non-operating
gainsprior period. See further discussion in 2021 consist primarilyNote 15 to the condensed consolidated financial statements that appear in Item 1 of a $3.4 million gainthis Quarterly Report on the conversion of a debt investment to an equity investment.Form 10-Q.
Income Tax Expense
The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to Canadian tax after the Domestication on September 30, 2022.
Income tax expense for the three months ended March 31, 2023 and 2022 and 2021 was $0.6$0.9 million and $0.0$0.6 million, respectively. The effective tax rate for the periodsthree months ended March 31, 2023 differs from the U.S. statutory rate of 21% primarily due to the impact of valuation allowances applied against losses in jurisdictions for which no tax benefit is recognized. The effective tax rate for the three months ended March 31, 2022 differs from the Canadian statutory rate of 26.5% primarily due to earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian
28


statutory tax rate, as well as the impact of valuation allowances applied against losses in jurisdictions for which no tax benefit or expense is recognized.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests for the three months ended March 31, 20222023 was $4.4$6.0 million and increased by $4.0$1.6 million from the three months ended March 31, 2021.2022. This increase iswas due to amounts attributable to Alliance duringimproved operating performance in the three months ended March 31, 2022.
non-wholly owned entities.
Non-GAAP
Financial Measures
We use various measures of financial performance based on financial statements prepared in accordance with GAAP. We believe, in addition to GAAP measures, certain
non-GAAP
measures are useful for investors for a variety of reasons. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. Such
non-GAAP
measures include adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) and Adjusted EBITDA.. Our management regularly communicates EBITDA and Adjusted EBITDA and their interpretation of such results to our boardBoard of directors.Directors. We also compare actual periodic Adjusted EBITDA against internal targets as a key factor in determining cash incentive compensation for executives and other employees, largely because we view Adjusted EBITDA results as indicative of how our radiology and oncology businesses are performing and being managed.
We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization, impairment charges, restructuring charges, severance and related costs, settlements and related costs (recoveries), stock-based compensation, acquisition-related costs,loss (gain) on sale of accounts receivable, losses (gains) on the disposal of property and equipment, settlement and relatedacquisition-related costs, (recoveries), financial instrumentsinstrument revaluation and related losses (gains), loss on extinguishment of debt, severance and related costs, restructuring charges, asset impairments,adjustments, deferred rent expense, other losses (gains), deferred rent expense and
one-time
adjustments. EBITDA and Adjusted EBITDA are
is a non-GAAP
financial measuresmeasure used as an analytical indicatorsindicator by us and the healthcare industry to assess business performance and are measuresis a measure of leverage capacity and ability to service debt. EBITDA and Adjusted EBITDA should not be considered in isolation or as alternativesan alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the condensed consolidated financial statements as indicators of financial performance or liquidity. EBITDA and Adjusted EBITDA areis not financial measuresa measurement determined in accordance with GAAP and areis therefore susceptible to varying methods of calculation and may not be comparable to other similarly titled measures of other companies.
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The following table presents a reconciliation of our net loss,income (loss), the most directly comparable GAAP financial measure, to total EBITDA and Adjusted EBITDA:
Three Months Ended March 31,
(in thousands)20232022
Net loss$(29,190)$(26,432)
Interest expense30,697 28,681 
Income tax expense874 563 
Depreciation and amortization22,993 24,731 
Restructuring charges5,736 80 
Severance and related costs(49)2,238 
Settlements, recoveries and related costs1,448 (137)
Stock-based compensation399 1,061 
Loss on sale of accounts receivable124 — 
Loss (gain) on disposal of property and equipment, net(69)202 
Acquisition-related costs143 382 
Fair value adjustment on derivative(43)170 
Deferred rent expense185 332 
Other, net(107)147 
Adjusted EBITDA$33,141 $32,018 
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Net loss
  $(26,432  $(2,508
Interest expense
   28,681    8,368 
Income tax expense
   563    65 
Depreciation and amortization
   24,731    4,490 
  
 
 
   
 
 
 
EBITDA
   27,543    10,415 
Adjustments:
    
Stock-based compensation
   1,061    427 
Acquisition-related costs
   382    1,279 
Loss on disposal of property and equipment, net
   202    90 
Settlement and related recoveries
   (137   (24
Gain on conversion of debt to equity investment
   —      (3,360
Severance, restructuring and other charges
   2,453    —   
Other losses (gains), net
   182    (69
Deferred rent expense
   332    445 
  
 
 
   
 
 
 
Adjusted EBITDA
  $32,018   $9,203 
  
 
 
   
 
 
 
The following table summarizes our Adjusted EBITDA by segment:
Three Months Ended March 31,
(in thousands)20232022
Adjusted EBITDA:
Radiology$30,326 $28,589 
Oncology9,848 10,033 
Corporate(7,033)(6,604)
$33,141 $32,018 
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Adjusted EBITDA:
    
Radiology
  $28,589   $10,843 
Oncology
   10,033    —   
Corporate
   (6,604   (1,640
  
 
 
   
 
 
 
  $32,018   $9,203 
  
 
 
   
 
 
 
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash generated from operations, public and private sales of debt and equity securities, and bank borrowings. The following table presents a summary of our consolidated cash flows and the ending balance of our cash and cash equivalents:
Three Months Ended March 31,
(in thousands)20232022
Cash and cash equivalents at beginning of period$59,424 $48,419 
Net cash provided by operating activities3,304 9,318 
Net cash used in investing activities(2,183)(9,875)
Net cash used in financing activities(15,146)(7,620)
Cash and cash equivalents at end of period$45,399 $40,242 
   
Three Months Ended March 31,
 
(in thousands)
  
2022
   
2021
 
Cash and cash equivalents at beginning of period
  $48,419   $44,396 
Net cash provided by operating activities
   9,318    7,749 
Net cash used in investing activities
   (9,875   (5,761
Net cash provided by (used in) financing activities
   (7,620   76,341 
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
  $40,242   $122,725 
  
 
 
   
 
 
 
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Cash Flows from Operating Activities
Cash provided by operating activities was $9.3$3.3 million for the three months ended March 31, 20222023 and consisted of a net loss of $26.4$29.2 million adjusted for certain
non-cash
items and changes in certain operating assets and liabilities. The primary
non-cash
charges included in the net loss are $24.7$23.0 million of depreciation and amortization, and $12.1$13.8 million of non-
non-cash
30


cash interest expense.expense, and $0.7 million of deferred income taxes. Changes in operating assets and liabilities net of acquisitions, used $3.1$5.3 million of operating cash driven primarily by a $4.9$5.6 million increasedecrease in accounts receivable.payable and other liabilities, partially offset by a $1.3 million decrease in prepaid expenses and other assets.
Cash Flows from Investing Activities
During the three months ended March 31, 2022,2023, cash used in investing activities was $9.9$2.2 million, an increasea decrease of $4.1$7.7 million from the comparable period in 2021.2022. Purchases of property and equipment during the three months ended March 31, 20222023 were $9.9$2.5 million, an increasea decrease of $8.7$7.4 million from the comparable period in 2021. Cash used in investing activities during the three months ended March 31, 2021 also included a $4.6 million equity investment in an unconsolidated company.2022.
Cash Flows from Financing Activities
During the three months ended March 31, 2022,2023, cash used in financing activities was $7.6$15.1 million compared to cash provided byused in financing activities of $76.3$7.6 million during the three months ended March 31, 2021.2022. Cash used in financing activities during the three months ended March 31, 20222023 included distributions paid to noncontrolling interests of $8.6 million as well as principal payments on long-term debt and finance leases of $6.5 million. The cash used in financing activities during the revolving loanthree months ended March 31, 2022 was composed primarily of $10.0 million, distributions paid to noncontrolling interests of $6.7 million and principal payments on long-term debt and finance leases of $6.4 million, partially offset by proceeds from the revolving loan of $10.0 million and proceeds from long-term debt of $5.5 million. The cash provided by financing activities during the three months ended March 31, 2021 was composed primarily of proceeds from long-term debt of $78.8 million, partially offset by the payment of debt issuance costs of $1.2 million and principal payments on long-term debt and finance leases of $0.8 million.
Liquidity Outlook
Cash and cash equivalents were $40.2$45.4 million as of March 31, 2022.2023. In addition, we have a revolving credit facility under which we may borrow up to $55.0 million for working capital and other general corporate purposes. As of March 31, 2022,2023, there were no borrowings outstanding under the revolving credit facility. We believe that our existing cash, cash equivalents and expected future cash flow from operations will provide sufficient funds to finance our operations for at least the next twelve months. However it is possible that we may need to supplement our existing sources of liquidity to finance our activities beyond the next twelve months and there can be no assurance that sources of liquidity will be available to us at that time.time or if available will be on commercially reasonable terms.
We also have access to an additional $349.6 million of debt financing through August 2024, provided certain conditions are met, to finance mutually agreed upon organic growth and future acquisition opportunities.
For additional information regarding our revolving credit facility and the additional borrowing available for future acquisitions, see Note 89 to the consolidated financial statements included in our Annual Report on Form
10-K
for the year ended December 31, 2021.2022.
For a description of contractual obligations, such as debt, finance leases and operating leases, see Note 8,9, Note 910 and Note 10 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form
10-Q.
Also see Note 8, Note 9 and Note 1011 to the consolidated financial statements included in our Annual Report on Form
10-K
for the year ended December 31, 2021.2022.
Critical Accounting Policies and Estimates
There were no significant changes in our critical accounting policies and estimates during the three-month period ended March 31, 20222023 compared to those previously disclosed in “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form
10-K
for the year ended December 31, 2021.
34
2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company as defined by
Rule 12b-2
of the Exchange Act and is not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under
31


Rules 13a-15(e)
and 15d-15(e)
of the Exchange Act, as of March 31, 2022.2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2022.2023.
Identification of Material Weaknesses for the Quarter Ended June 30, 2021
Accounts Receivable
Historically, management used a provision matrix to determine estimated implicit price concessions based on actual experience with consideration of forward-looking information including changes to economic conditions that would have an impact on our customers. Such implicit price concessions were considered when calculating net revenue and subsequently adjusted as necessary based on the estimate. During the quarter ended June 30, 2021, in conjunction with performing
our quarter-end review
of accounts receivable, review of historical collection rates using our enhanced reporting and analytics tools, and inquiries from our external auditors, management identified issues in the recording of write-offs and cash collections on acquired accounts receivable balances impacting current and prior periods. In addition, during the review, management noted estimates of historical implicit price concessions and expected collection rates were not reflective of the actual cash collections experience. Using additional historical data that was available together with enhanced reporting and analytics tools, management was able to more accurately estimate its historical implicit price concessions, which impacts the net realizable value of the accounts receivable. This analysis resulted in a reduction in accounts receivable with an offset to net revenue, which was material to prior periods and required the consolidated financial statements to be restated.
Through the use of such improved analytical tools and the interpretation of the information produced from such tools, management was able to confirm
its period-end process
and related review control could be enhanced to provide greater accuracy in estimating the implicit price concessions for accounts receivable.
The material weakness was caused because the
period-end
process design, including review controls, did not effectively consider historical collection information to record write-offs and other adjustments to accounts receivable in order to accurately assess and reflect the effect of implicit price concessions in estimating net realizable value of accounts receivable. Starting in
mid-2018
and continuing through 2019, 2020, and into 2021, we made investments in our revenue cycle platform and data analytics tools. Among other benefits, these investments were intended to better integrate legacy revenue cycle information of acquired businesses into our revenue cycle platform. Subsequent to December 31, 2020, these investments allowed management to perform a more comprehensive analysis of historical collection data on a consolidated basis. After applying this more comprehensive analysis to the quarter ended June 30, 2021, management adopted an enhanced estimation methodology to assess net realizable value of accounts receivable. Applying this new methodology required a material change to historical implicit price concessions recorded as of January 1, 2019, December 31, 2019, December 31, 2020 and March 31, 2021. Under ASC 250,
Accounting Changes and Error Corrections
(“ASC 250”), this change was considered an error and thus a restatement of the financial statements for the periods ended March 31, 2021, December 31, 2020 and December 31, 2019 was required.
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Table of Contents
Capitalization Adjustments
The Capitalization Adjustments primarily relate to capitalization of components replaced when equipment is repaired. Management’s rationale for capitalizing these components was most of our equipment is relatively old, and the components replaced were extending the useful life of the aged equipment. Management consistently applied this policy to capitalize such items. Based on a thorough review of the components replaced and considering the authoritative and non-authoritative GAAP literature, management determined certain components previously capitalized prior to March 31, 2021 did not extend the life of the assets and should have been expensed to repair and maintenance rather than capitalized.
The material weakness was caused by review control design, which did not sufficiently ensure whether the nature of capital additions adhered to our capitalization policy. Determinations were made in the judgment of management that certain expenditures extended the useful life of capital assets and therefore should be capitalized. However, considering authoritative and non-authoritative GAAP guidance available and conducting a detailed analysis of the nature of the expenditures, management determined these expenditures should have been recorded as repair and maintenance expenses as opposed to capital expenditures.
Applying revised judgment toward application of our capitalization policy required a material change to previously capitalized medical equipment components as of January 1, 2019, December 31, 2019, December 31, 2020 and March 31, 2021. Under ASC 250, this change was considered an error and thus a restatement of the financial statements for the periods ended March 31, 2021, December 31, 2020 and December 31, 2019 was required.
Identification of Material Weakness for the Quarter Ended September 30, 2021
Income Tax Provision
Management concluded a material weakness in internal control over financial reporting existed relating to our quarterly income tax provision process. Specifically, we did not provide adequate review of the impact on deferred tax assets and deferred tax asset provision within the quarterly consolidated income tax provision as a result of a discrete transaction. While the control deficiency did not result in a misstatement of our previously issued consolidated financial statements, the control deficiency could have resulted in a misstatement of the income tax related accounts or disclosures that would have resulted in a material misstatement of our quarterly or annual consolidated financial statements that would not have been prevented or detected on a timely basis.
Identification of Material Weakness for the Quarter Ended December 31, 2021
Accounting Estimates and the Use of Specialists
Management concluded a material weakness in internal control over financial reporting existed relating to the oversight and review of the work performed by third-party specialists, the application of certain accounting principles and the coordination between specialists. Specialists were used in the preparation of (i) our purchase price allocation pursuant to ASC 805,
 Business Combinations
, (ii) the adoption of ASC 842,
 Leases
, in connection with the Alliance Acquisition, and (iii) the valuation of warrants issued in connection with a debt financing arrangement. The control deficiency could have resulted in a misstatement of certain accounting estimates or disclosures that would have resulted in a material misstatement of our annual consolidated financial statements that would not have been prevented or detected on a timely basis.
Remediation of Material Weaknesses in Internal Control Over Financial Reporting
Management is committed to the remediation efforts to address the material weaknesses, as well as continuously enhancing our internal controls.
Management has made financial reporting control changes to address the material weaknesses relating to the (i) estimates for implicit price concessions, (ii) process for identifying whether component parts replaced in its equipment should be classified as capital or as a repair and maintenance expense, (iii) process for reviewing the quarterly tax provision, and (iv) process for evaluating the qualifications of third-party specialists, defining the scope of work to be performed, and reviewing all estimates prepared by specialists.
Management enhanced its methodology that quantifies and considers the effects of implicit price concessions on the recognition of accounts receivable and collection history on a consolidated basis which will allow for timely recording of the impact to net revenue and accounts receivable due to changes to implicit price concessions if necessary. Management has also put in place controls to ensure its procedures to evaluate the appropriate accounting for component parts that are replaced when equipment is repaired. Management has taken steps to enhance the review of the quarterly tax provision to include a process for reviewing information underlying discrete transactions in the quarterly income tax provision. In addition, management has taken steps to enhance its evaluation of the qualifications of third-party specialists and defining the scope of work to be performed, as well as enhance the review process for all estimates prepared by specialists, including a detailed review of all work performed by specialists, by team members with the appropriate level of experience and knowledge and review the specialists work for compliance with accounting standards.
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Table of Contents
To further remediate the material weaknesses identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed
and re-emphasized
the importance of internal control, control consciousness and a strong control environment. We also expect to continue to review, optimize, and enhance our financial reporting controls and procedures. These material weaknesses will not be considered remediated until the applicable remediated control operates for a sufficient period of time and management has concluded that this control is operating effectively.
No assurance can be provided at this time that the actions and remediation efforts we have taken or will implement will effectively remediate the material weaknesses described above or prevent the incidence of other significant deficiencies or material weaknesses in our internal controls over financial reporting in the future. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.
If these remedial measures described above are insufficient to address the material weaknesses described above, or are not implemented timely, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future and could have the effects described in the “Risk Factors” section included in Item 1A of our Annual Report on
Form 10-K
for the year ended December 31, 2021.
Changes in Internal Control over Financial Reporting
There were no other changes in our internal control over financial reporting that occurred during the three-month period ended March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for the remediation efforts described above.
reporting.
37
32

Table of Contents

PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On November 22,December 20, 2021, an alleged shareholder of the Company filed a putative class action claim with the Ontario Superior Court of Justice against the Company and certain of its directors and officers alleging violations of Securities Act (Ontario), negligent misrepresentation and other related claims. The claims generally allege that certain of the Company’s prior public financial statements misrepresented the Company’s revenue, accounts receivable and the value of its assets based upon the Company’s August 12, 2021, October 12, 2021 and November 8, 2021 disclosures relating to a review of certain procedures related to its financial statements and to the restatement of the Company’s financial statements affecting accounts receivablethat were filed in 2021. On February 17, 2023, the plaintiff delivered a motion record for certification and net book value of property and equipment. The claim does not quantify a damage request. Defendants have not yet respondedfor leave to the claim. On December 20, 2021, a second statement of claim was filed by a new plaintiff making similar allegations. Because the two statements of claim involve similar subject matter and somecommence action under Part XXIII.1 of the same class members,Securities Act (Ontario). The Company plans to defend the second Ontario plaintiff firm requested a motion for carriage under the Class Proceedings Act, 1992 (Ontario) so the court could determine which plaintiff firm will have carriage of the class action proceedings. That carriage motion was heard by the court on March 31, 2022 and, on April 27, 2022, the court rendered a decision in favor of the second plaintiff. As such, the second plaintiff has been awarded carriage of the class action claim and the action by the first plaintiff is stayed.motion, which has not yet been scheduled for hearing.
The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment, contract disputes, employment and other commercial or regulatory matters. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. We believe that the outcome of our current litigation will not have a material adverse impact on our business, financial condition and results of operations. However, we could be subsequently named as a defendant in other lawsuits that could adversely affect us.
Item 1A. Risk Factors

There have beenExcept as provided below and to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes with respect to the risk factors discussed in our Annual Report on Form
10-K
for the year ended December 31, 20212022 dated March 16, 20222023 and filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Risks Relating to our Common Stock

The Company may be delisted from Nasdaq, further increasing the cost of capital and jeopardizing the Company’s ability to refinance existing indebtedness.

On April 19, 2023, the Company received a written notification (the “Notice”) from Nasdaq’s Listing Qualifications Department notifying the Company that the closing bid price for its Common Stock had been below $1.00 for 30 consecutive business days and that the Company therefore is not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). The Notice has no immediate effect on the listing of the Company’s Common Stock on the Nasdaq Capital Market. Under the Nasdaq Listing Rules, the Company must maintain a closing bid price for its Common Stock of at least $1.00 for a minimum of ten consecutive business days prior to the end of the 180 calendar day period starting from the date of the Notice to regain compliance with the Bid Price Requirement. Accordingly, the Company has until October 16, 2023 (the “Compliance Date”), to regain compliance with the Bid Price Requirement. A delisting of our Common Stock is likely to reduce the liquidity of the Common Stock and may inhibit or preclude the Company’s ability to raise additional financing and may also materially and adversely impact the Company’s credit terms with its vendors.

If the Company is delisted from Nasdaq, the resulting drop in the market price for the Company’s Common Stock and any further debt offering may jeopardize the Company’s ability to fund its operations.

The delisting of our Common Stock from Nasdaq could impair the liquidity and market price of the Common Stock. It could also materially, adversely affect our access to the capital markets, and any limitation on market liquidity or reduction in the price of the Common Stock as a result of such delisting could adversely affect our ability to raise capital on terms acceptable to us, or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Table of Contents
Item 3. Defaults Upon Senior Securities
None.
33

None.

Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
On April 13, 2022, Rhonda Longmore-Grund, the Company’s former President and Co-Chief Executive Officer, entered into a Confidential Separation Agreement and General Release (“Separation Agreement”) with the Company and Alliance Healthcare Services, Inc., which became effective on April 20, 2022. Pursuant to the terms of the Separation Agreement, the Company agreed to pay Ms. Longmore-Grund severance pay equal to $1,095,0178.75, which was 18 months of her then-current annual base salary of $730,012.50, and an enhanced bonus of $930,765.95, which is one-and-one-half times of Ms. Longmore-Grund’s target bonus for her service to the Company in 2021 payable in bi-weekly instalments over an 18 month period.
The Separation Agreement is filed herewith as Exhibit 10.1, and is incorporated by reference herein.
Item 6. Exhibits
Exhibit
Number
Description of Exhibit
10.1
  10.110.2
31.1
31.2
32.1
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)
39
34

SIGNATURES

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, thereunto duly authorized.
AKUMIN INC.
AKUMIN INC.
By:/s/ Riadh Zine
By:/s/ Riadh Zine
Riadh Zine

Chairman, Chief Executive Officer and Director
Date: May 10, 2022
2023
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