SECURITIES AND EXCHANGE COMMISSION
___________________________
___________________________ ☒ | | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
☐ | | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
fromfrom______________to______________
toCommission file number:
333-261815
___________________________
(Exact name of registrant as specified in its charter)
___________________________
| | | | | |
Delaware | | |
(State or other jurisdiction of incorporation or organization) | | |
| | |
8300 W. Sunrise Boulevard |
Plantation, Florida 33322 |
|
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices) |
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| | | | Name of each exchange on which registered |
Common Shares, noStock, $0.01 par value per share | AKU | | | |
Common Shares, noStock, $0.01 par value per share | 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 ☐
oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-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 filer | o | ☐ | | Accelerated filer | | ☒o |
| | | | |
| x | ☐ | | Smaller reporting company | | ☒x |
| | | | |
| | | | Emerging growth company | | ☒x |
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. ☐
oIndicate by check mark whether the registrant is a shell company (as defined in Rule12b-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.
Table of Contents
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;
•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;
•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;
•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 existence•the 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 circumstancessurrounding 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.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)
| | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | |
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 | |
| | | 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 receivable | 114,696 | | | 114,166 | |
Prepaid expenses | 8,325 | | | 8,003 | |
Other current assets | 8,097 | | | 10,352 | |
Total current assets | 176,517 | | | 191,945 | |
Property and equipment, net | 205,974 | | | 221,214 | |
Operating lease right-of-use assets | 160,250 | | | 166,823 | |
Goodwill | 769,110 | | | 769,110 | |
Other intangible assets, net | 387,354 | | | 392,095 | |
Other assets | 23,468 | | | 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 debt | 20,432 | | | 19,961 | |
Current portion of obligations under finance leases | 7,751 | | | 7,800 | |
Current portion of obligations under operating leases | 15,775 | | | 17,223 | |
Accrued liabilities | 92,948 | | | 86,916 | |
Total current liabilities | 162,364 | | | 168,518 | |
Long-term debt, net of current portion | 1,262,708 | | | 1,254,652 | |
Obligations under finance leases, net of current portion | 17,600 | | | 19,505 | |
Obligations under operating leases, net of current portion | 154,964 | | | 160,475 | |
Other liabilities | 21,178 | | | 20,674 | |
Total liabilities | 1,618,814 | | | 1,623,824 | |
Redeemable noncontrolling interests | 28,657 | | | 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, 2022 | 905 | | | 898 | |
Additional paid-in capital | 231,406 | | | 231,014 | |
Accumulated other comprehensive income | 45 | | | 73 | |
Accumulated deficit | (315,333) | | | (280,185) | |
Total stockholders’ deficit | (82,977) | | | (48,200) | |
Noncontrolling interests | 158,179 | | | 159,154 | |
Total equity | 75,202 | | | 110,954 | |
Total liabilities, redeemable noncontrolling interests and equity | $ | 1,722,673 | | | $ | 1,765,115 | |
See accompanying notes to the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited; in thousands, except per share amounts)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Revenues | $ | 187,592 | | | $ | 186,263 | | | | | |
Operating expenses: | | | | | | | |
Cost of operations, excluding depreciation and amortization | 155,567 | | | 155,161 | | | | | |
Depreciation and amortization | 22,993 | | | 24,731 | | | | | |
| | | | | | | |
Restructuring charges | 5,736 | | | 80 | | | | | |
Severance and related costs | (49) | | | 2,238 | | | | | |
Settlements, recoveries and related costs | 1,448 | | | (137) | | | | | |
Stock-based compensation | 399 | | | 1,061 | | | | | |
Other operating income, net | (751) | | | (7) | | | | | |
Total operating expenses | 185,343 | | | 183,127 | | | | | |
Income from operations | 2,249 | | | 3,136 | | | | | |
Other expense (income): | | | | | | | |
Interest expense | 30,697 | | | 28,681 | | | | | |
Other non-operating expense (income), net | (132) | | | 324 | | | | | |
Total other expense, net | 30,565 | | | 29,005 | | | | | |
Loss before income taxes | (28,316) | | | (25,869) | | | | | |
Income tax expense | 874 | | | 563 | | | | | |
Net loss | (29,190) | | | (26,432) | | | | | |
Less: Net income attributable to noncontrolling interests | 5,958 | | | 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 interests | 5,958 | | | 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, | |
| | | | | | |
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.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSEQUITY
(Unaudited; in thousands)
thousands, except share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | | |
Balance, December 31, 2021 | 89,026,997 | | | $ | 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 units | 489,516 | | | 5 | | | (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, 2022 | 89,516,513 | | | $ | 895 | | | $ | 228,761 | | | $ | 64 | | | $ | (154,235) | | | $ | 75,485 | | | $ | 176,724 | | | $ | 252,209 | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | | | | | | | |
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 | |
| | | 12,105 | | | | 0 | |
Amortization of deferred financing costs and accretion of discount on long-term debt | | | 30 | | | | 478 | |
Deferred income taxes | | | 307 | | | | 0 | |
| | | 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 assets | | | 528 | | | | 445 | |
| | | | | | | | |
Net cash provided by operating activities | | | 9,318 | | | | 7,749 | |
| | | | | | | | |
| | | | | | | | |
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 | ) |
| | | | | | | | |
| | | | | | | | |
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 on long-term debt | | | 12,105 | | | | 0 | |
Property and equipment purchases in accounts payable and other accrued liabilities | | | 6,118 | | | | 306 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | | |
Balance, December 31, 2022 | 89,811,513 | | | $ | 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 units | 686,978 | | | 7 | | | (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, 2023 | 90,498,491 | | | $ | 905 | | | $ | 231,406 | | | $ | 45 | | | $ | (315,333) | | | $ | (82,977) | | | $ | 158,179 | | | $ | 75,202 | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Operating activities: | | | |
Net loss | $ | (29,190) | | | $ | (26,432) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 22,993 | | | 24,731 | |
| | | |
Stock-based compensation | 399 | | | 1,061 | |
Non-cash interest expense | 13,757 | | | 12,105 | |
Amortization of deferred financing costs and accretion of discount/premium on long-term debt | 3 | | | 30 | |
Deferred income taxes | 734 | | | 307 | |
Distributions from unconsolidated investees | 183 | | | 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 assets | 1,287 | | | 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 activities | 3,304 | | | 9,318 | |
Investing activities: | | | |
Purchases of property and equipment | (2,508) | | | (9,878) | |
Other investing activities | 325 | | | 3 | |
Net cash used in investing activities | $ | (2,183) | | | $ | (9,875) | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited; in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
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 period | 59,424 | | | 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 liabilities | 2,614 | | | 6,118 | |
Derecognition of operating lease right-of-use assets and lease liabilities associated with lease terminations | 3,282 | | | 110 | |
| | | |
Operating lease right-of-use assets obtained in exchange for operating lease liabilities | 1,373 | | | 801 | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 (Subtopic470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic815-40)
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 (Subtopic470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic815-40).
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.Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued ASU2021-10,
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. ASU2021-10
also adds a new Topic—ASC 832,—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 ASU2021-10
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
ASU2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting 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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ASU2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ReportingIn March 2020, the FASB issued ASU2020-04,
(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.ASU2021-01,
Reference Rate Reform (Topic 848): ScopeIn January 2021, the FASB issued ASU2021-01,
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.ASU2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805)
In October 2021, the FASB issued ASU2021-08,
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,. 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 ASC610-20,
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, includingoff-market
contract terms. This ASU is effective for public entities for fiscal years beginning after December 15, 2022, with early adoption permitted. For
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
| | | | |
| | | | |
Assets acquired: | | | | |
Cash and cash equivalents | | $ | 26,125 | |
Net working capital | | | 14,221 | |
Property and equipment | | | 205,940 | |
| | | 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 improvements | 43,684 | | | 43,382 | |
Equipment under finance leases | 46,545 | | | 44,845 | |
Office and computer equipment | 18,644 | | | 17,742 | |
Transportation and service equipment | 11,562 | | | 11,672 | |
Furniture and fixtures | 3,439 | | | 3,362 | |
Construction in progress | 2,845 | | | 4,636 | |
| 372,555 | | | 370,156 | |
Less accumulated depreciation | 166,581 | | | 148,942 | |
| $ | 205,974 | | | $ | 221,214 | |
| | | | | | | | |
| | | | | | |
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.
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:
| | | | | | | | | | | | |
| | | | | | | | | |
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.
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.7.6. Other Intangible Assets
Other intangible assets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | Weighted Average Useful Life (in years) | | March 31, 2023 | | December 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 contracts | 20 | | $ | 263,388 | | | $ | (20,910) | | | $ | 242,478 | | | $ | 263,388 | | | $ | (17,588) | | | $ | 245,800 | |
Trade names | 18 | | 77,135 | | | (12,245) | | | 64,890 | | | 77,135 | | | (11,063) | | | 66,072 | |
Management agreements | 17 | | 10,200 | | | (950) | | | 9,250 | | | 10,200 | | | (800) | | | 9,400 | |
Other | 5 | | 5,719 | | | (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 Need | | | | | | | 69,558 | | | | | | | 69,558 | |
Total other intangible assets | | | | | | | $ | 387,354 | | | | | | | $ | 392,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | |
| | | | | | | | Other Intangible Assets, Net | | | | | | | | | 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:
| | | | |
| |
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 | |
| | | | |
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2023
(Unaudited)
7. Long-Term Debt
Long-term debt consists of the following:
| | | | | | | | |
| | | | | | |
| | | | | | |
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 | |
| | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | |
(in thousands) | March 31, 2023 | | December 31, 2022 |
2028 Senior Notes | $ | 375,000 | | | $ | 375,000 | |
2025 Senior Notes | 475,000 | | | 475,000 | |
Subordinated Notes | 437,061 | | | 423,303 | |
Equipment Debt | 68,173 | | | 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 portion | 20,432 | | | 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:
| | | | |
| | | |
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.
The information pertaining to obligations under finance leases is as follows:
| | | | | | | | |
| | | | | | |
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, | |
| | | | | | |
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 | |
| | | | | | | | |
2023.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Undiscounted cash flows for finance leases recorded in the condensed consolidated balance sheet as of March 31, 2022 are as follows.
| | | | |
| | | |
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, | |
| | | | | | |
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, | |
| | | | | | |
Operating cash flows from finance leases | | $ | 298 | | | $ | 181 | |
Equipment acquired in exchange for finance lease obligations | | | 0 | | | | 617 | |
The information pertaining to obligations under operating leases is as follows:
| | | | | | | | |
| | | | | | |
| | | | | | |
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 | |
| | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, | |
| | | | | | |
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.
| | | | |
| | | |
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, | |
| | | | | | |
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, | |
| | | | | | |
Operating cash flows from operating leases | | $ | 9,130 | | | $ | 4,649 | |
assets acquired in exchange for operating lease obligations | | | 801 | | | | 656 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 expense | 19,541 | | | 18,183 | |
Other | 52,574 | | | 43,078 | |
| $ | 92,948 | | | $ | 86,916 | |
| | | | | | | | |
| | | | | | |
| | | | | | |
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.
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:
| | | | |
| | | |
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 | |
| | | | |
| | | | | |
(in thousands) | |
Balance, December 31, 2022 | $ | 30,337 | |
Net income attributable to redeemable noncontrolling interests | 1,146 | |
Distributions paid to redeemable noncontrolling interests | (2,826) | |
Balance, March 31, 2023 | $ | 28,657 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2023 | | Fair Value as of December 31, 2022 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | |
| | | |
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.
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 Notes | 374,063 | | | 339,385 | |
Subordinated Notes | 283,587 | | | 254,951 | |
Equipment Debt | 58,705 | | | 58,698 | |
| $ | 978,818 | | | $ | 881,928 | |
| | | | | | | | |
| | | | | | |
| | | | | | |
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 receivable | 114,696 | | | 114,166 | |
| $ | 160,095 | | | $ | 173,590 | |
Financial liabilities measured at amortized cost: | | | |
Accounts payable | $ | 25,458 | | | $ | 36,618 | |
Current portion of long-term debt | 20,432 | | | 19,961 | |
Current portion of leases | 23,526 | | | 25,023 | |
Non-current portion of long-term debt | 1,262,708 | | | 1,254,652 | |
Non-current portion of leases | 172,564 | | | 179,980 | |
Accrued liabilities | 92,948 | | | 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 | |
| | | |
| | | |
| | | | | | | | |
| | | | | | |
| | | | | | |
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 | |
| | | | | | | | |
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 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.
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.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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:
| | | | | | | | | | | | |
| |
| | |
| | |
| |
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 | |
| | | | | | | | | | | | |
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, 2022 | 2,143,601 | | $ | 1.77 | | | |
Granted | 350,000 | | 1.08 | | | $ | 378 | |
Vested | (686,978) | | 2.34 | | | $ | 1,605 | |
Cancelled | (57,078) | | 1.10 | | | $ | (63) | |
Outstanding and unvested at March 31, 2023 | 1,749,545 | | $ | 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, 2022 | 5,348,120 | | $ | 2.56 | | | 3.3 | | $ | 378 | |
Outstanding at March 31, 2023 | 5,348,120 | | $ | 2.56 | | | 3.1 | | $ | 311 | |
Exercisable at March 31, 2023 | 5,325,020 | | $ | 2.55 | | | 3.1 | | $ | 311 | |
| | | | | | | | | | | | | | | | |
| | | | | Weighted- Average Exercise price | | | Weighted- Average Remaining Contractual Term (Years) | | |
| |
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
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.12. Commitments and Contingencies
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.
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.
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 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) | 2023 | | 2022 | | | | |
Patient fee payors: | | | | | | | |
Commercial | $ | 65,522 | | | $ | 69,101 | | | | | |
Medicare | 21,420 | | | 21,172 | | | | | |
Medicaid | 3,405 | | | 3,102 | | | | | |
Other patient revenue | 2,595 | | | 3,274 | | | | | |
| 92,942 | | | 96,649 | | | | | |
Hospitals and healthcare providers | 92,462 | | | 87,459 | | | | | |
Other revenue | 2,188 | | | 2,155 | | | | | |
| $ | 187,592 | | | $ | 186,263 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
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 | |
| | | | | | | | |
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, | |
| | | | | | |
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 andNon-Operating
Losses (Gains) | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Employee compensation | $ | 71,527 | | | $ | 75,127 | | | | | |
Third-party services and professional fees | 30,829 | | | 29,177 | | | | | |
Rent and utilities | 12,341 | | | 12,477 | | | | | |
Reading fees | 11,599 | | | 11,498 | | | | | |
Administrative | 10,421 | | | 11,624 | | | | | |
Medical supplies and other | 18,850 | | | 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, | |
| | | | | | |
Loss on disposal of property and equipment, net | | $ | 202 | | | $ | 90 | |
Other, net | | | (256 | ) | | | — | |
| | | | | | | | |
| | $ | (54 | ) | | $ | 90 | |
| | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Transformation costs | $ | 5,720 | | | $ | — | | | | | |
| | | | | | | |
| | | | | | | |
Other | 16 | | | 80 | | | | | |
| $ | 5,736 | | | $ | 80 | | | | | |
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) | 2023 | | 2022 | | | | |
Gain from insurance proceeds | $ | (776) | | | $ | — | | | | | |
Loss on sale of accounts receivable | 124 | | | — | | | | | |
Loss (gain) on disposal of property and equipment, net | (69) | | | 202 | | | | | |
Other, net | (30) | | | (209) | | | | | |
| $ | (751) | | | $ | (7) | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
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) | 2023 | | 2022 | | | | |
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 othernon-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.
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) | 2023 | | 2022 | | | | |
Net loss attributable to common stockholders | $ | (35,148) | | | $ | (30,811) | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic and diluted | 89,819,146 | | | 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 antidilutive | 2,301,518 | | | 1,844,044 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
(in thousands, except share and per share amounts) | | | | | | |
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) | 2023 | | 2022 | | | | |
Radiology | $ | 157,401 | | | $ | 155,340 | | | | | |
Oncology | 30,191 | | | 30,923 | | | | | |
| $ | 187,592 | | | $ | 186,263 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company’s Adjusted EBITDA by segment:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Adjusted EBITDA: | | | | | | | |
Radiology | $ | 30,326 | | | $ | 28,589 | | | | | |
Oncology | 9,848 | | | 10,033 | | | | | |
Corporate | (7,033) | | | (6,604) | | | | | |
| $ | 33,141 | | | $ | 32,018 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
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) | 2023 | | 2022 | | | | |
Net loss | $ | (29,190) | | | $ | (26,432) | | | | | |
Interest expense | 30,697 | | | 28,681 | | | | | |
Income tax expense | 874 | | | 563 | | | | | |
Depreciation and amortization | 22,993 | | | 24,731 | | | | | |
| | | | | | | |
Restructuring charges | 5,736 | | | 80 | | | | | |
Severance and related costs | (49) | | | 2,238 | | | | | |
Settlements, recoveries and related costs | 1,448 | | | (137) | | | | | |
Stock-based compensation | 399 | | | 1,061 | | | | | |
Loss on sale of accounts receivable | 124 | | | — | | | | | |
Loss (gain) on disposal of property and equipment, net | (69) | | | 202 | | | | | |
Acquisition-related costs | 143 | | | 382 | | | | | |
Fair value adjustment on derivative | (43) | | | 170 | | | | | |
Deferred rent expense | 185 | | | 332 | | | | | |
Other, net | (107) | | | 147 | | | | | |
Adjusted EBITDA | $ | 33,141 | | | $ | 32,018 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
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:
| | | | | | | | |
| | | | | | |
| | | | | | |
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 | |
| | | | | | | | |
Table of Contents | | | | | | | | | | | |
(in thousands) | March 31, 2023 | | December 31, 2022 |
Identifiable assets: | | | |
Radiology | $ | 1,371,908 | | | $ | 1,400,938 | |
Oncology | 332,295 | | | 346,337 | |
Corporate | 18,470 | | | 17,840 | |
| $ | 1,722,673 | | | $ | 1,765,115 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company’s capital expenditures by segment:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Capital expenditures: | | | | | | | |
Radiology | $ | 1,976 | | | $ | 8,812 | | | | | |
Oncology | 500 | | | 976 | | | | | |
Corporate | 32 | | | 90 | | | | | |
| $ | 2,508 | | | $ | 9,878 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
Capital expenditures: | | | | | | | | |
Radiology | | $ | 8,812 | | | $ | 1,173 | |
Oncology | | | 976 | | | | — | |
Corporate | | | 90 | | | | — | |
| | | | | | | | |
Total | | $ | 9,878 | | | $ | 1,173 | |
| | | | | | | | |
The CARES Act provided for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP”) during theCOVID-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.
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.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, | | |
| 2023 | | 2022 | | | | |
Radiology | 84 | % | | 83 | % | | | | |
Oncology | 16 | % | | 17 | % | | | | |
| 100 | % | | 100 | % | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | | 83 | % | | | 100 | % |
| | | 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.
The following table summarizes the components of our revenues by payor category:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Patient fee payors: | | | | | | | |
Commercial | $ | 65,522 | | | $ | 69,101 | | | | | |
Medicare | 21,420 | | | 21,172 | | | | | |
Medicaid | 3,405 | | | 3,102 | | | | | |
Other patient revenue | 2,595 | | | 3,274 | | | | | |
| 92,942 | | | 96,649 | | | | | |
Hospitals and healthcare providers | 92,462 | | | 87,459 | | | | | |
Other revenue | 2,188 | | | 2,155 | | | | | |
| $ | 187,592 | | | $ | 186,263 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | | | | | | | |
| | $ | 69,101 | | | $ | 50,799 | |
| | | 21,172 | | | | 8,184 | |
| | | 3,102 | | | | 1,831 | |
| | | 3,274 | | | | 2,652 | |
| | | | | | | | |
| | | 96,649 | | | | 63,466 | |
Hospitals and healthcare providers | | | 87,459 | | | | — | |
| | | 2,155 | | | | 497 | |
| | | | | | | | |
| | $ | 186,263 | | | $ | 63,963 | |
| | | | | | | | |
Summary of Factors Affecting Our Performance
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.
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.
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.
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.
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 sites | 180 | | 181 |
Oncology sites | 30 | | 30 |
| 210 | | 211 |
Commencing during the first quarter of 2020 and continuing through the present, a pandemic relating to the novel coronavirus known asCOVID-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 ofnon-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 theCOVID-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 inmid-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 theCOVID-19
pandemic have resumed normal operations. If the future economic or legislative environment related to theCOVID-19
pandemic again leads to weakened business volume, we mightre-institute
cost containment measures similar to those described above in order to preserve our liquidity.
Table of Contents
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) | 2023 | | 2022 | | | | |
Revenues | $ | 187,592 | | | $ | 186,263 | | | | | |
Operating expenses: | | | | | | | |
Cost of operations, excluding depreciation and amortization | 155,567 | | | 155,161 | | | | | |
Depreciation and amortization | 22,993 | | | 24,731 | | | | | |
| | | | | | | |
Restructuring charges | 5,736 | | | 80 | | | | | |
Severance and related costs | (49) | | | 2,238 | | | | | |
Settlements, recoveries and related costs | 1,448 | | | (137) | | | | | |
Stock-based compensation | 399 | | | 1,061 | | | | | |
Other operating income, net | (751) | | | (7) | | | | | |
Total operating expenses | 185,343 | | | 183,127 | | | | | |
Income from operations | 2,249 | | | 3,136 | | | | | |
Other expense (income): | | | | | | | |
Interest expense | 30,697 | | | 28,681 | | | | | |
Other non-operating expense (income), net | (132) | | | 324 | | | | | |
Total other expense, net | 30,565 | | | 29,005 | | | | | |
Loss before income taxes | (28,316) | | | (25,869) | | | | | |
Income tax expense | 874 | | | 563 | | | | | |
Net loss | (29,190) | | | (26,432) | | | | | |
Less: Net income attributable to noncontrolling interests | 5,958 | | | 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, | |
| | | | | | |
| | $ | 186,263 | | | $ | 63,963 | |
| | | | | | | | |
Cost of operations, excluding depreciation and amortization | | | 157,479 | | | | 55,142 | |
Depreciation and amortization | | | 24,731 | | | | 4,490 | |
| | | 1,061 | | | | 427 | |
Other operating losses (gains), net | | | (54 | ) | | | 90 | |
| | | | | | | | |
| | | 183,217 | | | | 60,149 | |
| | | | | | | | |
| | | 3,046 | | | | 3,814 | |
| | | | | | | | |
| | | 28,681 | | | | 8,368 | |
Acquisition-related costs | | | 382 | | | | 1,279 | |
Settlement and related recoveries | | | (137 | ) | | | (24 | ) |
Other non-operating gains, net | | | (11 | ) | | | (3,366 | ) |
| | | | | | | | |
| | | 28,915 | | | | 6,257 | |
| | | | | | | | |
| | | (25,869 | ) | | | (2,443 | ) |
| | | 563 | | | | 65 | |
| | | | | | | | |
| | | (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: | | | | | | | | |
| | $ | (0.35 | ) | | $ | (0.04 | ) |
| | | | | | | | |
The following table summarizes our revenues by segment:
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | $ | 155,340 | | | $ | 63,963 | |
| | | 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) | 2023 | | 2022 | | Change | | % Change | | | | | | | | |
MRI scans | 217 | | | 214 | | | 3 | | | 1 | % | | | | | | | | |
PET/CT scans | 36 | | | 32 | | | 4 | | | 13 | % | | | | | | | | |
Oncology patient starts | 2.610 | | | 2.544 | | | 0.066 | | | 3 | % | | | | | | | | |
The following table summarizes our revenues by segment:
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | | | | | | | |
| | | 214 | | | | 87 | | | | 127 | | | | 146 | % |
| | | 32 | | | | 2 | | | | 30 | | | | 1,500 | % |
| | | 294 | | | | 259 | | | | 35 | | | | 14 | % |
| | | | | | | | | | | | | | | | |
| | | 540 | | | | 348 | | | | 192 | | | | 55 | % |
| | | | | | | | | | | | | | | | |
Total Oncology patient starts | | | 3 | | | | — | | | | 3 | | | | nmf | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Radiology | $ | 157,401 | | | $ | 155,340 | | | | | |
Oncology | 30,191 | | | 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) | 2023 | | 2022 | | | | |
Employee compensation | $ | 71,527 | | | $ | 75,127 | | | | | |
Third-party services and professional fees | 30,829 | | | 29,177 | | | | | |
Rent and utilities | 12,341 | | | 12,477 | | | | | |
Reading fees | 11,599 | | | 11,498 | | | | | |
Administrative | 10,421 | | | 11,624 | | | | | |
Medical supplies and other | 18,850 | | | 15,258 | | | | | |
| $ | 155,567 | | | $ | 155,161 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | $ | 77,365 | | | $ | 23,118 | |
Third-party services and professional fees | | | 29,177 | | | | 6,859 | |
| | | 12,477 | | | | 7,684 | |
| | | 11,498 | | | | 9,984 | |
| | | 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 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.
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 theCOVID-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 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 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.
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.
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.
Othernon-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 othernon-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.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
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
areis 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.
Table of Contents
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) | 2023 | | 2022 | | | | |
Net loss | $ | (29,190) | | | $ | (26,432) | | | | | |
Interest expense | 30,697 | | | 28,681 | | | | | |
Income tax expense | 874 | | | 563 | | | | | |
Depreciation and amortization | 22,993 | | | 24,731 | | | | | |
| | | | | | | |
Restructuring charges | 5,736 | | | 80 | | | | | |
Severance and related costs | (49) | | | 2,238 | | | | | |
Settlements, recoveries and related costs | 1,448 | | | (137) | | | | | |
Stock-based compensation | 399 | | | 1,061 | | | | | |
Loss on sale of accounts receivable | 124 | | | — | | | | | |
Loss (gain) on disposal of property and equipment, net | (69) | | | 202 | | | | | |
Acquisition-related costs | 143 | | | 382 | | | | | |
Fair value adjustment on derivative | (43) | | | 170 | | | | | |
Deferred rent expense | 185 | | | 332 | | | | | |
Other, net | (107) | | | 147 | | | | | |
Adjusted EBITDA | $ | 33,141 | | | $ | 32,018 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | $ | (26,432 | ) | | $ | (2,508 | ) |
| | | 28,681 | | | | 8,368 | |
| | | 563 | | | | 65 | |
Depreciation and amortization | | | 24,731 | | | | 4,490 | |
| | | | | | | | |
| | | 27,543 | | | | 10,415 | |
| | | | | | | | |
| | | 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 | ) |
| | | 332 | | | | 445 | |
| | | | | | | | |
| | $ | 32,018 | | | $ | 9,203 | |
| | | | | | | | |
The following table summarizes our Adjusted EBITDA by segment:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Adjusted EBITDA: | | | | | | | |
Radiology | $ | 30,326 | | | $ | 28,589 | | | | | |
Oncology | 9,848 | | | 10,033 | | | | | |
Corporate | (7,033) | | | (6,604) | | | | | |
| $ | 33,141 | | | $ | 32,018 | | | | | |
| | | | | | | | |
| | Three Months Ended March 31, | |
| | | | | | |
| | | | | | | | |
| | $ | 28,589 | | | $ | 10,843 | |
| | | 10,033 | | | | — | |
| | | (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) | | 2023 | | 2022 |
Cash and cash equivalents at beginning of period | | $ | 59,424 | | | $ | 48,419 | |
Net cash provided by operating activities | | 3,304 | | | 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, | |
| | | | | | |
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 | |
| | | | | | | | |
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-
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.
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 Form10-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. 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
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
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 performingour 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 confirmits 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 theperiod-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 inmid-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.
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
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,, (ii) the adoption of ASC 842,, 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.
To further remediate the material weaknesses identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmedand 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 onForm 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.
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.
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
Item 3. Defaults Upon Senior Securities
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.
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101.INS | | Inline 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 |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) |
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.
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| AKUMIN INC. |
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| By: | /s/ Riadh Zine |
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By: | | /s/ Riadh Zine |
| | Chairman, Chief Executive Officer and Director
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