UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-Q
___________________________
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20222023
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from______________to______________
Commission file number: 333-261815001-39479
___________________________
AKUMIN INC.
(Exact name of registrant as specified in its charter)
___________________________
| | | | | |
OntarioDelaware | Not Applicable88-4139425 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
8300 W. Sunrise Boulevard |
Plantation, Florida 33322 |
(844) 730-0050 |
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices) |
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Shares, noStock, $0.01 par value per share | AKU | The Nasdaq Stock Market |
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 o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | o | | Accelerated filer | xo |
| | | | |
Non-accelerated filer | ox | | 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of August 9, 2022,7, 2023, there were 89,516,51390,998,491 shares of common sharesstock outstanding.
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 markets and sell new services that we acquire;
•goodwill impairment and related charges, as well as other accounting charges or adjustments could negatively impact our operating results;
•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;
•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); and
•the risks associated with macroeconomic conditions, including inflation and the threat of recession.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 circumstances surrounding the COVID-19 pandemic, it is difficultaccess to predict how significant private capital sources and public capital markets; and
•the adverse impact of global events, including the pandemic will beongoing Russian-Ukrainian conflict, on the global and domestic economyour business and the business, operations and financial position of the Company.actions we may take in response thereto.
Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. Those assumptions and factors are based on information currently available to us, including information obtained from third-party industry analysts and other third-party sources. In some instances, material assumptions and factors are presented or discussed elsewhere in this Quarterly Report on Form 10-Q in connection with the statements or disclosure containing the forward-looking information. The reader is cautioned that the following list of material factors and assumptions is not exhaustive. The factors and assumptions include, but are not limited to:
•no unforeseen changes in the legislative and operating framework for our business;
•no unforeseen changes in the prices for our services in markets where prices are regulated;
•no unforeseen changes in the regulatory environment for our services;
•a stable competitive environment; and
•no significant event occurring outside the ordinary course of business such as a foreign conflict, natural disaster, public health epidemic or other calamity.
Although we have attempted to identify important factors that could cause our actual results to differ materially from our plans, strategies, expectations and objectives, there may be other factors that could cause our results to differ from what we currently anticipate, estimate or intend. Forward-looking statements are provided to assist external stakeholders in understanding management’s expectations and plans relating to the future as of the date of the original document and may not be appropriate for other purposes. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required under applicable securities laws, we undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
We qualify all the forward-looking statements contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AKUMIN INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AKUMIN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 38,447 | | | $ | 48,419 | |
Accounts receivable | 126,145 | | | 121,525 | |
Prepaid expenses | 9,385 | | | 8,196 | |
Other current assets | 6,826 | | | 7,025 | |
Total current assets | 180,803 | | | 185,165 | |
Property and equipment, net | 231,297 | | | 259,122 | |
Operating lease right-of-use assets | 179,954 | | | 194,565 | |
Goodwill | 840,788 | | | 840,353 | |
Other intangible assets, net | 403,980 | | | 414,146 | |
Other assets | 24,671 | | | 25,475 | |
Total assets | $ | 1,861,493 | | | $ | 1,918,826 | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 33,787 | | | $ | 34,326 | |
Current portion of long-term debt | 16,299 | | | 14,789 | |
Current portion of obligations under finance leases | 5,972 | | | 6,460 | |
Current portion of obligations under operating leases | 20,122 | | | 20,794 | |
Accrued liabilities | 90,916 | | | 87,813 | |
Total current liabilities | 167,096 | | | 164,182 | |
Long-term debt, net of current portion | 1,220,823 | | | 1,197,596 | |
Obligations under finance leases, net of current portion | 13,872 | | | 15,951 | |
Obligations under operating leases, net of current portion | 171,044 | | | 184,375 | |
Other liabilities | 32,124 | | | 35,574 | |
Total liabilities | 1,604,959 | | | 1,597,678 | |
Redeemable noncontrolling interests | 36,042 | | | 37,469 | |
Shareholders’ equity: | | | |
Common stock, no par value; unlimited number of shares authorized; 89,516,513 and 89,026,997 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 230,414 | | | 228,595 | |
| | | |
Accumulated other comprehensive income | 80 | | | 18 | |
Accumulated deficit | (184,704) | | | (123,424) | |
Total shareholders’ equity | 45,790 | | | 105,189 | |
Noncontrolling interests | 174,702 | | | 178,490 | |
Total equity | 220,492 | | | 283,679 | |
Total liabilities, redeemable noncontrolling interests and equity | $ | 1,861,493 | | | $ | 1,918,826 | |
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 37,968 | | | $ | 59,424 | |
Accounts receivable | 115,790 | | | 114,166 | |
Prepaid expenses | 8,477 | | | 8,003 | |
Other current assets | 10,309 | | | 10,352 | |
Total current assets | 172,544 | | | 191,945 | |
Property and equipment, net | 197,559 | | | 221,214 | |
Operating lease right-of-use assets | 156,778 | | | 166,823 | |
Goodwill | 715,269 | | | 769,110 | |
Other intangible assets, net | 370,512 | | | 392,095 | |
Other assets | 23,080 | | | 23,928 | |
Total assets | $ | 1,635,742 | | | $ | 1,765,115 | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 43,575 | | | $ | 36,618 | |
Current portion of long-term debt | 19,282 | | | 19,961 | |
Current portion of obligations under finance leases | 7,837 | | | 7,800 | |
Current portion of obligations under operating leases | 15,744 | | | 17,223 | |
Accrued liabilities | 88,339 | | | 86,916 | |
Total current liabilities | 174,777 | | | 168,518 | |
Long-term debt, net of current portion | 1,273,077 | | | 1,254,652 | |
Obligations under finance leases, net of current portion | 15,991 | | | 19,505 | |
Obligations under operating leases, net of current portion | 151,957 | | | 160,475 | |
Other liabilities | 19,384 | | | 20,674 | |
Total liabilities | 1,635,186 | | | 1,623,824 | |
Redeemable noncontrolling interests | 26,800 | | | 30,337 | |
Stockholders’ deficit: | | | |
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding at June 30, 2023 and December 31, 2022 | — | | | — | |
Common stock, $0.01 par value; 300,000,000 shares authorized; 90,998,491 shares issued and outstanding at June 30, 2023; 89,811,513 shares issued and outstanding at December 31, 2022 | 910 | | | 898 | |
Additional paid-in capital | 231,842 | | | 231,014 | |
Accumulated other comprehensive income | 24 | | | 73 | |
Accumulated deficit | (411,985) | | | (280,185) | |
Total stockholders’ deficit | (179,209) | | | (48,200) | |
Noncontrolling interests | 152,965 | | | 159,154 | |
Total equity (deficit) | (26,244) | | | 110,954 | |
Total liabilities, redeemable noncontrolling interests and equity | $ | 1,635,742 | | | $ | 1,765,115 | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited; in thousands, except per share amounts)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues | Revenues | $ | 192,128 | | | $ | 69,496 | | | $ | 378,391 | | | $ | 133,459 | | Revenues | $ | 184,840 | | | $ | 192,128 | | | $ | 372,432 | | | $ | 378,391 | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Cost of operations, excluding depreciation and amortization | Cost of operations, excluding depreciation and amortization | 154,574 | | | 57,768 | | | 309,735 | | | 112,910 | | Cost of operations, excluding depreciation and amortization | 158,495 | | | 154,574 | | | 314,062 | | | 309,735 | |
Depreciation and amortization | Depreciation and amortization | 25,200 | | | 4,584 | | | 49,931 | | | 9,073 | | Depreciation and amortization | 35,015 | | | 25,200 | | | 58,008 | | | 49,931 | |
Impairment charges | | Impairment charges | 53,460 | | | — | | | 53,460 | | | — | |
Restructuring charges | Restructuring charges | 7,244 | | | — | | | 7,324 | | | — | | Restructuring charges | 944 | | | 7,244 | | | 6,680 | | | 7,324 | |
Severance and related costs | Severance and related costs | 5,559 | | | — | | | 7,797 | | | — | | Severance and related costs | 22 | | | 5,559 | | | (27) | | | 7,797 | |
Settlements, recoveries and related costs | Settlements, recoveries and related costs | 814 | | | (318) | | | 677 | | | (341) | | Settlements, recoveries and related costs | 465 | | | 814 | | | 1,913 | | | 677 | |
Stock-based compensation | Stock-based compensation | 758 | | | 785 | | | 1,819 | | | 1,212 | | Stock-based compensation | 441 | | | 758 | | | 840 | | | 1,819 | |
Other operating expense, net | 586 | | | 255 | | | 579 | | | 346 | | |
Other operating expense (income), net | | Other operating expense (income), net | 477 | | | 586 | | | (274) | | | 579 | |
Total operating expenses | Total operating expenses | 194,735 | | | 63,074 | | | 377,862 | | | 123,200 | | Total operating expenses | 249,319 | | | 194,735 | | | 434,662 | | | 377,862 | |
Income (loss) from operations | Income (loss) from operations | (2,607) | | | 6,422 | | | 529 | | | 10,259 | | Income (loss) from operations | (64,479) | | | (2,607) | | | (62,230) | | | 529 | |
Other expense (income): | Other expense (income): | | Other expense (income): | |
Interest expense | Interest expense | 29,290 | | | 8,920 | | | 57,971 | | | 17,288 | | Interest expense | 31,164 | | | 29,290 | | | 61,861 | | | 57,971 | |
Acquisition-related costs | 86 | | | 4,350 | | | 468 | | | 5,628 | | |
Other non-operating income, net | (2,421) | | | — | | | (2,479) | | | (3,366) | | |
Other non-operating expense (income), net | | Other non-operating expense (income), net | 2,346 | | | (2,335) | | | 2,214 | | | (2,011) | |
Total other expense, net | Total other expense, net | 26,955 | | | 13,270 | | | 55,960 | | | 19,550 | | Total other expense, net | 33,510 | | | 26,955 | | | 64,075 | | | 55,960 | |
Loss before income taxes | Loss before income taxes | (29,562) | | | (6,848) | | | (55,431) | | | (9,291) | | Loss before income taxes | (97,989) | | | (29,562) | | | (126,305) | | | (55,431) | |
Income tax expense (benefit) | (3,483) | | | 6 | | | (2,920) | | | 71 | | |
Income tax benefit | | Income tax benefit | (1,578) | | | (3,483) | | | (704) | | | (2,920) | |
Net loss | Net loss | (26,079) | | | (6,854) | | | (52,511) | | | (9,362) | | Net loss | (96,411) | | | (26,079) | | | (125,601) | | | (52,511) | |
Less: Net income attributable to noncontrolling interests | Less: Net income attributable to noncontrolling interests | 4,390 | | | 502 | | | 8,769 | | | 871 | | Less: Net income attributable to noncontrolling interests | 241 | | | 4,390 | | | 6,199 | | | 8,769 | |
Net loss attributable to common shareholders | $ | (30,469) | | | $ | (7,356) | | | $ | (61,280) | | | $ | (10,233) | | |
Net loss attributable to common stockholders | | Net loss attributable to common stockholders | $ | (96,652) | | | $ | (30,469) | | | $ | (131,800) | | | $ | (61,280) | |
Comprehensive loss, net of taxes: | Comprehensive loss, net of taxes: | | | | | | | | Comprehensive loss, net of taxes: | | | | | | | |
Net loss | Net loss | $ | (26,079) | | | $ | (6,854) | | | $ | (52,511) | | | $ | (9,362) | | Net loss | $ | (96,411) | | | $ | (26,079) | | | $ | (125,601) | | | $ | (52,511) | |
Other comprehensive income: | | |
Unrealized gain on hedging transactions, net of taxes | 7 | | | — | | | 36 | | | — | | |
Reclassification adjustment for losses included in net loss, net of taxes | 9 | | | — | | | 26 | | | — | | |
Other comprehensive income | 16 | | | — | | | 62 | | | — | | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Unrealized gain (loss) on hedging transactions, net of taxes | | Unrealized gain (loss) on hedging transactions, net of taxes | (7) | | | 7 | | | (21) | | | 36 | |
Reclassification adjustment for gains (losses) included in net loss, net of taxes | | Reclassification adjustment for gains (losses) included in net loss, net of taxes | (14) | | | 9 | | | (28) | | | 26 | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | (21) | | | 16 | | | (49) | | | 62 | |
Comprehensive loss, net of taxes | Comprehensive loss, net of taxes | (26,063) | | | (6,854) | | | (52,449) | | | (9,362) | | Comprehensive loss, net of taxes | (96,432) | | | (26,063) | | | (125,650) | | | (52,449) | |
Less: Comprehensive income attributable to noncontrolling interests | Less: Comprehensive income attributable to noncontrolling interests | 4,390 | | | 502 | | | 8,769 | | | 871 | | Less: Comprehensive income attributable to noncontrolling interests | 241 | | | 4,390 | | | 6,199 | | | 8,769 | |
Comprehensive loss attributable to common shareholders | $ | (30,453) | | | $ | (7,356) | | | $ | (61,218) | | | $ | (10,233) | | |
Net loss per share attributable to common shareholders: | | | | | | | | |
Comprehensive loss attributable to common stockholders | | Comprehensive loss attributable to common stockholders | $ | (96,673) | | | $ | (30,453) | | | $ | (131,849) | | | $ | (61,218) | |
Net loss per share attributable to common stockholders: | | Net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | Basic and diluted | $ | (0.34) | | | $ | (0.10) | | | $ | (0.69) | | | $ | (0.15) | | Basic and diluted | $ | (1.07) | | | $ | (0.34) | | | $ | (1.46) | | | $ | (0.69) | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | |
Balance, December 31, 2020 | 70,178,428 | | | $ | 160,965 | | | $ | — | | | $ | (80,133) | | | $ | 80,832 | | | $ | 4,338 | | | $ | 85,170 | |
Net income (loss) | — | | | — | | | — | | | (10,233) | | | (10,233) | | | 871 | | | (9,362) | |
Issuance of common stock for acquisition consideration | 974,999 | | | 3,012 | | | — | | | — | | | 3,012 | | | — | | | 3,012 | |
Stock options exercised | 150,000 | | | 75 | | | — | | | — | | | 75 | | | — | | | 75 | |
Stock-based compensation | — | | | 1,212 | | | — | | | — | | | 1,212 | | | — | | | 1,212 | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (1,006) | | | (1,006) | |
Balance, June 30, 2021 | 71,303,427 | | | $ | 165,264 | | | $ | — | | | $ | (90,366) | | | $ | 74,898 | | | $ | 4,203 | | | $ | 79,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | |
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 | — | | | — | | | — | | | (61,280) | | | (61,280) | | | 7,655 | | | (53,625) | |
Issuance of common stock under stock-based awards | 489,516 | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | 1,819 | | | — | | | — | | | 1,819 | | | — | | | 1,819 | |
Other comprehensive income | — | | | — | | | 62 | | | — | | | 62 | | | — | | | 62 | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (11,604) | | | (11,604) | |
Other equity transactions | — | | | — | | | — | | | — | | | — | | | 161 | | | 161 | |
Balance, June 30, 2022 | 89,516,513 | | | $ | 230,414 | | | $ | 80 | | | $ | (184,704) | | | $ | 45,790 | | | $ | 174,702 | | | $ | 220,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | | |
Balance, March 31, 2022 | 89,516,513 | | | $ | 895 | | | $ | 228,761 | | | $ | 64 | | | $ | (154,235) | | | $ | 75,485 | | | $ | 176,724 | | | $ | 252,209 | |
Net income (loss), net of the net income attributable to redeemable noncontrolling interests | — | | | — | | | — | | | — | | | (30,469) | | | (30,469) | | | 3,856 | | | (26,613) | |
Stock-based compensation | — | | | — | | | 758 | | | — | | | — | | | 758 | | | — | | | 758 | |
Other comprehensive income | — | | | — | | | — | | | 16 | | | — | | | 16 | | | — | | | 16 | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (5,878) | | | (5,878) | |
Balance, June 30, 2022 | 89,516,513 | | | $ | 895 | | | $ | 229,519 | | | $ | 80 | | | $ | (184,704) | | | $ | 45,790 | | | $ | 174,702 | | | $ | 220,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | | |
Balance, March 31, 2023 | 90,498,491 | | | $ | 905 | | | $ | 231,406 | | | $ | 45 | | | $ | (315,333) | | | $ | (82,977) | | | $ | 158,179 | | | $ | 75,202 | |
Net income (loss), net of the net loss attributable to redeemable noncontrolling interests | — | | | — | | | — | | | — | | | (96,652) | | | (96,652) | | | 776 | | | (95,876) | |
Settlement of restricted share units | 500,000 | | | 5 | | | (5) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 441 | | | — | | | — | | | 441 | | | — | | | 441 | |
Other comprehensive loss | — | | | — | | | — | | | (21) | | | — | | | (21) | | | — | | | (21) | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (5,990) | | | (5,990) | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2023 | 90,998,491 | | | $ | 910 | | | $ | 231,842 | | | $ | 24 | | | $ | (411,985) | | | $ | (179,209) | | | $ | 152,965 | | | $ | (26,244) | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | |
Balance, March 31, 2021 | 70,178,428 | | | $ | 161,392 | | | $ | — | | | $ | (83,010) | | | $ | 78,382 | | | $ | 4,258 | | | $ | 82,640 | |
Net income (loss) | — | | | — | | | — | | | (7,356) | | | (7,356) | | | 502 | | | (6,854) | |
Issuance of common stock for acquisition consideration | 974,999 | | | 3,012 | | | — | | | — | | | 3,012 | | | — | | | 3,012 | |
Stock options exercised | 150,000 | | | 75 | | | — | | | — | | | 75 | | | — | | | 75 | |
Stock-based compensation | — | | | 785 | | | — | | | — | | | 785 | | | — | | | 785 | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (557) | | | (557) | |
Balance, June 30, 2021 | 71,303,427 | | | $ | 165,264 | | | $ | — | | | $ | (90,366) | | | $ | 74,898 | | | $ | 4,203 | | | $ | 79,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | |
Balance, March 31, 2022 | 89,516,513 | | | $ | 229,656 | | | $ | 64 | | | $ | (154,235) | | | $ | 75,485 | | | $ | 176,724 | | | $ | 252,209 | |
Net income (loss), net of the net income attributable to redeemable noncontrolling interests | — | | | — | | | — | | | (30,469) | | | (30,469) | | | 3,856 | | | (26,613) | |
| | | | | | | | | | | | | |
Stock-based compensation | — | | | 758 | | | — | | | — | | | 758 | | | — | | | 758 | |
Other comprehensive income | — | | | — | | | 16 | | | — | | | 16 | | | — | | | 16 | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (5,878) | | | (5,878) | |
| | | | | | | | | | | | | |
Balance, June 30, 2022 | 89,516,513 | | | $ | 230,414 | | | $ | 80 | | | $ | (184,704) | | | $ | 45,790 | | | $ | 174,702 | | | $ | 220,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) | | 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 | — | | | — | | | — | | | — | | | (61,280) | | | (61,280) | | | 7,655 | | | (53,625) | |
Settlement of restricted share units | 489,516 | | | 5 | | | (5) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 1,819 | | | — | | | — | | | 1,819 | | | — | | | 1,819 | |
Other comprehensive income | — | | | — | | | — | | | 62 | | | — | | | 62 | | | — | | | 62 | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (11,604) | | | (11,604) | |
Purchase accounting adjustments | — | | | — | | | — | | | — | | | — | | | — | | | 161 | | | 161 | |
Balance, June 30, 2022 | 89,516,513 | | | $ | 895 | | | $ | 229,519 | | | $ | 80 | | | $ | (184,704) | | | $ | 45,790 | | | $ | 174,702 | | | $ | 220,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) | | 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 income attributable to redeemable noncontrolling interests | — | | | — | | | — | | | — | | | (131,800) | | | (131,800) | | | 5,588 | | | (126,212) | |
Settlement of restricted share units | 1,186,978 | | | 12 | | | (12) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 840 | | | — | | | — | | | 840 | | | — | | | 840 | |
Other comprehensive loss | — | | | — | | | — | | | (49) | | | — | | | (49) | | | — | | | (49) | |
Distributions paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (11,777) | | | (11,777) | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2023 | 90,998,491 | | | $ | 910 | | | $ | 231,842 | | | $ | 24 | | | $ | (411,985) | | | $ | (179,209) | | | $ | 152,965 | | | $ | (26,244) | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Operating activities: | | | |
Net loss | $ | (125,601) | | | $ | (52,511) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 58,008 | | | 49,931 | |
Impairment charges | 53,460 | | | — | |
Stock-based compensation | 840 | | | 1,819 | |
Non-cash interest expense | 27,962 | | | 24,604 | |
Amortization of deferred financing costs and accretion of discount/premium on long-term debt | 1 | | | 54 | |
Deferred income taxes | (914) | | | (3,368) | |
Distributions from unconsolidated investees | 305 | | | 915 | |
Earnings from unconsolidated investees | (279) | | | (488) | |
Other non-cash items, net | 1,380 | | | (498) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (2,326) | | | (4,547) | |
Prepaid expenses and other assets | (1,181) | | | (1,919) | |
Accounts payable and other liabilities | 6,171 | | | 6,502 | |
Operating lease liabilities and right-of-use assets | 129 | | | 585 | |
Net cash provided by operating activities | 17,955 | | | 21,079 | |
Investing activities: | | | |
Purchases of property and equipment | (11,460) | | | (15,466) | |
Other investing activities | 823 | | | 963 | |
Net cash used in investing activities | $ | (10,637) | | | $ | (14,503) | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Operating activities: | | | |
Net loss | $ | (52,511) | | | $ | (9,362) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 49,931 | | | 9,073 | |
Stock-based compensation | 1,819 | | | 1,212 | |
Non-cash interest expense | 24,604 | | | — | |
Amortization of deferred financing costs and accretion of discount/premium on long-term debt | 54 | | | 923 | |
Deferred income taxes | (3,368) | | | — | |
Distributions from unconsolidated investees | 915 | | | — | |
Earnings from unconsolidated investees | (488) | | | — | |
Other non-cash items, net | (498) | | | (3,020) | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
Accounts receivable | (4,547) | | | (1,688) | |
Prepaid expenses and other assets | (1,919) | | | 824 | |
Accounts payable and other liabilities | 6,502 | | | 3,895 | |
Operating lease liabilities and right-of-use assets | 585 | | | 904 | |
Net cash provided by operating activities | 21,079 | | | 2,761 | |
Investing activities: | | | |
Purchases of property and equipment | (15,466) | | | (2,584) | |
Business acquisitions, net of cash acquired | — | | | (35,749) | |
Other investing activities | 963 | | | (4,588) | |
Net cash used in investing activities | (14,503) | | | (42,921) | |
Financing activities: | | | |
Proceeds from revolving loan | 20,000 | | | — | |
Principal payments on revolving loan | (20,000) | | | — | |
Proceeds from long-term debt | 10,292 | | | 78,750 | |
Principal payments on long-term debt | (8,734) | | | (200) | |
Principal payments on finance leases | (3,961) | | | (1,615) | |
Payment of debt issuance costs | — | | | (1,162) | |
Payment of earn-out liability | — | | | (4,689) | |
Proceeds from issuance of common stock | — | | | 75 | |
Distributions paid to noncontrolling interests | (14,145) | | | (1,006) | |
Net cash provided by (used in) financing activities | (16,548) | | | 70,153 | |
Net increase (decrease) in cash and cash equivalents | (9,972) | | | 29,993 | |
Cash and cash equivalents, beginning of period | 48,419 | | | 44,396 | |
Cash and cash equivalents, end of period | $ | 38,447 | | | $ | 74,389 | |
Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 32,439 | | | $ | 16,915 | |
Income taxes paid, net | 502 | | | 241 | |
Supplemental disclosure of non-cash investing and financing activities: | | | |
Property and equipment purchases in accounts payable and other accrued liabilities | 4,852 | | | 323 | |
Derecognition of operating lease right-of-use assets and lease liabilities associated with lease terminations | 3,635 | | | 929 | |
Equipment acquired in exchange for finance lease obligations | 1,433 | | | 686 | |
Operating lease right-of-use assets obtained in exchange for operating lease liabilities | 668 | | | 1,649 | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited; in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Financing activities: | | | |
Proceeds from revolving loan | $ | 14,000 | | | $ | 20,000 | |
Principal payments on revolving loan | (14,000) | | | (20,000) | |
Proceeds from long-term debt | 1,706 | | | 10,292 | |
Principal payments on long-term debt | (10,618) | | | (8,365) | |
Principal payments on finance leases | (3,937) | | | (4,330) | |
Contributions received from redeemable noncontrolling interests | 107 | | | — | |
Distributions paid to noncontrolling and redeemable noncontrolling interests | (16,032) | | | (14,145) | |
Net cash used in financing activities | (28,774) | | | (16,548) | |
Net decrease in cash and cash equivalents | (21,456) | | | (9,972) | |
Cash and cash equivalents, beginning of period | 59,424 | | | 48,419 | |
Cash and cash equivalents, end of period | $ | 37,968 | | | $ | 38,447 | |
Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 33,986 | | | $ | 32,439 | |
Income taxes paid, net of refunds | 929 | | | 502 | |
Supplemental disclosure of non-cash investing and financing activities: | | | |
Property and equipment purchases in accounts payable and accrued liabilities | 3,551 | | | 4,852 | |
Derecognition of operating lease right-of-use assets and lease liabilities associated with lease terminations | 3,656 | | | 3,635 | |
Equipment acquired in exchange for finance lease obligations | 460 | | | 1,433 | |
Operating lease right-of-use assets obtained in exchange for operating lease liabilities | 3,500 | | | 668 | |
See accompanying notes to the condensed consolidated financial statements.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20222023
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Akumin Inc. (the “Company” or “Akumin”) and do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation have been included. The results for the three and six months ended June 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2021.2022.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Certain reclassifications have been made to prior period condensed consolidated financial statements to conform to the current period presentation.
2. New Accounting Standards
Recently Adopted Accounting Standards
ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)
In April 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. The Company adopted this standard as of January 1, 2022 and it did not have a material impact on the Company’s condensed consolidated financial statements.
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. ASU 2021-10 also adds a new Topic—ASC 832, Government Assistance—to the FASB’s Codification. The disclosure requirements only apply to transactions with a government that are accounted for by analogizing to either a grant model or a contribution model. The guidance in ASU 2021-10 is effective for financial statements of all entities, including private companies, for annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted this standard as of January 1, 2022 and it did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Effective
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued 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
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2022
(Unaudited)
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.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reportingstatements, resulting in no adjustments to prior year earnings.
In March 2020, the FASB issued ASU 2020-04, Recently Issued Accounting Standards Not Yet EffectiveReference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. For all entities, the guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
ASU 2021-01, Reference Rate Reform (Topic 848): Scope
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805)
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, creating an exception to the recognition and measurement principles in ASC 805, Business Combinations. The amendments require an acquirer to use the guidance in ASC 606, Revenue from Contracts with Customers, rather than using fair value, when recognizing and measuring contract assets and contract liabilities related to customer contracts assumed in a business combination. In addition, the amendments clarify that all contracts requiring the recognition of assets and liabilities in accordance with the guidance in ASC 606, such as contract liabilities derived from the sale of nonfinancial assets within the scope of ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets, fall within the scope of the amended guidance in ASC 805. The amendments do not affect the accounting for other assets or liabilities arising from revenue contracts with customers in a business combination, such as customer-related intangible assets and contract-based intangible assets, including off-market contract terms. This ASU is effective for public entities for fiscal years beginning after December 15, 2022, with early adoption permitted. For
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 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 preliminary fair value of $212.0 million on the acquisition date.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2022
(Unaudited)
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 six months ended June 30, 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 $0.1 million due to adjustments in estimated accrued liabilities, (iii) a decrease in equipment debt of $0.1 million due to an adjustment in the carrying value of the liability, and (iv) an increase in noncontrolling interest of $0.2 million due to a refinement in the valuation analysis. The net effect of the changes to the preliminary fair value of the assets acquired and liabilities assumed resulted in an increase in goodwill of $0.4 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 June 30, 2022 but will be finalized within the allowable one-year measurement period.
The following table summarizes the revised preliminary assessment of fair value of the assets acquired and liabilities assumed as of the date of the acquisition:
| | | | | |
(in thousands) | |
Assets acquired: | |
Cash and cash equivalents | $ | 26,125 | |
Net working capital | 14,221 | |
Property and equipment | 205,940 | |
Operating lease right-of-use assets | 69,919 | |
Goodwill | 456,195 | |
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 | |
| 1,195,660 | |
Liabilities assumed: | |
Equipment debt | 54,539 | |
Obligations under finance leases | 9,041 | |
Obligations under operating leases | 74,290 | |
Deferred tax liabilities | 52,760 | |
Other liabilities | 7,234 | |
| 197,864 | |
Net assets acquired | 997,796 | |
Less redeemable noncontrolling interests | 37,040 | |
Less noncontrolling interests | 175,140 | |
Purchase price | $ | 785,616 | |
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2022
(Unaudited)
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 June 30, 20222023 and December 31, 2021,2022, the Revenue Practices’ assets included in the Company’s condensed consolidated balance sheets were $23.4$39.6 million and $20.4$36.0 million, respectively, and liabilities included in the Company’s condensed consolidated balance sheets were $0$2.9 million and $0.6$1.4 million, respectively. The assets of the Revenue Practices can only be used to settle their obligations. During the six months ended June 30, 20222023 and 2021,2022, the Revenue Practices’ revenues were $92.8$85.7 million and $83.3$92.8 million, respectively, and the net cash provided by operating activities was $93.2$77.9 million and $90.2$93.2 million, respectively.
5.4. Property and Equipment
Property and equipment consists of the following:
| (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 |
Medical equipment | Medical equipment | $ | 236,007 | | | $ | 227,796 | | Medical equipment | $ | 254,247 | | | $ | 244,517 | |
Leasehold improvements | Leasehold improvements | 41,274 | | | 39,763 | | Leasehold improvements | 44,000 | | | 43,382 | |
Equipment under finance leases | Equipment under finance leases | 35,574 | | | 34,597 | | Equipment under finance leases | 45,348 | | | 44,845 | |
Office and computer equipment | Office and computer equipment | 19,246 | | | 16,701 | | Office and computer equipment | 19,151 | | | 17,742 | |
Transportation and service equipment | Transportation and service equipment | 11,672 | | | 8,996 | | Transportation and service equipment | 11,542 | | | 11,672 | |
Furniture and fixtures | Furniture and fixtures | 3,399 | | | 3,130 | | Furniture and fixtures | 3,439 | | | 3,362 | |
Construction in progress | Construction in progress | 1,186 | | | 6,423 | | Construction in progress | 3,550 | | | 4,636 | |
| | 348,358 | | | 337,406 | | | 381,277 | | | 370,156 | |
Less accumulated depreciation | Less accumulated depreciation | 117,061 | | | 78,284 | | Less accumulated depreciation | 183,718 | | | 148,942 | |
| | $ | 231,297 | | | $ | 259,122 | | | $ | 197,559 | | | $ | 221,214 | |
Depreciation expense was $20.2$18.2 million and $3.9$20.2 million for the three months ended June 30, 20222023 and 2021,2022, respectively, and $39.9$36.4 million and $7.7$39.9 million for the six months ended June 30, 20222023 and 2021,2022, respectively.
As of June 30, 20222023 and December 31, 2021,2022, the equipment under finance leases had a net book value of $20.7$25.4 million and $22.2$26.3 million, respectively.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(Unaudited)
6.5. Goodwill
Changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | | | | | | | |
(in thousands) | Radiology | | Oncology | | Total |
Balance, December 31, 2021 | $ | 681,993 | | | $ | 158,360 | | | $ | 840,353 | |
Adjustments | 360 | | | 75 | | | 435 | |
Balance, June 30, 2022 | $ | 682,353 | | | $ | 158,435 | | | $ | 840,788 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Radiology | | Oncology | | Total |
Balance, December 31, 2022 | $ | 682,725 | | | $ | 86,385 | | | $ | 769,110 | |
Impairment | (53,460) | | | — | | | (53,460) | |
| | | | | |
Goodwill written off in connection with site closure | — | | | (381) | | | (381) | |
Balance, June 30, 2023 | $ | 629,265 | | | $ | 86,004 | | | $ | 715,269 | |
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. AsDuring the second quarter of June 30, 2022, there were no indications of impairment of2023, the Company’s goodwill balances.
7. Other Intangible Assets
Other intangible assets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | Weighted Average Useful Life (in years) | | June 30, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Other Intangible Assets, Net | | Gross Carrying Amount | | Accumulated Amortization | | Other Intangible Assets, Net |
Finite-lived intangible assets: | | | | | | | | | | | | | |
Customer contracts | 20 | | $ | 266,059 | | | $ | (11,116) | | | $ | 254,943 | | | $ | 266,224 | | | $ | (4,437) | | | $ | 261,787 | |
Trade names | 18 | | 77,466 | | | (8,618) | | | 68,848 | | | 77,466 | | | (6,054) | | | 71,412 | |
Management agreements | 17 | | 10,200 | | | (500) | | | 9,700 | | | 10,200 | | | (200) | | | 10,000 | |
Other | 4 | | 4,814 | | | (3,883) | | | 931 | | | 4,814 | | | (3,425) | | | 1,389 | |
Total | | | $ | 358,539 | | | $ | (24,117) | | | 334,422 | | | $ | 358,704 | | | $ | (14,116) | | | 344,588 | |
Certificates of Need | | | | | | | 69,558 | | | | | | | 69,558 | |
Total other intangible assets | | | | | | | $ | 403,980 | | | | | | | $ | 414,146 | |
The Company performs an impairment test whendetermined that potential indicators of impairment are present. Asexisted and thus performed a quantitative test for impairment at the reporting unit level as of June 30, 2022, there were no indicationsMay 31, 2023. In estimating fair values, the Company gave equal weight to an income approach (the DCF method) and a market approach (the GPC method).
Specifically, the Company utilized the following Level 3 estimates and assumptions in its analysis:
| | | | | |
Discount rate | 9.5% to 10.0% |
Perpetual growth rate | 3.0% |
Tax rate | 26.0% |
Risk-free interest rate | 3.5% |
Revenue multiple | 1.8 to 2.2 |
EBITDA multiple | 7.5 to 9.5 |
The impairment test yielded a fair value for the Oncology reporting unit that exceeded its carrying value; therefore, this reporting unit was not considered at risk of impairment. In connection with the impairment test for the Radiology reporting unit, the Company concluded that the carrying value exceeded its estimated fair value based on management's assessment of the Company’s other intangible assets balances.
The aggregate amortization expenseoutlook and long-term business plans for this division. Consequently, the Company recorded an impairment charge of $53.5 million related to goodwill for the Company’s finite-lived intangible assetsRadiology reporting unit, which was $5.0 millionrecorded in the condensed consolidated statements of operations and $0.7 millioncomprehensive loss for the three months ended June 30, 2022 and 2021, respectively, and $10.0 million and $1.4 million for the six months ended June 30, 20222023.
Changes in these estimates or assumptions could materially affect the determination of fair value and 2021, respectively.the conclusions of the Company's impairment test.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(Unaudited)
8.6. Other Intangible Assets
Other intangible assets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | Weighted Average Useful Life (in years) | | June 30, 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 | | $ | 250,733 | | | $ | (23,057) | | | $ | 227,676 | | | $ | 263,388 | | | $ | (17,588) | | | $ | 245,800 | |
Trade names | 18 | | 76,391 | | | (13,324) | | | 63,067 | | | 77,135 | | | (11,063) | | | 66,072 | |
Management agreements | 17 | | 10,200 | | | (1,100) | | | 9,100 | | | 10,200 | | | (800) | | | 9,400 | |
Other | 5 | | 5,739 | | | (4,628) | | | 1,111 | | | 5,719 | | | (4,454) | | | 1,265 | |
Total | | | $ | 343,063 | | | $ | (42,109) | | | 300,954 | | | $ | 356,442 | | | $ | (33,905) | | | 322,537 | |
Certificates of Need | | | | | | | 69,558 | | | | | | | 69,558 | |
Total other intangible assets | | | | | | | $ | 370,512 | | | | | | | $ | 392,095 | |
The Company performs an impairment test when indicators of impairment are present. As of June 30, 2023, there were no indications of impairment of the Company's other intangible assets balances.
The aggregate amortization expense for the Company’s finite-lived intangible assets was $16.8 million and $5.0 million for the three months ended June 30, 2023 and 2022, respectively, and $21.6 million and $10.0 million for the six months ended June 30, 2023 and 2022, respectively. Amortization expense for the three and six months ended June 30, 2023 includes $12.1 million of accelerated amortization related to the closure of one site and winding down operations of a second site in the Oncology segment.
7. Long-Term Debt
Long-term debt consists of the following:
| (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 |
2028 Senior Notes | 2028 Senior Notes | $ | 375,000 | | | $ | 375,000 | | 2028 Senior Notes | $ | 375,000 | | | $ | 375,000 | |
2025 Senior Notes | 2025 Senior Notes | 475,000 | | | 475,000 | | 2025 Senior Notes | 475,000 | | | 475,000 | |
Subordinated Notes | Subordinated Notes | 397,074 | | | 372,470 | | Subordinated Notes | 451,265 | | | 423,303 | |
Equipment Debt | Equipment Debt | 60,212 | | | 58,827 | | Equipment Debt | 63,842 | | | 72,754 | |
| | 1,307,286 | | | 1,281,297 | | | 1,365,107 | | | 1,346,057 | |
Debt discount and deferred issuance costs | (70,164) | | | (68,912) | | |
Debt discount/premium and deferred issuance costs | | Debt discount/premium and deferred issuance costs | (72,748) | | | (71,444) | |
| | 1,237,122 | | | 1,212,385 | | | 1,292,359 | | | 1,274,613 | |
Less current portion | Less current portion | 16,299 | | | 14,789 | | Less current portion | 19,282 | | | 19,961 | |
Long-term debt, net of current portion | Long-term debt, net of current portion | $ | 1,220,823 | | | $ | 1,197,596 | | Long-term debt, net of current portion | $ | 1,273,077 | | | $ | 1,254,652 | |
During the six months ended June 30, 2022,2023, the Company elected to pay interest in-kind on the Subordinated Notes pursuant to the original agreement and, accordingly, $24.6$28.0 million of accrued interest was added to the principal balance of the Subordinated Notes.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2023
(Unaudited)
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 June 30, 2022.2023.
9.8. Accrued Liabilities
Accrued liabilities consist of the following:
| (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 |
Accrued compensation and related expenses | Accrued compensation and related expenses | $ | 35,525 | | | $ | 26,486 | | Accrued compensation and related expenses | $ | 21,743 | | | $ | 25,655 | |
Accrued interest expense | Accrued interest expense | 17,823 | | | 16,840 | | Accrued interest expense | 18,267 | | | 18,183 | |
Other | Other | 37,568 | | | 44,487 | | Other | 48,329 | | | 43,078 | |
| | $ | 90,916 | | | $ | 87,813 | | | $ | 88,339 | | | $ | 86,916 | |
10.9. 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 June 30, 2022,2023, the Company holds redeemable noncontrolling interests of $36.0$26.8 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)
June 30, 2022
(Unaudited)
The following is a rollforward of the activity in the redeemable noncontrolling interests for the six months ended June 30, 2022:2023:
| | | | | |
(in thousands) | |
Balance, December 31, 20212022 | $ | 37,46930,337 | |
Net income attributable to redeemable noncontrolling interests | 1,114611 | |
Contributions received from redeemable noncontrolling interests | 107 | |
Distributions paid to redeemable noncontrolling interests | (2,541)(4,255) | |
Balance, June 30, 20222023 | $ | 36,04226,800 | |
11.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2023
(Unaudited)
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 June 30, 2022 | | Fair Value as of December 31, 2021 | | Fair Value as of June 30, 2023 | | Fair Value as of December 31, 2022 |
(in thousands) | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Current and long-term assets: | Current and long-term assets: | | | | | | | | | | | | | | | | Current and long-term assets: | | | | | | | | | | | | | | | |
Interest rate contracts | $ | — | | | $ | 39 | | | $ | — | | | $ | 39 | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 3 | | |
Current and long-term liabilities: | | |
Interest rate and fuel option contracts | | Interest rate and fuel option contracts | $ | — | | | $ | 64 | | | $ | — | | | $ | 64 | | | $ | — | | | $ | 52 | | | $ | — | | | $ | 52 | |
Long-term liabilities: | | Long-term liabilities: | |
Derivative in subordinated notes | Derivative in subordinated notes | $ | — | | | $ | — | | | $ | 6,683 | | | $ | 6,683 | | | $ | — | | | $ | — | | | $ | 7,522 | | | $ | 7,522 | | Derivative in subordinated notes | $ | — | | | $ | — | | | $ | 5,831 | | | $ | 5,831 | | | $ | — | | | $ | — | | | $ | 6,132 | | | $ | 6,132 | |
Interest rate contracts | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 53 | | | $ | — | | | $ | 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 term.seven years from initiation date. The estimated fair values of the Change of Control Redemption Election as of June 30, 20222023 and December 31, 20212022 use unobservable inputs for probability weighted time until an exit event of 3.93.2 years and 4.23.5 years, respectively, and an exit event probability weighting of 24.0%21.7% 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 six months ended June 30, 2022:2023:
| | | | | |
(in thousands) | |
Balance, December 31, 20212022 | $ | 7,5226,132 | |
Change in fair value | (839)(301) | |
Balance, June 30, 20222023 | $ | 6,6835,831 | |
The $0.8 million changedecrease in the fair value of the derivative in subordinated notes liability was recorded as a gain and included in other non-operating income,expense (income), net in the Company's condensed consolidated statementstatements of operations and comprehensive loss for the six months ended June 30, 2022.2023.
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. During the second quarter of 2023, the Company entered into a fuel call option contract to hedge against fluctuations in fuel prices through April 2024.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(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) | (in thousands) | June 30, 2022 | | December 31, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 |
2028 Senior Notes | 2028 Senior Notes | $ | 264,375 | | | $ | 345,938 | | 2028 Senior Notes | $ | 247,705 | | | $ | 228,894 | |
2025 Senior Notes | 2025 Senior Notes | 365,750 | | | 446,500 | | 2025 Senior Notes | 390,814 | | | 339,385 | |
Subordinated Notes | Subordinated Notes | 249,197 | | | 323,620 | | Subordinated Notes | 294,380 | | | 254,951 | |
Equipment Debt | Equipment Debt | 51,862 | | | 56,879 | | Equipment Debt | 53,272 | | | 58,698 | |
| | $ | 931,184 | | | $ | 1,172,937 | | | $ | 986,171 | | | $ | 881,928 | |
As of June 30, 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.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, 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) | (in thousands) | June 30, 2022 | | December 31, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 |
Financial assets measured at amortized cost: | Financial assets measured at amortized cost: | | | | Financial assets measured at amortized cost: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 38,447 | | | $ | 48,419 | | Cash and cash equivalents | $ | 37,968 | | | $ | 59,424 | |
Accounts receivable | Accounts receivable | 126,145 | | | 121,525 | | Accounts receivable | 115,790 | | | 114,166 | |
| | $ | 164,592 | | | $ | 169,944 | | | $ | 153,758 | | | $ | 173,590 | |
Financial liabilities measured at amortized cost: | Financial liabilities measured at amortized cost: | | | | Financial liabilities measured at amortized cost: | | | |
Accounts payable | Accounts payable | $ | 33,787 | | | $ | 34,326 | | Accounts payable | $ | 43,575 | | | $ | 36,618 | |
Current portion of long-term debt | Current portion of long-term debt | 16,299 | | | 14,789 | | Current portion of long-term debt | 19,282 | | | 19,961 | |
Current portion of leases | Current portion of leases | 26,094 | | | 27,254 | | Current portion of leases | 23,581 | | | 25,023 | |
Non-current portion of long-term debt | Non-current portion of long-term debt | 1,220,823 | | | 1,197,596 | | Non-current portion of long-term debt | 1,273,077 | | | 1,254,652 | |
Non-current portion of leases | Non-current portion of leases | 184,916 | | | 200,326 | | Non-current portion of leases | 167,948 | | | 179,980 | |
Accrued liabilities | Accrued liabilities | 90,916 | | | 87,813 | | Accrued liabilities | 88,339 | | | 86,916 | |
| | $ | 1,572,835 | | | $ | 1,562,104 | | | $ | 1,615,802 | | | $ | 1,603,150 | |
Financial assets measured at fair value through earnings: | | Financial assets measured at fair value through earnings: | | | |
Fuel option contract | | Fuel option contract | $ | 36 | | | $ | — | |
Financial liabilities measured at fair value through earnings: | Financial liabilities measured at fair value through earnings: | | | | Financial liabilities measured at fair value through earnings: | | | |
Derivative in subordinated notes | Derivative in subordinated notes | $ | 6,683 | | | $ | 7,522 | | Derivative in subordinated notes | $ | 5,831 | | | $ | 6,132 | |
Financial assets measured at fair value through other comprehensive income: | Financial assets measured at fair value through other comprehensive income: | | | | Financial assets measured at fair value through other comprehensive income: | | | |
Interest rate contracts | Interest rate contracts | $ | 39 | | | $ | 3 | | Interest rate contracts | $ | 28 | | | $ | 52 | |
Financial liabilities measured at fair value through other comprehensive income: | | | | |
Interest rate contracts | $ | — | | | $ | 53 | | |
|
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(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. See disclosure of Level 3 measurements related to the goodwill impairment analysis in Note 5.
Interest Rate Risk
Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Changes in lending rates can cause fluctuations in interest payments and cash flows. Certain of the Company’s equipment debt arrangements have interest rate swap agreements to hedge the future variable cash interest payments in order to avoid volatility in operating results due to fluctuations in interest rates. As of June 30, 20222023 and December 31, 2021,2022, the Company had $1.4$0.3 million and $1.8$0.4 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 June 30, 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.
12. 11. Stockholders' Equity
In connection with the Company's change of jurisdiction of incorporation from the province of Ontario, Canada, to the State of Delaware (the "Domestication") in 2022, the Company amended its Certificate of Incorporation 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.
Stock-Based Awards
The Company may grant stock-based awards to employees, directors and consultants under the Amended and Restated Restricted Share Unit Plan, adopted as of November 14, 2017April 18, 2023 (the “RSU Plan”) and the Amended and Restated Stock Option Plan, adopted as of November 14, 2017April 18, 2023 (the “Stock Option Plan” and together with the RSU Plan, the “2017“2023 Stock Plans”). Under the 20172023 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 June 30, 20222023 and December 31, 2021,2022, shares of common sharesstock reserved for issuance under the 20172023 Stock Plans were 8,951,6519,099,849 and 8,902,6998,981,151, respectively. The 20172023 Stock Plans are administered by the Board of Directors, which has authority to select eligible persons to receive awards and to determine the terms and conditions of the awards.
Restricted Share Units
Restricted share 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 2two years from the date of grant. A summary of RSU activity is as follows:
| | | | | | | | | | | | | | | | | |
| Number of RSUs | | Weighted- Average Grant Date Fair Value | | Aggregate Grant Date Fair Value (in thousands) |
Outstanding and unvested at December 31, 2021 | 2,029,032 | | $ | 2.41 | | | |
Granted | 799,085 | | 1.10 | | | $ | 875 | |
Vested | (489,516) | | 3.19 | | | $ | 1,561 | |
Outstanding and unvested at June 30, 2022 | 2,338,601 | | $ | 1.80 | | | $ | 4,210 | |
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(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 | 2,217,213 | | 0.67 | | | $ | 1,479 | |
Vested | (1,186,978) | | 2.06 | | | $ | 2,450 | |
Cancelled | (57,078) | | 1.10 | | | $ | (63) | |
Outstanding and unvested at June 30, 2023 | 3,116,758 | | $ | 0.89 | | | $ | 2,761 | |
Stock Options
Stock options are awarded as consideration in exchange for services rendered to the Company. Stock options granted generally have terms of 7 toyears, but in no event more than 10 years after the date of grant, 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, 2021 | 5,680,120 | | $ | 2.54 | | | 4.4 | | $ | 2,344 | |
Outstanding at June 30, 2022 | 5,668,120 | | $ | 2.53 | | | 3.8 | | $ | 188 | |
Exercisable at June 30, 2022 | 5,072,519 | | $ | 2.44 | | | 3.7 | | $ | 188 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 June 30, 2023 | 5,348,120 | | $ | 2.56 | | | 2.8 | | $ | — | |
Exercisable at June 30, 2023 | 5,325,020 | | $ | 2.55 | | | 2.8 | | $ | — | |
Aggregate intrinsic value for outstanding and exercisable stock options in the table above represents the difference between the closing stock price on June 30, 20222023 and the exercise price multiplied by the number of in-the-money options.
No stock options were granted during the six months ended June 30, 2022.2023.
13.12. Commitments and Contingencies
Purchase Commitments
The Company has certain binding purchase commitments primarily for the purchase of equipment from various suppliers. As of June 30, 2022,2023, the obligations for these future purchase commitments totaled $46.6$38.4 million, of which $36.0$32.5 million is expected to be paid during the remaining six months of 20222023 and $10.6$6.0 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)
June 30, 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 June 30, 2022,2023, the Company has determined that no liability is necessary related to these guarantees and indemnities.
Legal Matters
On November 22,December 20, 2021, an alleged shareholder of the Company filed a putative class action claim with the Ontario Superior Court of Justice against the Company and certain of its directors and officers alleging violations of Securities Act (Ontario), negligent misrepresentation and other related claims. The claims generally allege that certain of the Company’s prior public financial statements misrepresented the Company’s revenue, accounts receivable and the value of its assets based upon the Company’s August 12, 2021, October 12, 2021 and November 8, 2021 disclosures relating to a review of certain procedures related to its financial statements and to the restatement of the Company’s financial statements affecting accounts receivablethat were filed in 2021. On February 17, 2023, the plaintiff delivered a motion record for certification and net book value of property and equipment. The claim does not quantify a damage request. Defendants have
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2022
(Unaudited)
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.
Other Matters
The Company is party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, management evaluates the developments on a regular basis and accrues a liability when it believes a loss is probable and the amount can be reasonably estimated. Management believes that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on the Company’s business and condensed consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s results of operations and financial condition could be materially and adversely affected.
14.13. 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 June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Patient fee payors: | Patient fee payors: | | | | | | | | Patient fee payors: | | | | | | | |
Commercial | Commercial | $ | 71,609 | | | $ | 54,803 | | | $ | 140,710 | | | $ | 105,602 | | Commercial | $ | 65,066 | | | $ | 71,609 | | | $ | 130,588 | | | $ | 140,710 | |
Medicare | Medicare | 21,002 | | | 8,806 | | | 42,174 | | | 16,990 | | Medicare | 20,082 | | | 21,002 | | | 41,502 | | | 42,174 | |
Medicaid | Medicaid | 3,347 | | | 2,026 | | | 6,449 | | | 3,857 | | Medicaid | 3,256 | | | 3,347 | | | 6,661 | | | 6,449 | |
Other patient revenue | Other patient revenue | 3,213 | | | 2,608 | | | 6,487 | | | 5,260 | | Other patient revenue | 2,729 | | | 3,213 | | | 5,324 | | | 6,487 | |
| | 99,171 | | | 68,243 | | | 195,820 | | | 131,709 | | | 91,133 | | | 99,171 | | | 184,075 | | | 195,820 | |
Hospitals and healthcare providers | Hospitals and healthcare providers | 90,651 | | | — | | | 178,110 | | | — | | Hospitals and healthcare providers | 91,513 | | | 90,651 | | | 183,975 | | | 178,110 | |
Other revenue | Other revenue | 2,306 | | | 1,253 | | | 4,461 | | | 1,750 | | Other revenue | 2,194 | | | 2,306 | | | 4,382 | | | 4,461 | |
| | $ | 192,128 | | | $ | 69,496 | | | $ | 378,391 | | | $ | 133,459 | | | $ | 184,840 | | | $ | 192,128 | | | $ | 372,432 | | | $ | 378,391 | |
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(Unaudited)
15.14. 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 June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Employee compensation | Employee compensation | $ | 72,021 | | | $ | 23,792 | | | $ | 147,148 | | | $ | 46,910 | | Employee compensation | $ | 68,302 | | | $ | 72,021 | | | $ | 139,829 | | | $ | 147,148 | |
Third-party services and professional fees | Third-party services and professional fees | 29,919 | | | 7,758 | | | 59,096 | | | 14,617 | | Third-party services and professional fees | 32,091 | | | 29,919 | | | 62,920 | | | 59,096 | |
Rent and utilities | Rent and utilities | 12,742 | | | 7,662 | | | 25,219 | | | 15,346 | | Rent and utilities | 12,780 | | | 12,742 | | | 25,121 | | | 25,219 | |
Reading fees | Reading fees | 11,788 | | | 10,860 | | | 23,286 | | | 20,844 | | Reading fees | 11,953 | | | 11,788 | | | 23,552 | | | 23,286 | |
Administrative | Administrative | 11,467 | | | 4,829 | | | 23,091 | | | 9,185 | | Administrative | 12,944 | | | 11,467 | | | 23,365 | | | 23,091 | |
Medical supplies and other | Medical supplies and other | 16,637 | | | 2,867 | | | 31,895 | | | 6,008 | | Medical supplies and other | 20,425 | | | 16,637 | | | 39,275 | | | 31,895 | |
| | $ | 154,574 | | | $ | 57,768 | | | $ | 309,735 | | | $ | 112,910 | | | $ | 158,495 | | | $ | 154,574 | | | $ | 314,062 | | | $ | 309,735 | |
16.15. Supplemental Statement of Operations Information
Restructuring Charges
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Transformation costs | $ | 4,025 | | | $ | — | | | $ | 4,025 | | | $ | — | |
Lease termination costs | 1,840 | | | — | | | 1,840 | | | — | |
Domestication and related costs | 1,063 | | | — | | | 1,063 | | | — | |
Other | 316 | | | — | | | 396 | | | — | |
| $ | 7,244 | | | $ | — | | | $ | 7,324 | | | $ | — | |
Restructuring charges consist of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Transformation costs | $ | 939 | | | $ | 4,025 | | | $ | 6,659 | | | $ | 4,025 | |
Lease termination costs | 7 | | | 1,840 | | | 7 | | | 1,840 | |
Domestication and related costs | — | | | 1,063 | | | — | | | 1,063 | |
Other | (2) | | | 316 | | | 14 | | | 396 | |
| $ | 944 | | | $ | 7,244 | | | $ | 6,680 | | | $ | 7,324 | |
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 June 30, 2022,2023, the accounts payable and accrued liability balance for unpaid transformation consulting costs was $2.8 million.
Lease termination costs relate to a $1.8$3.4 million payment made in May 2022 pursuant to an agreement to early terminate the lease for one of the Company’s office facilities. In addition, the Company derecognized $3.2and $4.5 million, for the related operating lease right-of-use asset and the associated lease liability during the three months ended June 30, 2022.
Domestication and related costs consist of professional fees incurred related to the change in the Company’s jurisdiction of incorporation from the province of Ontario (Canada) to the State of Delaware (USA). This change in jurisdiction was approved by the shareholders in June 2022 and is expected to be completed by late 2022.
respectively.
Severance and Related Costs
Severance and related costs represent costs associated with employees whose employment with the Company has been terminated and are generally paid in the year recorded. During the six months ended June 30, 2022, the Company implemented a small workforce reduction and recorded severance and related costs. In connection with certain terminated employees, severance benefits are being paid over periods of 12 to 18 months. As of June 30, 2023, the unpaid balance of severance and related costs totaled $1.5 million, which will be paid during the next twelve months.
Other Operating and Non-Operating Expense (Income)
Other operating expense (income), net consists of the following:
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(Unaudited)
employees, severance benefits are being paid over periods of 12 to 18 months. As of June 30, 2022, the unpaid balance of severance and related costs totaled $6.3 million, of which $5.6 million will be paid during the next twelve months and the remaining $0.7 million will be paid thereafter.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Loss on sale of accounts receivable | $ | 922 | | | $ | — | | | $ | 1,046 | | | $ | — | |
Gain from insurance proceeds | — | | | — | | | (776) | | | — | |
Loss (gain) on disposal of property and equipment, net | (348) | | | 170 | | | (417) | | | 372 | |
Other, net | (97) | | | 416 | | | (127) | | | 207 | |
| $ | 477 | | | $ | 586 | | | $ | (274) | | | $ | 579 | |
Other Operating and Non-Operating Expense (Income)
Other operatingnon-operating expense (income), net consists of the following:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Loss on disposal of property and equipment, net | $ | 170 | | | $ | 255 | | | $ | 372 | | | $ | 346 | | |
Capital structure initiatives | | Capital structure initiatives | $ | 1,912 | | | $ | — | | | $ | 1,912 | | | $ | — | |
Acquisition-related costs | | Acquisition-related costs | 155 | | | 86 | | | 298 | | | 468 | |
Fair value adjustment on derivative in subordinated notes | | Fair value adjustment on derivative in subordinated notes | (258) | | | (1,009) | | | (301) | | | (839) | |
Earnings from unconsolidated investees | | Earnings from unconsolidated investees | (128) | | | (248) | | | (279) | | | (488) | |
Other, net | Other, net | 416 | | | — | | | 207 | | | — | | Other, net | 665 | | | (1,164) | | | 584 | | | (1,152) | |
| | $ | 586 | | | $ | 255 | | | $ | 579 | | | $ | 346 | | | $ | 2,346 | | | $ | (2,335) | | | $ | 2,214 | | | $ | (2,011) | |
Other non-operating income, net consists ofCapital structure initiatives represent costs associated with the following:Company’s initiative to restructure its long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Fair value adjustment on derivative in subordinated notes | $ | (1,009) | | | $ | — | | | $ | (839) | | | $ | — | |
Earnings from unconsolidated investees | (248) | | | — | | | (488) | | | — | |
Gain on conversion of debt to equity investment (Note 17) | — | | | — | | | — | | | (3,360) | |
Other, net | (1,164) | | | — | | | (1,152) | | | (6) | |
| $ | (2,421) | | | $ | — | | | $ | (2,479) | | | $ | (3,366) | |
Impairment ChargesImpairment charges relate to the following assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Goodwill (Note 5) | $ | 53,460 | | | $ | — | | | $ | 53,460 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| $ | 53,460 | | | $ | — | | | $ | 53,460 | | | $ | — | |
17.16. 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. Upon conversion, theThe Company’s total common equity investment was estimated to be valued athas a carrying value
of $7.9 million as of June 30, 2023 and representedrepresents 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 six months ended June 30, 2021, the Company recognized a gain of $3.4 million on the conversion of the convertible note instrument to common equity and the share purchase warrants. This gain is included in other non-operating income, net 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.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2023
(Unaudited)
The financial position and results of operations of these unconsolidated investees are not material to the Company’s condensed consolidated financial statements.
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2022
(Unaudited)
18.17. 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.
The effective tax rate for the three and six months ended June 30, 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.
19.18. 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 June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except share and per share amounts) | (in thousands, except share and per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands, except share and per share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
Net loss attributable to common shareholders | $ | (30,469) | | | $ | (7,356) | | | $ | (61,280) | | | $ | (10,233) | | |
Net loss attributable to common stockholders | | Net loss attributable to common stockholders | $ | (96,652) | | | $ | (30,469) | | | $ | (131,800) | | | $ | (61,280) | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | | | | | Weighted average common shares outstanding: | | | | | | | |
Basic and diluted | Basic and diluted | 89,516,513 | | | 70,846,010 | | | 89,296,619 | | | 70,514,063 | | Basic and diluted | 90,503,986 | | | 89,516,513 | | | 90,163,458 | | | 89,296,619 | |
Net loss per share attributable to common shareholders: | | | | | | | | |
Net loss per share attributable to common stockholders: | | Net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | Basic and diluted | $ | (0.34) | | | $ | (0.10) | | | $ | (0.69) | | | $ | (0.15) | | Basic and diluted | $ | (1.07) | | | $ | (0.34) | | | $ | (1.46) | | | $ | (0.69) | |
Employee stock options, warrants and restricted share units excluded from the computation of diluted per share amounts as their effect would be antidilutive | Employee stock options, warrants and restricted share units excluded from the computation of diluted per share amounts as their effect would be antidilutive | 2,042,461 | | | 1,803,349 | | | 2,207,983 | | | 1,820,926 | | Employee stock options, warrants and restricted share units excluded from the computation of diluted per share amounts as their effect would be antidilutive | 1,478,978 | | | 2,042,461 | | | 2,006,143 | | | 2,207,983 | |
20.19. 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 1 reportable segment, which was outpatient diagnostic imaging services. As a result of the acquisition, theThe Company operates in 2two reportable segments: Radiology and Oncology. All intercompany revenues, expenses, payablesreceivables and receivablespayables 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 June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Radiology | Radiology | $ | 160,867 | | | $ | 69,496 | | | $ | 316,207 | | | $ | 133,459 | | Radiology | $ | 156,291 | | | $ | 160,867 | | | $ | 313,692 | | | $ | 316,207 | |
Oncology | Oncology | 31,261 | | | — | | | 62,184 | | | — | | Oncology | 28,549 | | | 31,261 | | | 58,740 | | | 62,184 | |
| | $ | 192,128 | | | $ | 69,496 | | | $ | 378,391 | | | $ | 133,459 | | | $ | 184,840 | | | $ | 192,128 | | | $ | 372,432 | | | $ | 378,391 | |
Adjusted EBITDA is defined as net incomeloss before interest expense, income tax expense (benefit),benefit, depreciation and amortization, impairment charges, restructuring charges, severance and related costs, settlements and related costs, (recoveries), stock-based compensation, losses (gains)loss on disposalsale of property and equipment, acquisition-related costs, financial instrument revaluation adjustments, gainaccounts receivable, capital structure initiatives, fair value adjustment on conversion of debt to equity investment,derivative, deferred rent expense, impairment charges, other losses (gains), and one-time adjustments.items that we do not consider to be indicative of our core/ongoing operations. Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(Unaudited)
not be considered a measure of financial performance under GAAP, and it should not be considered in isolation or as an 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.
The following table summarizes the Company’s Adjusted EBITDA by segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Adjusted EBITDA: | Adjusted EBITDA: | | | | | | | | Adjusted EBITDA: | | | | | | | |
Radiology | Radiology | $ | 35,692 | | | $ | 14,346 | | | $ | 64,281 | | | $ | 25,189 | | Radiology | $ | 25,449 | | | $ | 35,692 | | | $ | 55,775 | | | $ | 64,281 | |
Oncology | Oncology | 10,302 | | | — | | | 20,335 | | | — | | Oncology | 8,072 | | | 10,302 | | | 17,920 | | | 20,335 | |
Corporate | Corporate | (7,810) | | | (2,136) | | | (14,414) | | | (3,776) | | Corporate | (6,994) | | | (7,810) | | | (14,027) | | | (14,414) | |
| | $ | 38,184 | | | $ | 12,210 | | | $ | 70,202 | | | $ | 21,413 | | | $ | 26,527 | | | $ | 38,184 | | | $ | 59,668 | | | $ | 70,202 | |
A reconciliation of the net loss to total Adjusted EBITDA is shown below:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Net loss | Net loss | $ | (26,079) | | | $ | (6,854) | | | $ | (52,511) | | | $ | (9,362) | | Net loss | $ | (96,411) | | | $ | (26,079) | | | $ | (125,601) | | | $ | (52,511) | |
Interest expense | Interest expense | 29,290 | | | 8,920 | | | 57,971 | | | 17,288 | | Interest expense | 31,164 | | | 29,290 | | | 61,861 | | | 57,971 | |
Income tax expense (benefit) | (3,483) | | | 6 | | | (2,920) | | | 71 | | |
Income tax benefit | | Income tax benefit | (1,578) | | | (3,483) | | | (704) | | | (2,920) | |
Depreciation and amortization | Depreciation and amortization | 25,200 | | | 4,584 | | | 49,931 | | | 9,073 | | Depreciation and amortization | 35,015 | | | 25,200 | | | 58,008 | | | 49,931 | |
EBITDA | 24,928 | | | 6,656 | | | 52,471 | | | 17,070 | | |
Adjustments: | | |
Impairment charges | | Impairment charges | 53,460 | | | — | | | 53,460 | | | — | |
Restructuring charges | Restructuring charges | 7,244 | | | — | | | 7,324 | | | — | | Restructuring charges | 944 | | | 7,244 | | | 6,680 | | | 7,324 | |
Severance and related costs | Severance and related costs | 5,559 | | | — | | | 7,797 | | | — | | Severance and related costs | 22 | | | 5,559 | | | (27) | | | 7,797 | |
Settlements, recoveries and related costs | Settlements, recoveries and related costs | 814 | | | (318) | | | 677 | | | (341) | | Settlements, recoveries and related costs | 465 | | | 814 | | | 1,913 | | | 677 | |
Stock-based compensation | Stock-based compensation | 758 | | | 785 | | | 1,819 | | | 1,212 | | Stock-based compensation | 441 | | | 758 | | | 840 | | | 1,819 | |
Loss on disposal of property and equipment, net | 170 | | | 255 | | | 372 | | | 346 | | |
Loss on sale of accounts receivable | | Loss on sale of accounts receivable | 922 | | | — | | | 1,046 | | | — | |
Loss (gain) on disposal of property and equipment, net | | Loss (gain) on disposal of property and equipment, net | (348) | | | 170 | | | (417) | | | 372 | |
Capital structure initiatives | | Capital structure initiatives | 1,912 | | | — | | | 1,912 | | | — | |
Acquisition-related costs | Acquisition-related costs | 86 | | | 4,350 | | | 468 | | | 5,628 | | Acquisition-related costs | 155 | | | 86 | | | 298 | | | 468 | |
Fair value adjustment on derivative | Fair value adjustment on derivative | (1,009) | | | — | | | (839) | | | — | | Fair value adjustment on derivative | (258) | | | (1,009) | | | (301) | | | (839) | |
Gain on conversion of debt to equity investment | — | | | — | | | — | | | (3,360) | | |
Deferred rent expense | Deferred rent expense | 247 | | | 459 | | | 579 | | | 904 | | Deferred rent expense | (43) | | | 247 | | | 142 | | | 579 | |
Other, net | Other, net | (613) | | | 23 | | | (466) | | | (46) | | Other, net | 665 | | | (613) | | | 558 | | | (466) | |
Adjusted EBITDA | Adjusted EBITDA | $ | 38,184 | | | $ | 12,210 | | | $ | 70,202 | | | $ | 21,413 | | Adjusted EBITDA | $ | 26,527 | | | $ | 38,184 | | | $ | 59,668 | | | $ | 70,202 | |
AKUMIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 20222023
(Unaudited)
The following table summarizes the Company’s total assets by segment:
| (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 |
Identifiable assets: | Identifiable assets: | | | | Identifiable assets: | | | |
Radiology | Radiology | $ | 1,417,348 | | | $ | 1,451,905 | | Radiology | $ | 1,304,358 | | | $ | 1,400,938 | |
Oncology | Oncology | 424,374 | | | 440,416 | | Oncology | 312,992 | | | 346,337 | |
Corporate | Corporate | 19,771 | | | 26,505 | | Corporate | 18,392 | | | 17,840 | |
| | $ | 1,861,493 | | | $ | 1,918,826 | | | $ | 1,635,742 | | | $ | 1,765,115 | |
The following table summarizes the Company’s capital expenditures by segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Capital expenditures: | Capital expenditures: | | | | | | | | Capital expenditures: | | | | | | | |
Radiology | Radiology | $ | 4,648 | | | $ | 1,411 | | | $ | 13,460 | | | $ | 2,584 | | Radiology | $ | 7,093 | | | $ | 4,648 | | | $ | 9,069 | | | $ | 13,460 | |
Oncology | Oncology | 858 | | | — | | | 1,834 | | | — | | Oncology | 500 | | | 858 | | | 1,000 | | | 1,834 | |
Corporate | Corporate | 82 | | | — | | | 172 | | | — | | Corporate | 1,359 | | | 82 | | | 1,391 | | | 172 | |
| | $ | 5,588 | | | $ | 1,411 | | | $ | 15,466 | | | $ | 2,584 | | | $ | 8,952 | | | $ | 5,588 | | | $ | 11,460 | | | $ | 15,466 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and in Item 1A “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Overview
On September 1, 2021, we acquired all of the issued and outstanding common stock of Thaihot Investment Company US Limited, which owns 100% of the common stock of Alliance HealthCare Services, Inc. (“Alliance”), through our wholly owned indirect subsidiary Akumin Corp. (the “Alliance Acquisition”). Alliance is a leading national provider of radiology and oncology solutions to hospitals, health systems and physician groups. With the acquisition of Alliance, weWe provide fixed-site outpatient diagnostic imaging services through a network of approximately 180 owned and/or operated imaging locations; and outpatient radiology and oncology services and solutions to approximately 1,000 hospitals and health systems across 48 states. Our imaging procedures include magnetic resonance imaging (“MRI”), computed 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 June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Radiology | Radiology | 84 | % | | 100 | % | | 84 | % | | 100 | % | Radiology | 85 | % | | 84 | % | | 84 | % | | 84 | % |
Oncology | Oncology | 16 | % | | — | | | 16 | % | | — | | Oncology | 15 | % | | 16 | % | | 16 | % | | 16 | % |
| | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 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 June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Patient fee payors: | Patient fee payors: | | | | | | | | Patient fee payors: | | | | | | | |
Commercial | Commercial | $ | 71,609 | | | $ | 54,803 | | | $ | 140,710 | | | $ | 105,602 | | Commercial | $ | 65,066 | | | $ | 71,609 | | | $ | 130,588 | | | $ | 140,710 | |
Medicare | Medicare | 21,002 | | | 8,806 | | | 42,174 | | | 16,990 | | Medicare | 20,082 | | | 21,002 | | | 41,502 | | | 42,174 | |
Medicaid | Medicaid | 3,347 | | | 2,026 | | | 6,449 | | | 3,857 | | Medicaid | 3,256 | | | 3,347 | | | 6,661 | | | 6,449 | |
Other patient revenue | Other patient revenue | 3,213 | | | 2,608 | | | 6,487 | | | 5,260 | | Other patient revenue | 2,729 | | | 3,213 | | | 5,324 | | | 6,487 | |
| | 99,171 | | | 68,243 | | | 195,820 | | | 131,709 | | | 91,133 | | | 99,171 | | | 184,075 | | | 195,820 | |
Hospitals and healthcare providers | Hospitals and healthcare providers | 90,651 | | | — | | | 178,110 | | | — | | Hospitals and healthcare providers | 91,513 | | | 90,651 | | | 183,975 | | | 178,110 | |
Other revenue | Other revenue | 2,306 | | | 1,253 | | | 4,461 | | | 1,750 | | Other revenue | 2,194 | | | 2,306 | | | 4,382 | | | 4,461 | |
| | $ | 192,128 | | | $ | 69,496 | | | $ | 378,391 | | | $ | 133,459 | | | $ | 184,840 | | | $ | 192,128 | | | $ | 372,432 | | | $ | 378,391 | |
Summary of Factors Affecting Our Performance
Pricing
Continued expansion of health maintenance organizations, preferred provider organizations and other managed care organizations have influence over the pricing of our services because these organizations can exert great control over patients’ access to our services and reimbursement rates for accessing those services.
Competition
The market for outpatient diagnostic imaging and oncology services is highly competitive. We compete principally on the basis of our reputation, our ability to provide multiple modalities at many of our centers, the location of our centers and the quality of our outpatient diagnostic imaging and oncology services. We compete locally with groups of individual healthcare providers, established hospitals, clinics and other independent organizations that own and operate imaging and radiation therapy equipment.
We also face competition from other outpatient diagnostic imaging companies and oncology service providers in acquiring outpatient diagnostic imaging and oncology centers, which makes it more difficult to find attractive products on acceptable terms. Accordingly, we may not be able to acquire rights to additional outpatient diagnostic imaging and oncology centers on acceptable terms.
Our multi-modality imaging offering provides a one-stop-shop for patients and referring physicians and diversifies our revenue sources. Our scalable and integrated operating platform is expected to create value from future acquisitions, cost efficiencies and organic growth.
Seasonality and Economic Conditions
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. In addition, we face inflation and the impact of increased labor and fuel costs similar to the general economy.
Industry Trends
Our revenue is impacted by changes to U.S. healthcare laws, our partners’ and contractors’ healthcare costs, and/or reimbursement rates by payors.
Inflation
Inflationary pressures impact us primarily in the area of labor, fuel and medical supplies. The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. Suppliers and third-party service providers pass along rising costs to us in the form of higher prices. Managing these costs remains a significant challenge and priority for us.
Labor Shortages
Labor shortages among healthcare providers resulting from the COVID-19 pandemic and new variants, including burnout and attrition, has led to increased difficulty in hiring and retaining staff as well as increased labor costs and wage inflation. The shortage of clinical labor has also impacted our ability to generate same-store revenue growth.
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:
| | | June 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
Radiology sites | Radiology sites | 184 | | 188 | Radiology sites | 178 | | 181 |
Oncology sites | Oncology sites | 32 | | 34 | Oncology sites | 29 | | 30 |
| | 216 | | 222 | | 207 | | 211 |
Recent Developments
COVID-19
Commencing during the first quarter of 2020 and continuing through the present, a pandemic relating to the novel coronavirus known as COVID-19 occurred causing significant financial market disruption and social dislocation. The
pandemic is dynamic, with various cities, counties, states and countries around the world responding or having responded in different ways to address and contain the outbreak, including the declaration of a global pandemic by the World Health Organization, a National State of Emergency in the United States, and state and local executive orders and ordinances forcing the closure of non-essential businesses and persons not employed in or using essential services to “stay at home” or “shelter in place.” At this stage, while there are signs of improvement, we are uncertain as to how long the pandemic, or a more limited epidemic, will last, what regions will be most affected, to what extent containment measures will be applied, or the nature and timing of possible vaccinations. Imaging and radiation therapy centers are healthcare facilities and are generally considered an essential service with the expectation that they continue to operate during the pandemic.
We instituted several realignment and cost containment measures to respond to the drop in volume that resulted from the COVID-19 pandemic and related government orders. Our cost containment measures included the temporary closure of certain of our imaging centers to consolidate volume to nearby centers and reduced operating hours at the remainder of our imaging centers, with the highest number of centers closed in mid-April 2020. At that same time, we furloughed or laid off a portion of our workforce, reduced work hours for our hourly personnel and reduced salaries of employees, as well as negotiated deferral of certain costs due to landlords and other vendors.
In light of the improving business environment, we gradually increased our workforce during 2021. Effective January 1, 2021, all reduced salaries had been returned to normal levels. Clinical operations have resumed to normal operating hours as patient volumes allow and substantially all of the clinics that had temporarily closed due to the COVID-19 pandemic have resumed normal operations. If the future economic or legislative environment related to the COVID-19 pandemic again leads to weakened business volume, we might re-institute cost containment measures similar to those described above in order to preserve our liquidity.
Results of Operations
The following table presents our condensed consolidated statements of operations:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | |
(in thousands, except per share amounts) | | (in thousands, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
Revenues | Revenues | $ | 192,128 | | | $ | 69,496 | | | $ | 378,391 | | | $ | 133,459 | | Revenues | $ | 184,840 | | | $ | 192,128 | | | $ | 372,432 | | | $ | 378,391 | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Cost of operations, excluding depreciation and amortization | Cost of operations, excluding depreciation and amortization | 154,574 | | | 57,768 | | | 309,735 | | | 112,910 | | Cost of operations, excluding depreciation and amortization | 158,495 | | | 154,574 | | | 314,062 | | | 309,735 | |
Depreciation and amortization | Depreciation and amortization | 25,200 | | | 4,584 | | | 49,931 | | | 9,073 | | Depreciation and amortization | 35,015 | | | 25,200 | | | 58,008 | | | 49,931 | |
Impairment charges | | Impairment charges | 53,460 | | | — | | | 53,460 | | | — | |
Restructuring charges | Restructuring charges | 7,244 | | | — | | | 7,324 | | | — | | Restructuring charges | 944 | | | 7,244 | | | 6,680 | | | 7,324 | |
Severance and related costs | Severance and related costs | 5,559 | | | — | | | 7,797 | | | — | | Severance and related costs | 22 | | | 5,559 | | | (27) | | | 7,797 | |
Settlements, recoveries and related costs | Settlements, recoveries and related costs | 814 | | | (318) | | | 677 | | | (341) | | Settlements, recoveries and related costs | 465 | | | 814 | | | 1,913 | | | 677 | |
Stock-based compensation | Stock-based compensation | 758 | | | 785 | | | 1,819 | | | 1,212 | | Stock-based compensation | 441 | | | 758 | | | 840 | | | 1,819 | |
Other operating expense, net | 586 | | | 255 | | | 579 | | | 346 | | |
Other operating expense (income), net | | Other operating expense (income), net | 477 | | | 586 | | | (274) | | | 579 | |
Total operating expenses | Total operating expenses | 194,735 | | | 63,074 | | | 377,862 | | | 123,200 | | Total operating expenses | 249,319 | | | 194,735 | | | 434,662 | | | 377,862 | |
Income (loss) from operations | Income (loss) from operations | (2,607) | | | 6,422 | | | 529 | | | 10,259 | | Income (loss) from operations | (64,479) | | | (2,607) | | | (62,230) | | | 529 | |
Other expense (income): | Other expense (income): | | Other expense (income): | |
Interest expense | Interest expense | 29,290 | | | 8,920 | | | 57,971 | | | 17,288 | | Interest expense | 31,164 | | | 29,290 | | | 61,861 | | | 57,971 | |
Acquisition-related costs | 86 | | | 4,350 | | | 468 | | | 5,628 | | |
Other non-operating income, net | (2,421) | | | — | | | (2,479) | | | (3,366) | | |
Other non-operating expense (income), net | | Other non-operating expense (income), net | 2,346 | | | (2,335) | | | 2,214 | | | (2,011) | |
Total other expense, net | Total other expense, net | 26,955 | | | 13,270 | | | 55,960 | | | 19,550 | | Total other expense, net | 33,510 | | | 26,955 | | | 64,075 | | | 55,960 | |
Loss before income taxes | Loss before income taxes | (29,562) | | | (6,848) | | | (55,431) | | | (9,291) | | Loss before income taxes | (97,989) | | | (29,562) | | | (126,305) | | | (55,431) | |
Income tax expense (benefit) | (3,483) | | | 6 | | | (2,920) | | | 71 | | |
Income tax benefit | | Income tax benefit | (1,578) | | | (3,483) | | | (704) | | | (2,920) | |
Net loss | Net loss | (26,079) | | | (6,854) | | | (52,511) | | | (9,362) | | Net loss | (96,411) | | | (26,079) | | | (125,601) | | | (52,511) | |
Less: Net income attributable to noncontrolling interests | Less: Net income attributable to noncontrolling interests | 4,390 | | | 502 | | | 8,769 | | | 871 | | Less: Net income attributable to noncontrolling interests | 241 | | | 4,390 | | | 6,199 | | | 8,769 | |
Net loss attributable to common shareholders | $ | (30,469) | | | $ | (7,356) | | | $ | (61,280) | | | $ | (10,233) | | |
Net loss per share attributable to common shareholders: | | | | | | | | |
Net loss attributable to common stockholders | | Net loss attributable to common stockholders | $ | (96,652) | | | $ | (30,469) | | | $ | (131,800) | | | $ | (61,280) | |
Net loss per share attributable to common stockholders: | | Net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | Basic and diluted | $ | (0.34) | | | $ | (0.10) | | | $ | (0.69) | | | $ | (0.15) | | Basic and diluted | $ | (1.07) | | | $ | (0.34) | | | $ | (1.46) | | | $ | (0.69) | |
The following table summarizes statistical information regarding our radiology scan volumes and oncology patient starts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | Change | | % Change | | 2022 | | 2021 | | Change | | % Change |
MRI scans | 225 | | | 96 | | | 129 | | | 134 | % | | 439 | | | 184 | | | 255 | | | 139 | % |
PET/CT scans | 33 | | | 1 | | | 32 | | | 3,200 | % | | 65 | | | 3 | | | 62 | | | 2,067 | % |
Other modalities | 306 | | | 253 | | | 53 | | | 21 | % | | 600 | | | 511 | | | 89 | | | 17 | % |
Total | 564 | | | 350 | | | 214 | | | 61 | % | | 1,104 | | | 698 | | | 406 | | | 58 | % |
Total Oncology patient starts | 2 | | | — | | | 2 | | | nmf | | 5 | | | — | | | 5 | | | nmf |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2023 | | 2022 | | Change | | % Change | | 2023 | | 2022 | | Change | | % Change |
MRI scans | 221 | | | 225 | | | (4) | | | (2) | % | | 438 | | | 439 | | | (1) | | | — | % |
PET/CT scans | 37 | | | 33 | | | 4 | | | 12 | % | | 72 | | | 65 | | | 7 | | | 11 | % |
Oncology patient starts | 2.523 | | | 2.588 | | | (0.065) | | | (3) | % | | 5.133 | | | 5.132 | | | 0.001 | | | — | % |
The following table summarizes our revenues by segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Radiology | Radiology | $ | 160,867 | | | $ | 69,496 | | | $ | 316,207 | | | $ | 133,459 | | Radiology | $ | 156,291 | | | $ | 160,867 | | | $ | 313,692 | | | $ | 316,207 | |
Oncology | Oncology | 31,261 | | | — | | | 62,184 | | | — | | Oncology | 28,549 | | | 31,261 | | | 58,740 | | | 62,184 | |
| | $ | 192,128 | | | $ | 69,496 | | | $ | 378,391 | | | $ | 133,459 | | | $ | 184,840 | | | $ | 192,128 | | | $ | 372,432 | | | $ | 378,391 | |
The following table summarizes the components of our cost of operations, excluding depreciation and amortization:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Employee compensation | Employee compensation | $ | 72,021 | | | $ | 23,792 | | | $ | 147,148 | | | $ | 46,910 | | Employee compensation | $ | 68,302 | | | $ | 72,021 | | | $ | 139,829 | | | $ | 147,148 | |
Third-party services and professional fees | Third-party services and professional fees | 29,919 | | | 7,758 | | | 59,096 | | | 14,617 | | Third-party services and professional fees | 32,091 | | | 29,919 | | | 62,920 | | | 59,096 | |
Rent and utilities | Rent and utilities | 12,742 | | | 7,662 | | | 25,219 | | | 15,346 | | Rent and utilities | 12,780 | | | 12,742 | | | 25,121 | | | 25,219 | |
Reading fees | Reading fees | 11,788 | | | 10,860 | | | 23,286 | | | 20,844 | | Reading fees | 11,953 | | | 11,788 | | | 23,552 | | | 23,286 | |
Administrative | Administrative | 11,467 | | | 4,829 | | | 23,091 | | | 9,185 | | Administrative | 12,944 | | | 11,467 | | | 23,365 | | | 23,091 | |
Medical supplies and other | Medical supplies and other | 16,637 | | | 2,867 | | | 31,895 | | | 6,008 | | Medical supplies and other | 20,425 | | | 16,637 | | | 39,275 | | | 31,895 | |
| | $ | 154,574 | | | $ | 57,768 | | | $ | 309,735 | | | $ | 112,910 | | | $ | 158,495 | | | $ | 154,574 | | | $ | 314,062 | | | $ | 309,735 | |
Three Months Ended June 30, 20222023 Compared to Three Months Ended June 30, 20212022
Revenues
Revenues for the three months ended June 30, 20222023 were $192.1$184.8 million and increaseddecreased by $122.6$7.3 million, or 176%4%, from the three months ended June 30, 2021. This increase includes $117.5 million of revenues contributed by Alliance during the three months ended June 30, 2022. The remaining increasedecrease was attributable to a $4.6 million decrease in revenues during the three months ended June 30, 2022 was driven by an increase in scan volumesradiology revenue and a $0.7$2.7 million incrementaldecrease in oncology revenue. The decrease in radiology revenue contribution from other acquisitions completedwas due primarily to changes in business mix and certain site closures over the second quarterlast twelve months, partially offset by higher same store volume. Oncology revenue decreased primarily due to non-renewal of 2021.certain joint venture partnership contracts and site closures over the last twelve months.
Cost of Operations, excluding Depreciation and Amortization
Cost of operations, excluding depreciation and amortization, for the three months ended June 30, 20222023 was $154.6$158.5 million and increased by $96.8$3.9 million, or 168%2.5%, from the three months ended June 30, 2021.2022. This increase includes $91.9 millionwas a result of costs incurred by Alliance during the three months ended June 30, 2022. The remaining increase was primarily driven byhigher medical supplies and other acquisitions completed in the second quarter of 2021, higher employee compensation andcosts, third-party services and professional fees.fees, and administrative expenses, partly offset by lower employee compensation.
Employee Compensation
Employee compensation for the three months ended June 30, 20222023 was $72.0$68.3 million and increaseddecreased by $48.2$3.7 million, or 203%5%, from the three months ended June 30, 2021.2022. This increase includes $46.3 million of costs incurred by Alliance during the three months ended June 30, 2022. The remaining increasedecrease was primarily driven by other acquisitions completedworkforce reductions implemented during 2021the second quarter of 2022, partly offset by wage inflation and easing of the cost containment measures takenhigher compensation to attract and retain clinic staff due to labor shortages in 2020 in response to the COVID-19 pandemic. See “Recent Developments – COVID-19” above.certain markets and merit increases.
Third-Party Services and Professional Fees
Third-party services and professional fees for the three months ended June 30, 20222023 were $29.9$32.1 million and increased by $22.2$2.2 million, or 286%7%, from the three months ended June 30, 2021.2022. This increase includes $20.7 million of costs incurred by Alliance during the three months ended June 30, 2022.
was primarily due to higher information technology related services and other outsourced services.Rent and Utilities
Rent and utilities for the three months ended June 30, 20222023 were $12.8 million compared to $12.7 million and increased by $5.1 million, or 66%, from the three months ended June 30, 2021. The increase was driven primarily by rent and utilities incurred by Alliance duringfor the three months ended June 30, 2022. Rent and utilities are largely a fixed cost.
Reading Fees
Reading fees for the three months ended June 30, 20222023 were $11.8$12.0 million and increased by $0.9$0.2 million, or 9%1%, from the three months ended June 30, 2021.2022. Our reading fees are primarily based on the volume of procedures performed. The increase includes $0.7 million of costs incurred by Alliance during the three months ended June 30, 2022.
Administrative Expenses
Administrative expenses for the three months ended June 30, 20222023 were $11.5$12.9 million and increased by $6.6$1.5 million, or 137%13%, from the three months ended June 30, 2021. This increase includes $6.1 million of costs incurred by Alliance during the three months ended June 30, 2022. The remaining increase was driven primarily bydue to higher insurance costs.
costs and increase in bad debt expense, partly offset by cost containment measures put in place after the first quarter of 2022 affecting marketing and advertising, travel and related costs, and other administrative expenses.
Medical Supplies and Other Expenses
Medical supplies and other expenses for the three months ended June 30, 20222023 were $16.6$20.4 million and increased by $13.8$3.8 million, or 480%23%, from the three months ended June 30, 2021.2022. The increase was driven primarily by medical suppliesdue to cost inflation and other expenses incurred by Alliance during the three months ended June 30, 2022.increased spend on specialty tracers used in PET/CT scans.
Depreciation and Amortization
Depreciation and amortization for the three months ended June 30, 20222023 was $25.2$35.0 million and increased by $20.6$9.8 million, or 450%39%, from the three months ended June 30, 2021. This2022. The increase iswas primarily due to $20.4$12.1 million of accelerated amortization of intangible assets related to the closure of one site and winding down operations of a second site in the Oncology segment, partially offset by lower depreciation for office and amortizationcomputer equipment resulting from fully depreciated assets.
Impairment Charges
Impairment charges of $53.5 million for Alliance during the three months ended June 30, 2022.2023 consist of a $53.5 million goodwill impairment in our Radiology reporting unit. See further discussion in Note 5 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q.
Restructuring Charges
Restructuring charges for the three months ended June 30, 2022 was $7.22023 were $0.9 million compared to $0.0$7.2 million for the three months ended June 30, 2021.2022. Restructuring charges for the 2023 period are composed primarily of transformation costs of $0.9 million. Restructuring charges for the 2022 period are composed primarily of transformation costs of $4.0 million, lease termination costs of $1.8 million and domesticationDomestication and related costs of $1.1 million. See further discussion in Note 1615 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 June 30, 2022 was $5.62023 were $0.0 million compared to $0.0$5.6 million for the three months ended June 30, 2021.2022. These costs include severance and benefits costs paid to terminated employees. See further discussion in Note 1615 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q.
Other Expense (Income)
Other operating expense, net for the three months ended June 30, 2023 was $0.5 million compared to $0.6 million for the three months ended June 30, 2022. The other operating expense, net in 2023 includes a $0.9 million loss on sale of accounts receivable.
Interest expense for the three months ended June 30, 20222023 was $29.3$31.2 million and increased by $20.4$1.9 million, or 228%6%, from the three months ended June 30, 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 expense, net for the three months ended June 30, 2022 were $0.12023 was $2.3 million compared to $4.4other non-operating income, net of $2.3 million for the three months ended June 30, 2021. This decrease is2022. The increase in non-operating expense, net was due primarily due to reduced acquisition-related activities.
Other non-operating income for$1.9 million of capital structure initiatives costs incurred during the three months ended June 30, 2022 was $2.4 million compared to $0.0 million for the three months ended June 30, 2021. The other non-operating income in 2022 includes2023, and a $1.0 millionmore favorable fair value adjustment of the derivative associated with the Subordinated Notes and $0.2 millionin the three months ended June 30, 2022. See further discussion in Note 15 to the condensed consolidated financial statements that appear in Item 1 of earnings from unconsolidated investees.this Quarterly Report on Form 10-Q.
Income Tax ExpenseBenefit
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 (benefit)benefit for the three months ended June 30, 2023 and 2022 and 2021 was $(3.5)$1.6 million and $0.0$3.5 million, respectively. The effective tax rate for the periodsthree months ended June 30, 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 June 30, 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 June 30, 20222023 was $4.4$0.2 million and increaseddecreased by $3.9$4.1 million from the three months ended June 30, 2021. This increase is2022. The decrease was due to amounts attributablethe impact of the accelerated amortization of intangible assets related to Alliance during the three months ended June 30, 2022.closure of one site and winding down operations of a second site in the Oncology segment.
Six Months Ended June 30, 20222023 Compared to Six Months Ended June 30, 20212022
Revenues
Revenues for the six months ended June 30, 20222023 were $378.4$372.4 million and increaseddecreased by $244.9$6.0 million, or 184%2%, from the six months ended June 30, 2021. This increase includes $231.4 million of revenues contributed by Alliance during the six months ended June 30, 2022. The remaining increasedecrease was attributable to a $2.5 million decrease in revenues during the six months ended June 30, 2022 was driven by an increase in scan volumesradiology revenue and a $4.2$3.4 million incrementaldecrease in oncology revenue. The decrease in radiology revenue contribution from other acquisitions completedwas primarily due to changes in 2021.business mix and certain site closures over the last twelve months. Oncology revenue decreased primarily due to non-renewal of certain joint venture partnership contracts and site closures over the last twelve months.
Cost of Operations, excluding Depreciation and Amortization
Cost of operations, excluding depreciation and amortization, for the six months ended June 30, 20222023 was $309.7$314.1 million and increased by $196.8$4.3 million, or 174%1%, from the six months ended June 30, 2021.2022. This increase includes $181.1 millionwas a result of costs incurred by Alliance during the six months ended June 30, 2022. The remaining increase was primarily driven byhigher medical supplies and other acquisitions completed in the second quarter of 2021 and higher employee compensationcosts and third-party services and professional fees.fees, partly offset by lower employee compensation.
Employee Compensation
Employee compensation for the six months ended June 30, 20222023 was $147.1$139.8 million and increaseddecreased by $100.2$7.3 million, or 214%5%, from the six months ended June 30, 2021.2022. This increase includes $93.0 million of costs incurred by Alliance during the six months ended June 30, 2022. The remaining increasedecrease was primarily driven by other acquisitions completedworkforce reductions implemented during 2021the second quarter of 2022, partly offset by wage inflation and easing of the cost containment measures takenhigher compensation to attract and retain clinic staff due to labor shortages in 2020 in response to the COVID-19 pandemic. See “Recent Developments – COVID-19” above.certain markets and merit increases.
Third-Party Services and Professional Fees
Third-party services and professional fees for the six months ended June 30, 20222023 were $59.1$62.9 million and increased by $44.5$3.8 million, or 304%6%, from the six months ended June 30, 2021.2022. This increase includes $39.8 million of costs incurred by Alliance during the six months ended June 30, 2022. The remaining increase in these fees was primarily due to higher information technology related services and other acquisitions completed during 2021 and higher professional fees.outsourced services.
Rent and Utilities
Rent and utilities for the six months ended June 30, 20222023 were $25.1 million compared to $25.2 million and increased by $9.9 million, or 64%, from the six months ended June 30, 2021. The increase was driven primarily by rent and utilities incurred by Alliance duringfor the six months ended June 30, 2022. Rent and utilities are largely a fixed cost.
Reading Fees
Reading fees for the six months ended June 30, 20222023 were $23.3$23.6 million and increased by $2.4$0.3 million, or 12%1%, from the six months ended June 30, 2021.2022. Our reading fees are primarily based on the volume of procedures performed. The increase includes $1.4 million of costs incurred by Alliance during the six months ended June 30, 2022. The remaining increase was driven by other acquisitions completed during 2021.
Administrative Expenses
Administrative expenses for the six months ended June 30, 20222023 were $23.1$23.4 million and increased by $13.9$0.3 million, or 151%1%, from the six months ended June 30, 2021. This increase includes $12.1 million of costs incurred by Alliance during the six months ended June 30, 2022. The remaining increase was drivendue primarily byto an increase in bad debt expense and higher insurance costs.costs, partly offset by cost containment measures put in place after the first quarter of 2022 affecting marketing and advertising, travel and related costs, and other administrative expenses.
Medical Supplies and Other Expenses
Medical supplies and other expenses for the six months ended June 30, 20222023 were $31.9$39.3 million and increased by $25.9$7.4 million, or 431%23%, from the six months ended June 30, 2021.2022. The increase was driven primarily by medical suppliesdue to cost inflation and other expenses incurred by Alliance during the six months ended June 30, 2022.increased spend on specialty tracers used in PET/CT scans.
Depreciation and Amortization
Depreciation and amortization for the six months ended June 30, 20222023 was $49.9$58.0 million and increased by $40.9$8.1 million, or 450%16%, from the six months ended June 30, 2021. This2022. The increase iswas primarily due to $40.3$12.1 million of accelerated amortization of intangible assets related to the closure of one site and winding down operations of a second site in the Oncology segment, partially offset by lower depreciation for office and amortizationcomputer equipment resulting from fully depreciated assets.
Impairment Charges
Impairment charges of $53.5 million for Alliance during the six months ended June 30, 2022.2023 consist primarily of a $53.5 million goodwill impairment in our Radiology reporting unit. See further discussion in Note 5 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q.
Restructuring Charges
Restructuring charges for the six months ended June 30, 2022 was $7.32023 were $6.7 million compared to $0.0$7.3 million for the six months ended June 30, 2021.2022. Restructuring charges for the 2023 period are composed primarily of transformation costs of $6.7 million. Restructuring charges for the 2022 period are composed primarily of transformation costs of $4.0 million, lease termination costs of $1.8 million and domesticationDomestication and related costs of $1.1 million. See further discussion in Note 1615 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 six months ended June 30, 2022 was $7.82023 were $0.0 million compared to $0.0$7.8 million for the six months ended June 30, 2021.2022. These costs include severance and benefits costs paid to terminated employees. See further discussion in Note 1615 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 six months ended June 30, 2023 was $0.3 million compared to other operating expense, net of $0.6 million for the six months ended June 30, 2022. The other operating expense, net in 2023 includes a $1.0 million loss on sale of accounts receivable and a $0.8 million gain from insurance proceeds. 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.
Interest expense for the six months ended June 30, 20222023 was $58.0$61.9 million and increased by $40.7$3.9 million, or 235%7%, from the six months ended June 30, 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 expense, net for the six months ended June 30, 2022 were $0.52023 was $2.2 million compared to $5.6other non-operating income, net of $2.0 million for the six months ended June 30, 2021. This decrease is2022. The increase in non-operating expense, net was due primarily due to reduced acquisition-related activities.
Other non-operating income for$1.9 million of capital structure initiatives costs incurred during the six months ended June 30, 2022 was $2.5 million compared to $3.4 million for the six months ended June 30, 2021. The other non-operating income in 2022 includes2023, and a $0.8 millionmore favorable fair value adjustment of the derivative associated with the Subordinated Notes and $0.5 millionin the six months
ended June 30, 2022. See further discussion in Note 15 to the condensed consolidated financial statements that appear in Item 1 of earnings from unconsolidated investees. The other non-operating income in 2021 consists primarily of a $3.4 million gainthis Quarterly Report on the conversion of a debt investment to an equity investment.Form 10-Q.
Income Tax ExpenseBenefit
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 (benefit)benefit for the six months ended June 30, 2023 and 2022 and 2021 was $(2.9)$0.7 million and $0.1$2.9 million, respectively. The effective tax rate for the periodssix months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 20222023 was $8.8$6.2 million and increaseddecreased by $7.9$2.6 million from the six months ended June 30, 2021. This increase is2022. The decrease was due to amounts attributablethe impact of the accelerated amortization of intangible assets related to Alliance during the six months ended June 30, 2022.closure of one site and winding down operations of a second site in the Oncology segment.
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 Board of 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),benefit, depreciation and amortization, impairment charges, restructuring charges, severance and related costs, settlements and related costs, (recoveries), stock-based compensation, losses (gains)loss on disposalsale of property and equipment, acquisition-related costs, financial instrument revaluation adjustments, gainaccounts receivable, capital structure initiatives, fair value adjustment on conversion of debt to equity investment,derivative, deferred rent expense, impairment charges, other losses (gains), and one-time adjustments. EBITDA anditems that we do not consider to be indicative of our core/ongoing operations. 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.
The following table presents a reconciliation of our net loss, the most directly comparable GAAP financial measure, to total EBITDA and Adjusted EBITDA:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Net loss | Net loss | $ | (26,079) | | | $ | (6,854) | | | $ | (52,511) | | | $ | (9,362) | | Net loss | $ | (96,411) | | | $ | (26,079) | | | $ | (125,601) | | | $ | (52,511) | |
Interest expense | Interest expense | 29,290 | | | 8,920 | | | 57,971 | | | 17,288 | | Interest expense | 31,164 | | | 29,290 | | | 61,861 | | | 57,971 | |
Income tax expense (benefit) | (3,483) | | | 6 | | | (2,920) | | | 71 | | |
Income tax benefit | | Income tax benefit | (1,578) | | | (3,483) | | | (704) | | | (2,920) | |
Depreciation and amortization | Depreciation and amortization | 25,200 | | | 4,584 | | | 49,931 | | | 9,073 | | Depreciation and amortization | 35,015 | | | 25,200 | | | 58,008 | | | 49,931 | |
EBITDA | 24,928 | | | 6,656 | | | 52,471 | | | 17,070 | | |
Adjustments: | | |
Impairment charges | | Impairment charges | 53,460 | | | — | | | 53,460 | | | — | |
Restructuring charges | Restructuring charges | 7,244 | | | — | | | 7,324 | | | — | | Restructuring charges | 944 | | | 7,244 | | | 6,680 | | | 7,324 | |
Severance and related costs | Severance and related costs | 5,559 | | | — | | | 7,797 | | | — | | Severance and related costs | 22 | | | 5,559 | | | (27) | | | 7,797 | |
Settlements, recoveries and related costs | Settlements, recoveries and related costs | 814 | | | (318) | | | 677 | | | (341) | | Settlements, recoveries and related costs | 465 | | | 814 | | | 1,913 | | | 677 | |
Stock-based compensation | Stock-based compensation | 758 | | | 785 | | | 1,819 | | | 1,212 | | Stock-based compensation | 441 | | | 758 | | | 840 | | | 1,819 | |
Loss on disposal of property and equipment, net | 170 | | | 255 | | | 372 | | | 346 | | |
Loss on sale of accounts receivable | | Loss on sale of accounts receivable | 922 | | | — | | | 1,046 | | | — | |
Loss (gain) on disposal of property and equipment, net | | Loss (gain) on disposal of property and equipment, net | (348) | | | 170 | | | (417) | | | 372 | |
Capital structure initiatives | | Capital structure initiatives | 1,912 | | | — | | | 1,912 | | | — | |
Acquisition-related costs | Acquisition-related costs | 86 | | | 4,350 | | | 468 | | | 5,628 | | Acquisition-related costs | 155 | | | 86 | | | 298 | | | 468 | |
Fair value adjustment on derivative | Fair value adjustment on derivative | (1,009) | | | — | | | (839) | | | — | | Fair value adjustment on derivative | (258) | | | (1,009) | | | (301) | | | (839) | |
Gain on conversion of debt to equity investment | — | | | — | | | — | | | (3,360) | | |
Deferred rent expense | Deferred rent expense | 247 | | | 459 | | | 579 | | | 904 | | Deferred rent expense | (43) | | | 247 | | | 142 | | | 579 | |
Other, net | Other, net | (613) | | | 23 | | | (466) | | | (46) | | Other, net | 665 | | | (613) | | | 558 | | | (466) | |
Adjusted EBITDA | Adjusted EBITDA | $ | 38,184 | | | $ | 12,210 | | | $ | 70,202 | | | $ | 21,413 | | Adjusted EBITDA | $ | 26,527 | | | $ | 38,184 | | | $ | 59,668 | | | $ | 70,202 | |
The following table summarizes our Adjusted EBITDA by segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Adjusted EBITDA: | Adjusted EBITDA: | | | | | | | | Adjusted EBITDA: | | | | | | | |
Radiology | Radiology | $ | 35,692 | | | $ | 14,346 | | | $ | 64,281 | | | $ | 25,189 | | Radiology | $ | 25,449 | | | $ | 35,692 | | | $ | 55,775 | | | $ | 64,281 | |
Oncology | Oncology | 10,302 | | | — | | | 20,335 | | | — | | Oncology | 8,072 | | | 10,302 | | | 17,920 | | | 20,335 | |
Corporate | Corporate | (7,810) | | | (2,136) | | | (14,414) | | | (3,776) | | Corporate | (6,994) | | | (7,810) | | | (14,027) | | | (14,414) | |
| | $ | 38,184 | | | $ | 12,210 | | | $ | 70,202 | | | $ | 21,413 | | | $ | 26,527 | | | $ | 38,184 | | | $ | 59,668 | | | $ | 70,202 | |
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:
| | | Six Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | | 2022 | | 2021 | (in thousands) | | 2023 | | 2022 |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | $ | 48,419 | | | $ | 44,396 | | Cash and cash equivalents at beginning of period | | $ | 59,424 | | | $ | 48,419 | |
Net cash provided by operating activities | Net cash provided by operating activities | | 21,079 | | | 2,761 | | Net cash provided by operating activities | | 17,955 | | | 21,079 | |
Net cash used in investing activities | Net cash used in investing activities | | (14,503) | | | (42,921) | | Net cash used in investing activities | | (10,637) | | | (14,503) | |
Net cash provided by (used in) financing activities | | (16,548) | | | 70,153 | | |
Net cash used in financing activities | | Net cash used in financing activities | | (28,774) | | | (16,548) | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 38,447 | | | $ | 74,389 | | Cash and cash equivalents at end of period | | $ | 37,968 | | | $ | 38,447 | |
Cash Flows from Operating Activities
Cash provided by operating activities was $21.1$18.0 million for the six months ended June 30, 20222023 and consisted of a net loss of $52.5$125.6 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 $49.9$58.0 million of depreciation and amortization, $53.5 million of impairment charges and $24.6$28.0 million of non-cash interest expense. Changes in operating assets and liabilities net of acquisitions, provided $0.6$2.8 million of operating cash driven primarily by a $6.5$6.2 million increase in accounts payable and other liabilities, partially offset by a $4.5$2.3 million increase in accounts receivable and a $1.9$1.2 million increase in prepaid expenses and other assets.
Cash Flows from Investing Activities
During the six months ended June 30, 2022,2023, cash used in investing activities was $14.5$10.6 million, a decrease of $28.4$3.9 million from the comparable period in 2021. The six months ended June 30, 2021 included $35.7 million of cash used for acquisitions, net of cash acquired.2022. Purchases of property and equipment during the six months ended June 30, 20222023 were $15.5$11.5 million, an increasea decrease of $12.9$4.0 million from the comparable period in 2021. Cash used in investing activities during the six months ended June 30, 2021 also included a $4.6 million equity investment in an unconsolidated company.2022.
Cash Flows from Financing Activities
During the six months ended June 30, 2022,2023, cash used in financing activities was $16.5$28.8 million compared to cash provided byused in financing activities of $70.2$16.5 million during the six months ended June 30, 2021. Cash used in financing2022. Financing activities during the six months ended June 30, 2023 included $14.0 million of proceeds from our revolving facility and $1.7 million of proceeds from long-term debt, offset by payments on our revolving facility of $14.0 million, distributions paid to noncontrolling and redeemable noncontrolling interests of $16.0 million, principal payments on long-term debt of $10.6 million, and principal payments on finance leases of $3.9 million. Financing activities during the six months ended June 30, 2022 included principalwas composed primarily of $20.0 million of proceeds from our revolving facility and $10.3 million of proceeds from long-term debt, offset by payments on theour revolving loanfacility of $20.0 million, distributions paid to noncontrolling and redeemable noncontrolling interests of $14.1 million, and principal payments on long-term debt and finance leases of $12.7 million, partially offset by proceeds from the revolving loan of $20.0 million and proceeds from long-term debt of $10.3 million. The cash provided by financing activities during the six months ended June 30, 2021 was composed primarily of proceeds from long-term debt of $78.8 million, partially offset by the payment of an earn-out liability of $4.7 million, principal payments on long-term debt of $8.4 million, and principal payments on finance leases of $1.8 million, and payment of debt issuance costs of $1.2$4.3 million.
Liquidity Outlook
Cash and cash equivalents were $38.4$38.0 million as of June 30, 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 June 30, 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.
The Company is currently in the process of evaluating options relating to the restructuring of its current debt instruments being the 2025 Senior Notes, the 2028 Senior Notes, the Subordinated Notes and the revolving facility, and incurred $1.9 million of capital structure initiatives costs during the three months ended June 30, 2023. In furtherance of its capital structure initiatives, the Company's Board of Directors has formed a Special Committee to explore strategic initiatives related to its capital structure. The Special Committee is diligently evaluating potential solutions. There can be no assurance that the Special Committee's review process will result in any transaction or other alternative and there is no set timetable for the strategic review process.
Considering the Company’s recent underperformance relative to its operating plan, the Company is evaluating options to improve cash flow and provide increased flexibility in order to meet its obligations and execute on its strategy. Cash interest (as opposed to PIK interest) becomes payable on the Subordinated Notes on and after September 1, 2023 with the first cash interest payment due on September 29, 2023. If we do not pay the cash interest payment when due under the Subordinated Notes, a trigger event (not an event of default) results and the cash interest rate under the Subordinated Notes increases by 200 basis points, which is an increase of the cash interest rate from 11% to 13%, until that trigger event is cured by us or waived by the lender. The Company will continue to evaluate its cash position, operating performance, and other considerations as part of its decision as to whether cash interest will be paid when due. If cash interest is not paid when due, such action will result in an increase of the interest rate under the Subordinated Notes until cured or unless waived by the lender. The Company may be required to obtain a waiver or take other actions as it deems necessary in connection with a failure to pay cash interest on the Subordinated Notes when due.
Other available actions to improve liquidity include, but are not limited to, accelerating cost reduction initiatives, reassessing discretionary capital expenditures, renegotiating payment terms with vendors and sale of non-core assets. The Company’s operating plan anticipates that it will generate sufficient cash flow from operations and has other available resources to meet its obligations as they come due over the next twelve months. However, itthe Company cannot provide
assurance that its operating plan will be achieved. If the Company is unsuccessful in achieving its plan, there is a risk that actual results will differ from anticipated results.
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 may also have access to an additional $349.6 million of debt financing through August 2024 to finance growth and acquisitions, provided certain conditions are met to finance mutually agreed upon organic growth and future acquisition opportunities.the lender provides their consent.
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 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 six-month period ended June 30, 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.
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 June 30, 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 June 30, 2022.
Identification of Material Weakness for the Quarter Ended December 31, 2021
Accounting Estimates and the Use of Specialists
Management concluded a material weakness in internal control over financial reporting existed relating to the oversight and review of the work performed by third-party specialists, the application of certain accounting principles and the coordination between specialists. Specialists were used in the preparation of (i) our purchase price allocation pursuant to ASC 805, Business Combinations, (ii) the adoption of ASC 842, Leases, in connection with the Alliance Acquisition, and (iii) the valuation of warrants issued in connection with a debt financing arrangement. The control deficiency could have resulted in a misstatement of certain accounting estimates or disclosures that would have resulted in a material misstatement of our annual consolidated financial statements that would not have been prevented or detected on a timely basis.
Remediation of Material Weaknesses in Internal Control Over Financial Reporting
Management is committed to the remediation efforts to address material weaknesses, as well as continuously enhancing our internal controls. As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2021, the Company’s Chief Executive Officer and Chief Financial Officer concluded that we did not maintain effective internal control over the processes related to (i) estimates for implicit price concessions, (ii) identifying whether component parts replaced in its equipment should be classified as capital or as a repair and maintenance expense, and (iii) reviewing the quarterly tax provision.
We have implemented remedial actions to resolve these material weaknesses, specifically:
•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 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.
Management has completed its remediation efforts related to these material weaknesses as of the date of this filing. Accordingly, management deems these material weaknesses to be fully remediated as of the date of the filing of this Quarterly Report on Form 10-Q.
Management has made financial reporting control changes to address the material weakness relating to the 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 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 weakness identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed and re-emphasized the importance of internal control, control consciousness and a strong control environment. We also expect to continue to review, optimize, and enhance our financial reporting controls and procedures. This material weakness 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 the remedial measures described above are insufficient to address the material weaknesses described above, or are not implemented timely, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future and could have the effects described in the “Risk Factors” section included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.2023.
Changes in Internal Control over Financial Reporting
There were no other changes in our internal control over financial reporting that occurred during the six-month period ended June 30, 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.
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.
The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment, contract disputes, employment and other commercial or regulatory matters. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. We believe that the outcome of our current litigation will not have a material adverse impact on our business, financial condition and results of operations. However, we could be subsequently named as a defendant in other lawsuits that could adversely affect us.
Item 1A. Risk Factors
Except to the extent updatedas provided below orand 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 Nono material changes 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 pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Our common sharesRisks Relating to our Capital Structure
The Company may be delisted from Nasdaq, further increasing the Nasdaq Stock Market orcost of capital and jeopardizing the Toronto Stock Exchange, which could negatively impact the price of our common shares, liquidity and ourCompany’s ability to access the capital markets.refinance existing indebtedness.
The listing standards of the Nasdaq Stock Market provide that a company, in order to qualify for continued listing, must maintain a minimum stock price of $1.00 and satisfy standards relative to minimum shareholders’ equity, minimum market value of publicly held shares and various additional requirements. On June 10, 2022,April 19, 2023, the Company received a written notification (the “Notice”) from Nasdaq’s Listing Qualifications Department notifying the Nasdaq Stock MarketCompany that the closing bid price for its common sharesCommon 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 theThe Nasdaq StockCapital 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 hasmust maintain a period of 180 calendar days from the date of the Notice, or December 7, 2022 (the “Compliance Date”), to regain compliance with the Bid Price Requirement. To regain compliance, the closing bid price for its Common Stock of the Company’s common shares must be at least $1.00 for a minimum of ten consecutive business days prior to the Compliance Date. Inend of the event the Company does not regain compliance by the Compliance Date, the Company may be eligible for an additional 180 calendar day compliance period. To qualify for this second compliance period starting from the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Stock Market, with the exceptiondate of the Bid Price Requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
There can be no assurance that the Company will be ableNotice to regain compliance with the Bid Price Requirement, or will otherwise be in compliance with other Nasdaq Listing Rules.IfRequirement. Accordingly, the Company failshas until October 16, 2023 to regain compliance with the Bid Price Requirement,Requirement. A delisting of our Common Stock is likely to reduce the liquidity of the Common Stock and may inhibit or is otherwise not in compliancepreclude the Company’s ability to raise additional financing and may also materially and adversely impact the Company’s credit terms with other Nasdaq Listing Rules, our common shares may be delisted.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 Toronto Stock Exchange may suspend from trading and delist an issuer’s securities if it determines that the issuer has failed to comply with the provisions of its listing agreement or with any other requirement of the Toronto Stock Exchange or such action is necessary in the public interest. The Toronto Stock Exchange has adopted certain quantitative and qualitative criteria under which it will normally consider the suspension from trading and delisting of securities including the financial condition and/or operating results of the issuer and the market value and public distribution of the issuer. Notwithstanding the foregoing, the Toronto Stock Exchange has authority to suspend from trading and delist securities whether or not such delisting criteria is applicable. If our common shares are delisted from the Toronto Stock Exchange, it could reduce the price of our common shares and the levels of liquidity available to our shareholders.
In addition, the delisting of our common sharesCommon 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 our common sharesthe Common Stock as a result of such delisting could materially adversely affect our ability to raise capital. Delisting from the Nasdaq Stock Marketcapital on terms acceptable to us, or the Toronto Stock Exchange could also result in other negative consequences, including the potential loss of confidence by suppliers, customers and employees, the loss of institutional investor interest and fewer business development opportunities.
If our common shares were no longer listed on the Nasdaq Stock Market or the Toronto Stock Exchange, investors might only be able to trade on one of the over-the-counter markets, including the OTC Bulletin Board ® or in the Pink Sheets ® (a quotation medium operated by Pink Sheets LLC). This would impair the liquidity of our common shares not only in the number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity, but also through delays in the timing of transactions and reduction in media coverage. In addition, we could face significant material adverse consequences, including:
•a limited availability of market quotations for our securities;
•a limited amount of news and analyst coverage for us; and
•a decreased ability to issue additional securities or obtain additional financing in the future.
Risks relating to the Domesticationall.
The rightsCompany may incur additional costs including increasing the cost of our shareholders under Ontario law will differ from their rights under Delaware law, which will,capital in some cases, provide less protectionconnection with its capital structure initiatives or failure to shareholders following the Domestication.
At the Annual General and Special Meeting of our shareholders heldpay cash interest on June 30, 2022 (the “Meeting”), our shareholders passed a special resolution authorizing the Board of Directors, in its sole discretion, to change our jurisdiction of incorporation from the province of Ontario to the State of Delaware in the United States of America (the “Domestication”).
Upon consummation of the Domestication, our shareholders will become stockholders of a Delaware corporation. There are material differences between the OBCA and the DGCL and our current articles and proposed charter and by-laws. For example, under Ontario law, many significant corporate actions such as amending a corporation’s articles of incorporation, certain amalgamations (other than with a direct or indirect wholly-owned subsidiary), continuances, and sales, leases or exchanges of all or substantially all the property of a corporation other than in the ordinary course of business, and other corporate actions such as liquidations, dissolutions and (if ordered by a court) arrangements and consummating a merger require the approval of at least two-thirds of the votes cast by shareholders, whereas under Delaware law, all that is required is a simple majority of the total voting power of all of those entitled to vote on the matter. Furthermore, shareholders under Ontario law are entitled to dissent with respect to a number of extraordinary corporate actions, including an amalgamation with another unrelated corporation, certain amendments to a corporation’s articles of incorporation or the sale of all or substantially all of a corporation’s assets, whereas under Delaware law, stockholders are only entitled to appraisal rights for certain mergers or consolidations. As shown by the examples above, if the Domestication is consummated, our shareholders, in certain circumstances, may be afforded less protection under the DGCL than they had under the OBCA.Subordinated Notes.
The proposed Domestication will resultCompany is currently in additional directthe process of evaluating options relating to the restructuring of its current debt instruments being the 2025 Senior Notes, the 2028 Senior Notes, the Subordinated Notes and indirectthe revolving facility, and incurred $1.9 million of capital structure initiatives costs whether or not completed.
during the three months ended June 30, 2023. In furtherance of its capital structure initiatives, the Company's Board of Directors has formed a Special Committee to explore strategic initiatives related to its capital structure. The Domestication will result in additional direct costs. We will incur attorneys’ fees, accountants’ fees, filing fees, mailing expenses, franchise taxes and financial printing expenses in connection with the Domestication. The Domestication may also result in certain indirect costs by diverting the attention of our management and employees from the day-to-day management of the business, which may result in increased administrative costs and expenses.
Special Committee is diligently evaluating potential solutions. There can be
The Domestication may result in adverse U.S. federal income tax consequences for shareholders.
A U.S. Holder of the Company’s common shares, who on the date of the Domestication beneficially own (directly, indirectly or constructively) 10% or more of the total combined voting power of all classes of common shares entitled to vote or 10% or more of the total value of shares of all classes of stock (a “U.S. Holder”), may be subject to U.S. federal income tax as a result of the Domestication.
A U.S. Holder who on the day of the Domestication beneficially owns (actually or constructively) common shares with a fair market value of $50,000 USD or more, but less than 10% of the total combined voting power of all classes of common shares entitled to vote or less than 10% of the total combined value of all classes of common shares, generally will recognize gain (but not loss) in respect of the Domestication as if such holder exchanged its common shares for Akumin Delaware common shares in a taxable transaction, unless such U.S. Holder elects in accordance with applicable Treasury Regulations to include in income, as a dividend, the “all earnings and profits amount” (as defined in the Treasury Regulations) attributable to the common shares held directly by such holder.
A U.S. Holder who on the day of the Domestication beneficially owns (actually or constructively) 10% or more of the total combined voting power of all classes of common shares entitled to vote or 10% or more of the total value of shares of all classes of stock, will generally be required to include in income, as a dividend, the “all earnings and profits amount” attributable to the common shares held directly by such holder.
The Company has estimated its earnings and profits for the tax years 2015, when the Company was formed, through 2021. Based on these estimates, the Company believes it has cumulative negative earnings and profits through 2021. However, there can be no assurance the IRS would agree with our earnings and profits calculations. If the IRS does not agree with our earnings and profits calculations, a shareholder may owe additional U.S. federal income taxes as a result of the Domestication. The Company intends to provide on the investor relations section of its website (https://akumin.com/investor-relations/) information regarding the Company’s earnings and profits for the years 2015 through 2021, which will be updated to include 2022 (through the date of the Domestication) once the information is available. Currently, the Company anticipates that it will not generate a positive earnings and profits in 2022 through the date of the Domestication. However, there can be no assurance that once all of the Company’s activities through the date of the Domestication are considered, the Company’s 2022 earnings and profits will remain negative.
Additionally, proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the Code which generally require that, a U.S. person who disposes of stock of a passive foreign investment company (“PFIC”) must recognize gain equal to the excess of the fair market value of such PFIC stock over its adjusted tax basis, notwithstanding any other provision of the Code. The Company believes that it was not a PFIC before 2022 and it does not anticipate that it will be a PFIC in 2022, but there can be no assurance that the CompanySpecial Committee's review process will not become a PFICresult in 2023. Accordingly, the Domestication will likely not be a taxable event for any U.S. Holder under the PFIC rules if the Domestication occurs during 2022. The determination of whether a foreign corporation is a PFIC is primarily factualtransaction or other alternative and there is little administrative or judicial authority on which to rely to make a determination. Therefore, the IRS might not agree that the Company is not and has never been a PFIC. If the Company is considered a PFIC for U.S. federal income tax purposes, the proposed Treasury Regulations, if finalized in their current form, would generally require U.S. Holders of common shares to recognize gain on the deemed exchange of common shares for Akumin Delaware common shares pursuant to the Domestication unless such U.S. Holder has made certain tax elections with respect to such holder’s common shares. The tax on any such gain would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex rules designed to offset the tax deferral to such holders on the undistributed earnings, if any, of the Company. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations under Section 1291(f) will be adopted.
Additionally, non-U.S. Holders of the Company’s common shares may become subject to withholding tax on any dividends paid on our stock subsequent to the Domestication.
All holders are strongly urged to consult a tax advisorno set timetable for the tax consequences of the Domestication to their particular situation.strategic review process.
The DomesticationCompany may give riseincur additional costs including an increase in its cost of capital in connection with its capital structure initiatives. In addition, cash interest (as opposed to Canadian corporate tax.
For purposesPIK interest) becomes payable on the Subordinated Notes on and after September 1, 2023 with the first cash interest payment due on September 29, 2023. If we do not pay the cash interest payment when due under the Subordinated Notes, then it results in a trigger event and the cash interest rate under the Subordinated Notes increases by 200 basis points, which is an increase of the Income Tax Act (Canada) (the “Canadian Tax Act”)cash interest rate from 11% to 13%, the Company’s taxation year will be deemed to have ended immediately prior to it ceasing to be a resident of Canada. Immediately prior to the time of this deemed year-end, the Company will be deemed to have disposed of each of its properties for proceeds of disposition equal to the fair market value of all such properties atuntil that time and will be deemed to have reacquired such properties for a cost amount
equal to such proceeds of disposition. The Company will be subject to income tax under Part I of the Canadian Tax Act on any income and net taxable capital gains which arise as a result of this deemed disposition. The Company will also be subject to “emigration tax” under Part XIV of the Canadian Tax Act on the amounttrigger event is cured by which the fair market value, immediately before the Company’s deemed year end, of all of its properties exceeds the total of certain of its liabilities and the paid-up capital, determined for purposes of that emigration tax, of all the issued and outstanding shares of the Company immediately before such deemed year end.
The quantum of tax payable, if any,us or waived by the Company upon the Domestication will depend upon a number of considerations including valuation of the Company’s assets, the amount of its liabilities, its shareholder composition, as well as certain Canadian tax amounts, accounts and balances of the Company, each as of the time of the Domestication. There can be no assurances that material adverse tax consequences will not result from the Domestication or the transactions completed in relation to the Domestication in Canada. In addition, it is possible that following the Domestication, the Canada Revenue Agency may disagree with the Company’s determination of the fair market value of its properties at the relevant time or the Company’s determination of any of its tax accounts or tax attributes. As a result, the quantum of Canadian tax payable by the Company may significantly exceed the Company’s estimates. Any such adverse tax consequences could adversely affect Akumin (as a Delaware corporation) and its share price.
It is possible that if our Board of Directors is not satisfied with the anticipated Canadian tax consequences of the Domestication, it may not proceed with the Domestication.
Risks Relating to the Consolidation
There are certain risks associated with the Consolidation.
At the Meeting, our shareholders passed a special resolution authorizing the Board of Directors, in its sole discretion, to consolidate all of the shares of the common stock on the basis of a consolidation ratio of one new common share for up to every four old common shares, to be determined at Board of Director’s discretion, and to amend the Company’s articles accordingly (the “Consolidation”).
lender. There can be no assurance whether cash interest will be paid when due under the Subordinated Notes and such failure will result in an increase of the interest rate under the Subordinated Notes until cured or unless waived. The Company may be required to obtain a waiver or take other actions as it deems necessary (including termination of its revolving facility) in connection with any failure to pay cash interest on the Subordinated Notes when due.
Risks Related to Accounting Matters
We have recorded goodwill impairment charges in the past and may be required to record additional impairment
charges if our goodwill becomes further impaired or our intangible assets become impaired.
We are required under generally accepted accounting principles to review our goodwill and definite-lived intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill must be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the total market capitalization of the common shares of the Company (the aggregatecarrying value of all common shares at the then market price) immediately after the Consolidation willour reporting units and intangible assets may not be equal to or greater than the total market capitalization immediately before the Consolidation. In addition, there can be no assurance that the per share market price of the common shares following the Consolidation will remain higher than the per share market price immediately before the Consolidation or equal or exceed the direct arithmetical result of the Consolidation. In addition,recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business. We have recorded an impairment charge of $53.5 million related to goodwill for the Radiology reporting unit, which was recorded in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023. We may be required to record additional impairment charges during any period in which a further impairment of our goodwill or other intangible assets is recognized.
Further declines in our market price ofcapitalization increase the common shares after the Consolidationrisk that we may be required to perform another goodwill
impairment analysis, which could result in a greater percentage decline than would occuran impairment of up to the entire balance of our goodwill based on the
quantitative assessment performed and adversely affect our results of operations. Additionally, an impairment charge may
adversely influence our ability to raise capital in the absence of a Consolidation, and the liquidity of the common shares could be adversely affected. Further, there can be no assurance that, if the Consolidation is implemented, the margin terms associated with the purchase of common shares will improve or that the Company will be successful in receiving increased attention from institutional investors.future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On August 9, 2022, the Company entered into amended and restated employment agreements with Riadh Zine (the Company's Chairman of the Board of Directors and Chief Executive Officer), Rohit Navani (the Company's Executive Vice President and Chief Transformation Officer), and Matthew Cameron (the Company's Chief Legal Officer and Corporate Secretary) (collectively, the "A&R Employment Agreements"). The A&R Employment Agreements amend and restate the employment agreements that Mr. Zine, Mr. Navani, and Mr. Cameron previously entered into with theNone.
Company. The A&R Employment Agreements did not materially amend the terms of the respective employment agreements other than to reflect that each of these named executive officers are resident in the United States.
The A&R Employment Agreements are filed herewith as Exhibits 10.1, 10.2, and 10.3, respectively, and are incorporated by reference herein.
Item 6. Exhibits
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Exhibit Number | Description of Exhibit |
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10.1 | |
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10.2 | |
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10.3 | |
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31.1 | |
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31.2 | |
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32.1 | |
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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 |
| | Riadh Zine Chairman, Chief Executive Officer and Director |
Date: August 9, 20222023