RDNT RadNet Inc

RadNet, Inc. (NASDAQ: RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 340 owned and/or operated outpatient imaging centers, today reported financial results for its third quarter of 2019.

Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented, “I am pleased with the continuing strength of our results relative to those of last year. Our metrics were favorable as compared with last year’s third quarter.  We demonstrated strong Revenue and Adjusted EBITDA(1) growth, as well as aggregate and same center revenue and procedural increases.”  

Dr. Berger continued, “We continue to make progress furthering the initiatives and integrating the transactions that we completed at the end of last year and earlier this year.  During the fourth quarter of last year we commenced operations to provide imaging to approximately 175,000 members of EmblemHealth’s AdvantageCare Physicians (“ACP”) medical group in Long Island and the boroughs of New York City and assumed operations in 26 ACP offices.  Concurrent with this, we acquired Medical Arts Imaging, expanding our New York metropolitan reach into Nassau and Suffolk counties of Long Island.  We are making steady headway with improved metrics under the ACP contract, capturing more imaging into RadNet owned centers at the expense of local hospitals.  We are also nearing completion of the full integration of the Medical Arts centers into the RadNet network.  In California, we are also making measured progress in integrating the operations of Kern Radiology, which we acquired earlier this year.”

Dr. Berger added, “Last week, we announced a multifaceted strategic partnership with Whiterabbit.ai to address mammography compliance and improved diagnostics for breast cancer.  The partnership will initially focus on processes and technology, including the use of machine learning and artificial intelligence, to drive women into RadNet facilities for their annual or bi-annual mammogram exams.  We completed a pilot program which we began in July, and we are deploying the first phase of the program to all RadNet operations across our core markets.  The relationship with Whiterabbit.ai emphasizes our interest in identifying leading-edge technologies that we believe will transform how diagnostic imaging services will be delivered in the future, particularly ones that could lower our operating costs and provide improvements to patient experience.  As part of the partnership, RadNet has become a shareholder in Whiterabbit.ai, and we will be co-developing further technologies including those focused on image interpretation and consumer-facing applications.” 

Third Quarter Financial Results

For the third quarter of 2019, RadNet reported Revenue of $292.7 million, Adjusted EBITDA(1) of $41.0 million and Net Income of $3.2 million.  Revenue increased $50.5 million (or 20.9%) and Adjusted EBITDA(1) increased $2.9 million (or 7.7%) from last year’s same quarter.

Net Income decreased $1.8 million over the third quarter of 2018.  Per share Net Income for the third quarter of 2019 was $0.06, compared to per share Net Income in the third quarter of 2018 of $0.10 (based upon a weighted average number of diluted shares outstanding of 50.4 million in 2019 and 48.6 million in 2018).  Adjusting for $920,000 (the tax-effected impact of $1.2 million) of legal settlements in this year’s third quarter, Adjusted Net Income was $0.08 per share in the third quarter of 2019.

Affecting Net Income in the third quarter of 2019 were certain non-cash expenses or non-recurring items including:  $1.4 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $52,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $917,000 loss on the sale or disposal of certain capital equipment; $1.2 million in legal settlements; and $1.1 million of amortization of deferred financing costs, other non-cash interest and loan discounts related to our credit facilities.

For the third quarter of 2019, as compared with the prior year’s third quarter, MRI volume increased 11.8%, CT volume increased 14.9% and PET/CT volume increased 8.5%.  Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 13.0% over the prior year’s third quarter.  On a same-center basis, including only those centers which were part of RadNet for both the third quarters of 2019 and 2018, MRI volume increased 5.3%, CT volume increased 6.5% and PET/CT volume decreased 0.1%.  Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 4.7% compared with the prior year’s same quarter.

Nine Month Financial Results

For the nine months ended September 30, 2019, RadNet reported Revenue of $853.3 million, Adjusted EBITDA(1) of $117.2 million and Net Income of $4.4 million.  Revenue increased $135.4 million (or 18.9%), Adjusted EBITDA(1) increased $19.9 million (or 20.5%) and Net Income increased $1.3 million over the first nine months of 2018.  Net Income Per Share for the nine month period ended September 30, 2019 was $0.09 per diluted share, compared to Net Income of $0.06 per diluted share in corresponding nine month period of 2018 (based upon a weighted average number of fully diluted shares outstanding of 50.1 million in 2019 and 48.5 million in 2018).  Adjusting for $938,000 (the tax-effected impact of $1.2 million) of legal settlements in the third quarter, Adjusted Net Income was $0.11 per share nine months ended September 30, 2019.

Affecting operating results in the nine months ended September 30, 2019 were certain non-cash expenses or non-recurring items including:  $7.0 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $1.1 million of severance paid in connection with headcount reductions related to cost savings initiatives; $2.0 million loss on the sale of certain capital equipment; $1.2 million in legal settlements; and $3.1 million of amortization of deferred financing costs, other non-cash interest and loan discounts related to our credit facilities.

2019 Guidance Update

RadNet reaffirms its previously announced 2019 guidance ranges as follows:

Total Net Revenue		$1,100 million - $1,150 million
Adjusted EBITDA(1)		$158 million - $168 million
Free Cash Flow (a)		$45 million - $55 million
Cash Interest Expense		$43 million - $48 million

RadNet is increasing its 2019 guidance range for Capital Expenditures as follows:

		Guidance Range after 2nd Quarter			Revised Guidance Range
Capital Expenditures (b)		$63 million - $68 million			$65 million - $70 million
(a) Defined by the Company as Adjusted EBITDA(1) less total capital expenditures and cash paid for interest.
(b) Net of proceeds from the sale of equipment, imaging centers and joint venture interests.

Conference Call for Today

Dr. Howard Berger, President and Chief Executive Officer, and Mark Stolper, Executive Vice President and Chief Financial Officer, will host a conference call to discuss its third quarter 2019 results on Tuesday, November 12th, 2019 at 7:30 a.m. Pacific Time (10:30 a.m. Eastern Time).

Conference Call Details:

Date:  Tuesday, November 12, 2019Time:  10:30 a.m. Eastern TimeDial In-Number:  800-458-4121International Dial-In Number:  323-794-2597

It is recommended that participants dial in approximately 5 to 10 minutes prior to the start of the 10:30 a.m. call.  There will also be simultaneous and archived webcasts available at http://public.viavid.com/player/index.php?id=136952 or http://www.radnet.com under the “Investors” menu section and “News Releases” sub-menu of the website.  An archived replay of the call will also be available and can be accessed by dialing 844-512-2921 from the U.S., or 412-317-6671 for international callers, and using the passcode 5482581.

Regulation G: GAAP and Non-GAAP Financial Information

This release contains certain financial information not reported in accordance with GAAP. The Company uses both GAAP and non-GAAP metrics to measure its financial results.  The Company believes that, in addition to GAAP metrics, these non-GAAP metrics assist the Company in measuring its cash-based performance.  The Company believes this information is useful to investors and other interested parties because it removes unusual and nonrecurring charges that occur in the affected period and provides a basis for measuring the Company's financial condition against other quarters.  Such information should not be considered as a substitute for any measures calculated in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies.  Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.  Reconciliation of this information to the most comparable GAAP measures is included in this release in the tables which follow.

About RadNet, Inc.

RadNet, Inc. is the leading national provider of freestanding, fixed-site diagnostic imaging services in the United States based on the number of locations and annual imaging revenue. RadNet has a network of 340 owned and/or operated outpatient imaging centers. RadNet's core markets include California, Maryland, Delaware, New Jersey and New York. In addition, RadNet provides radiology information technology solutions, teleradiology professional services and other related products and services to customers in the diagnostic imaging industry.  Together with affiliated radiologists, and inclusive of full-time and per diem employees and technicians, RadNet has a total of approximately 8,000 employees. For more information, visit http://www.radnet.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning successfully integrating acquired operations, successfully achieving 2019 financial guidance, achieving cost savings, successfully developing and integrating new lines of business, continuing to grow its business by generating patient referrals and contracts with radiology practices, and receiving third-party reimbursement for diagnostic imaging services, are forward-looking statements within the meaning of the Safe Harbor. Forward-looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause the Company's actual results to differ materially from the statements contained herein. Further information on potential risk factors that could affect RadNet's business and its financial results are detailed in its most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date they are made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

CONTACTS:

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

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
	September 30, 2019				December 31, 2018
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	37,688			$	10,389
Accounts receivable, net		150,748				148,919
Due from affiliates		1,385				595
Prepaid expenses and other current assets		47,857				46,288
Assets held for sale		2,041				2,499
Total current assets		239,719				208,690
PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS
Property and equipment, net		352,310				345,729
Operating lease right-of-use assets		438,558				-
Total property, equipment and right-of-use assets		790,868				345,729
OTHER ASSETS
Goodwill		439,867				418,093
Other intangible assets		43,613				40,593
Deferred financing costs		1,670				1,354
Investment in joint ventures		36,868				37,973
Deferred tax assets, net of current portion		34,423				31,506
Deposits and other		30,872				25,392
Total assets	$	1,617,900			$	1,109,330
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other	$	175,894			$	181,028
Due to affiliates		18,592				13,089
Deferred revenue		1,908				2,398
Current portion of deferred rent		-				3,735
Current portion of finance lease		4,095				-
Current portion of operating lease		69,308				-
Current portion of notes payable and long term debt		39,719				33,653
Current portion of obligations under capital lease		-				5,614
Total current liabilities		309,516				239,517
LONG-TERM LIABILITIES
Deferred rent, net of current portion		-				31,542
Finance lease, net of current portion		4,042				-
Operating lease, net of current portion		410,958				-
Notes payable, net of current portion		662,605				626,507
Obligations under capital lease, net of current portion		-				6,505
Other non-current liabilities		15,707				5,006
Total liabilities		1,402,828				909,077
EQUITY
RadNet, Inc. stockholders' equity:
Common stock - $.0001 par value, 200,000,000 shares authorized; 50,254,136 and 48,977,485 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		5				5
Additional paid-in-capital		260,463				242,835
Accumulated other comprehensive (loss) income		(12,250	)			2,259
Accumulated deficit		(113,555	)			(117,915	)
Total RadNet, Inc.'s stockholders' equity		134,663				127,184
Noncontrolling interests		80,409				73,069
Total equity		215,072				200,253
Total liabilities and equity	$	1,617,900			$	1,109,330

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
REVENUE
Service fee revenue	$	261,908			$	217,552			$	762,751			$	641,136
Revenue under capitation arrangements		30,784				24,596				90,587				76,799
Total revenue		292,692				242,148				853,338				717,935
OPERATING EXPENSES
Cost of operations, excluding depreciation and amortization		254,383				208,511				743,997				634,200
Depreciation and amortization		20,490				17,480				60,193				53,422
Loss (gain) on sale and disposal of equipment		917				(373	)			1,990				(2,204	)
Severance costs		52				82				1,054				1,087
Total operating expenses		275,842				225,700				807,234				686,505
INCOME FROM OPERATIONS		16,850				16,448				46,104				31,430
OTHER INCOME AND EXPENSES
Interest expense		11,895				10,663				36,589				31,343
Equity in earnings of joint ventures		(1,955	)			(2,822	)			(6,072	)			(9,547	)
Other expenses		2				7				1,271				13
Total other expenses		9,942				7,848				31,788				21,809
INCOME BEFORE INCOME TAXES		6,908				8,600				14,316				9,621
Provision for income taxes		(1,816	)			(2,827	)			(3,556	)			(2,835	)
NET INCOME		5,092				5,773				10,760				6,786
Net income attributable to noncontrolling interests		1,897				734				6,400				3,679
NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	3,195			$	5,039			$	4,360			$	3,107
BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.06			$	0.10			$	0.09			$	0.06
DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.06			$	0.10			$	0.09			$	0.06
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		49,807,460				48,010,726				49,597,138				47,937,215
Diluted		50,360,360				48,615,392				50,113,306				48,481,305

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(IN THOUSANDS)
(unaudited)
	Nine Months Ended September 30,
	2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	10,760			$	6,786
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		60,193				53,422
Amortization of operating lease assets		49,948				-
Equity in earnings of joint ventures		(6,072	)			(9,547	)
Distributions from joint ventures		3,924				21,783
Amortization deferred financing costs and loan discount		3,103				2,924
Loss (gain) on sale and disposal of equipment		1,990				(2,204	)
Stock-based compensation		6,963				6,557
Noncash item in other expenses		(559	)			-
Change in fair value of contingent consideration		(1,749	)			-
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable		(3,467	)			(9,641	)
Other current assets		(1,569	)			(5,680	)
Other assets		(5,770	)			(1,209	)
Deferred taxes		(4,230	)			1,531
Operating leases		(49,721	)			-
Deferred rent		-				2,397
Deferred revenue		(490	)			353
Accounts payable, accrued expenses and other		19,349				20,386
Net cash provided by operating activities		82,603				87,858
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities		(27,150	)			(17,393	)
Equity investments at fair value		(143	)			(2,200	)
Purchase of property and equipment		(68,269	)			(62,595	)
Proceeds from sale of equipment		760				2,587
Proceeds from sale of equity interests in a joint venture		132				-
Nulogix return of capital		792				-
Equity contributions in existing joint ventures		(103	)			(2,000	)
Net cash used in investing activities		(93,981	)			(81,601	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable		(4,778	)			(4,374	)
Payments on Term Loan Debt		(29,918	)			(24,810	)
Proceeds from issuance of new debt		97,144				-
Distributions paid to noncontrolling interests		(1,818	)			(913	)
Proceeds from sale of noncontrolling interest		5,275				-
Contribution from a noncontrolling partners		750				-
Purchase of noncontrolling interests		-				(200	)
Proceeds from revolving credit facility		251,200				44,000
Payments on revolving credit facility		(279,200	)			(44,000	)
Proceeds from issuance of common stock upon exercise of options		50				10
Net cash provided by (used in) financing activities		38,705				(30,287	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(28	)			(65	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		27,299				(24,095	)
CASH AND CASH EQUIVALENTS, beginning of period		10,389				51,322
CASH AND CASH EQUIVALENTS, end of period	$	37,688			$	27,227
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	36,058			$	27,136

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

	Three Months Ended
	September 30,
	2019			2018
Net Income Attributable to RadNet, Inc. Common Shareholders	$	3,195		$	5,039
Plus Interest Expense		11,895			10,663
Plus Provision for Income Taxes		1,816			2,827
Plus Depreciation and Amortization		20,490			17,480
Plus (Gain) Loss on Sale of Equipment		917			(373	)
Plus Severance Costs		52			82
Plus Other Expenses		2			7
Plus Non-Cash Employee Stock-Based Compensation		1,381			1,667
Plus Transaction Costs - EmblemHealth/ACP		-			681
Plus Legal Settlements		1,248			-
Adjusted EBITDA(1)	$	40,996		$	38,073
	Nine Months Ended
	September 30,
	2019			2018
Net Income Attributable to RadNet, Inc. Common Shareholders	$	4,360		$	3,107
Plus Interest Expense		36,589			31,343
Plus Provision for Income Taxes		3,557			2,835
Plus Depreciation and Amortization		60,193			53,422
Plus (Gain) Loss on Sale of Equipment		1,990			(2,204	)
Plus Severance Costs		1,054			1,087
Plus Other Expenses		1,271			13
Plus Non-Cash Employee Stock-Based Compensation		6,964			6,557
Plus Transaction Costs - EmblemHealth/ACP		-			681
Plus Gain on Sale of Equipment Attributable to Noncontrolling Interest		-			440
Plus Legal Settlements		1,248			-
Adjusted EBITDA(1)	$	117,226		$	97,281

 

PAYOR CLASS BREAKDOWN**
	Third Quarter
	2019
Commercial Insurance	57.8%
Medicare	21.0%
Capitation	10.5%
Workers Compensation/Personal Injury	3.7%
Medicaid	2.4%
Other	4.5%
Total	100.0%
**Calculated as percentages of global payments received from that period's dates of services.

RADNET PAYMENTS BY MODALITY *
	Third Quarter			Full Year			Full Year			Full Year
	2019			2018			2017			2016
MRI	36.0%			35.2%			34.9%			34.7%
CT	16.7%			16.5%			16.2%			15.8%
PET/CT	5.5%			5.7%			5.2%			5.0%
X-ray	8.1%			8.4%			8.9%			9.3%
Ultrasound	12.5%			12.2%			12.1%			12.3%
Mammography	15.0%			15.8%			16.3%			16.5%
Nuclear Medicine	1.0%			1.1%			1.1%			1.2%
Other	5.0%			5.1%			5.2%			5.2%
	100.0%			100.0%			100.0%			100.0%
Note
* Based upon global payments received from that period's dates of service.

Footnotes

(1) The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and adjusted for losses or gains on the sale of equipment, other income or loss, transaction expenses, debt extinguishments and non-cash equity compensation.  Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taken place during the period.

Adjusted EBITDA is reconciled to its nearest comparable GAAP financial measure.  Adjusted EBITDA is a non-GAAP financial measure used as analytical indicator by RadNet management and the healthcare industry to assess business performance, and is a measure of leverage capacity and ability to service debt.  Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity. As Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation, this metric, as presented, may not be comparable to other similarly titled measures of other companies.

(2) As noted above, the Company defines Free Cash Flow as Adjusted EBITDA less total Capital Expenditures (whether completed with cash or financed) and Cash Interest paid.  Free Cash Flow is a non-GAAP financial measure.  The Company uses Free Cash Flow because the Company believes it provides useful information for investors and management because it measures our capacity to generate cash from our operating activities. Free Cash Flow does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. In addition, our definition of Free Cash Flow may differ from definitions used by other companies.

Free Cash Flow should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity. As Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation, this metric, as presented, may not be comparable to other similarly titled measures of other companies.