UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported March 8, 2018)
RADNET, Inc.
(Exact name of registrant as specified in its Charter)
Delaware | 001-33307 | 13-3326724 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1510 Cotner
Avenue
Los Angeles, California 90025
(Address of Principal Executive Offices) (Zip Code)
(310) 478-7808
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 10-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b) )
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c) )
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
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. ¨
Item 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
On March 8, 2018 RadNet, Inc. (“RadNet”) issued a press release and held a conference call regarding our financial results for the year ended December 31, 2017. A copy of the press release is furnished as Exhibit 99.1 and a copy of the transcript of the conference call is furnished as Exhibit 99.2 to this Current Report.
The information in this Current Report, including Exhibit 99.1 and Exhibit 99.2 is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. The information in this Current Report, including Exhibit 99.1 and Exhibit 99.2 shall not be incorporated by reference into any registration statement or other document filed with the Commission.
Item 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
(d) Exhibits
Exhibit Number | Description of Exhibit |
99.1 | Press Release dated March 8, 2018 relating to RadNet, Inc.’s financial results for the year ended December 31, 2017. |
99.2 | Transcript of conference call. |
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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 hereunto duly authorized.
Date: March 14, 2018 | RADNET, INC. |
By: /s/ Jeffrey L. Linden Name: Jeffrey L. Linden |
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EXHIBIT INDEX
Exhibit Number | Description |
99.1 | Press Release dated March 8, 2018. |
99.2 | Transcript of conference call. |
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FOR IMMEDIATE RELEASE
RadNet Reports Record Fourth Quarter and Full Year 2017 Results and Releases 2018 Financial Guidance
· | For the fourth quarter of 2017, RadNet reports record Total Net Revenue (“Revenue”) of $235.6 million and record Adjusted EBITDA([1])of $40.7 million; Revenue increased 4.7% and Adjusted EBITDA(1) increased 16.6% as compared with the same quarter in 2016 |
· | For full year 2017, RadNet reports record Revenue of $922.2 million and record Adjusted EBITDA([2])of $142.5 million; Revenue increased 4.3% and Adjusted EBITDA(1) increased 7.1% as compared with full year 2016 |
· | Net Income Attributable to RadNet, Inc. Common Stockholders for the fourth quarter was $6.3 million (or $0.13 per diluted share), compared to Net Income of $3.7 (or $0.08 per diluted share) in the fourth quarter of 2016; this is adjusted for a one-time $13.5 million non-cash increase to income tax expense in the 2017 quarter as a result of the Tax Cut and Jobs Act of 2017 and the revaluation of RadNet’s deferred tax asset. (“Adjusted Net Income”) |
· | For full year 2017, Adjusted Net Income was $13.6 million (or $0.29 per diluted share), compared with Net Income of $7.2 million (or $0.15 per diluted share) in 2016 |
· | Financial leverage was reduced from 4.8x Net Debt to Adjusted EBITDA(1) at year end 2016 to 4.0x at the end of 2017 |
· | In the fourth quarter, same center volumes increased 2.5% compared with last year’s fourth quarter |
· | RadNet announces 2018 guidance ranges, anticipating increases in Revenue, Adjusted EBITDA(1) and Free Cash Flow and a decrease in capital expenditures |
LOS ANGELES, California, March 8, 2018 – RadNet, Inc. (NASDAQ: RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 297 owned and/or operated outpatient imaging centers, today reported financial results for its fourth quarter and full year ended December 31, 2017.
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Financial Results
Fourth Quarter Report:
For the fourth quarter of 2017, RadNet reported Revenue of $235.6 million, Adjusted EBITDA(1) of $40.7 million and Adjusted Net Income of $6.3 million. Revenue increased $10.6 million (or 4.7%), Adjusted EBITDA(1) increased $5.8 million (or 16.6%) and Net Income increased $2.6 million over the fourth quarter of 2016.
Adjusted Net Income (adjusted for a one-time $13.5 million non-cash increase to our income tax expense in the quarter as a result of the Tax Cut and Jobs Act of 2017 and the revaluation of our deferred tax asset) for the fourth quarter was $0.13 per diluted share, compared to a Net Income of $0.08 per diluted share in the fourth quarter of 2016. These per share values are based upon a weighted average number of diluted shares outstanding of 47.9 million in the fourth quarter of 2017 and 46.4 million of diluted shares outstanding in the fourth quarter of 2016.
Affecting Adjusted Net Income in the fourth quarter of 2017 were certain non-cash expenses and non-recurring items including: $944,000 of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $255,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $314,000 loss on the disposal of certain capital equipment; and $974,000 of amortization and write off of deferred financing costs and loan discount related to our existing credit facilities.
For the fourth quarter of 2017, as compared with the prior year’s fourth quarter (and adjusting for the sale of our Rhode Island subsidiary in the second quarter of 2017), MRI volume increased 4.7%, CT volume increased 8.1% and PET/CT volume increased 11.6%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 3.4% over the prior year’s fourth quarter. On a same-center basis, including only those centers which were part of RadNet for both the fourth quarters of 2017 and 2016, MRI volume increased 3.1%, CT volume increased 7.2% and PET/CT volume increased 9.9%. Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 2.5% from the prior year’s same quarter.
Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented “I am very pleased with our fourth quarter results. It was the best financial quarter in our Company’s history, and included record Revenue and Adjusted EBITDA. During 2017, we furthered our strategic plan in all aspects of our business: drove same center growth; established new joint ventures; expanded existing joint ventures; completed strategic acquisitions in our core markets; and grew our capitation business. Further, we completed the divestitures of some non-core assets and made important investments in our infrastructure to position ourselves to be an effective and scalable platform from which to grow. Healthcare is focused on migrating services towards ambulatory and lower cost settings. Not only do I believe RadNet is well-positioned to capitalize on this trend, but I believe that we can continue to play a pivotal role with health plans, insurance companies, large medical groups and progressive health systems to accelerate and improve the changing landscape of the healthcare delivery system.”
Annual Report:
For full year 2017, the Company reported Revenue of $922.2 million, Adjusted EBITDA(1) of $142.5 million and Adjusted Net Income of $13.6 million. Revenue increased $37.7 million (or 4.3%) and Adjusted EBITDA(1) increased $9.5 million (or 7.1%). Adjusted Net Income for 2017 was $0.29 per diluted share, compared to Net Income of $0.15 per diluted share in 2016 (based upon a weighted average number of diluted shares outstanding of 47.4 million and 46.7 million in 2017 and 2016, respectively).
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Affecting Adjusted Net Income in 2017 were certain non-cash expenses and non-recurring items including: $6.8 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $1.8 million of severance paid in connection with headcount reductions related to cost savings initiatives; $1.1 million loss on the disposal of certain capital equipment; $3.1 million gain on the sale of imaging centers; $3.2 million of expenses related to divested and closed operations; and $3.5 million of amortization and write off of deferred financing fees and discount on issuance of debt related to our existing credit facilities and refinancing transaction.
For the year ended December 31, 2017, as compared to 2016 (and adjusting for the sale of our Rhode Island centers from both periods), MRI volume increased 4.8%, CT volume increased 6.7% and PET/CT volume increased 7.4%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 3.1% for the twelve months of 2017 over 2016.
Dr. Berger remarked, “In 2017, we demonstrated many of the aspects of our business that make RadNet unique within healthcare. We announced the establishment of significant joint ventures in Southern California with two large and well-respected health systems, Cedars Sinai and MemorialCare and expanded our existing joint venture with the RWJBarnabas health system in New Jersey as well as two of our venture partners in Maryland. We divested non-core assets, which included our facilities in Rhode Island and our Breastlink and oncological operations in California and redeployed the proceeds of the divestitures into highly strategic acquisitions in California, Maryland and Delaware. Our most significant acquisition was the purchase of Diagnostic Imaging Associates, the other significant outpatient operator in Delaware, which made us the largest outpatient provider of imaging services in that state. We also made strategic enhancements to the capabilities of our eRAD information technology platform, which is now fully deployed across the RadNet facilities. In 2017, we also made important investments in our infrastructure, particularly to our revenue cycle department by recruiting additional senior management talent, expanding customer service and patient collection teams and investing in tools and technology to increase productivity.”
Dr. Berger added, “2017 was also notable for improving our balance sheet by lowering our financial leverage from 4.8x Net Debt to Adjusted EBITDA at year end 2016 to 4.0x at the end of 2017. We generated over $50 million of Free Cash Flow during 2017, ended the year undrawn on our $117 million revolving credit facility and had a cash balance of over $50 million. In August of 2017, we completed an amendment to our Senior Credit Facility which enabled us to retire the then existing Second Lien Term Loan, extend debt maturities and materially lower our cost of capital.”
Actual Results vs. 2017 Guidance:
The following compares the Company’s actual 2017 performance with previously announced revised guidance levels.
Revised Guidance Range | Actual Results | |||||
Total Net Revenue (a) | $895 million - $925 million | $922.2 million | ||||
Adjusted EBITDA(1) | $135 million - $145 million | $142.5 million | ||||
Capital Expenditures (b) | $55 million - $60 million | $57.6 million | ||||
Cash Interest Expense | $35 million - $40 million | $34.2 million | ||||
Free Cash Flow Generation (c) | $40 million - $50 million | $50.7 million |
(a) | Note the change from prior years. This metric is now after the subtraction of bad debt. |
(b) | Net of proceeds from the sale of equipment, imaging centers and joint venture interests. |
(c) | Defined by the Company as Adjusted EBITDA(1) less total capital expenditures and cash paid for interest. |
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Dr. Berger commented, “We met or exceeded our 2017 guidance levels in all categories. Our Revenue and Adjusted EBITDA were at the high end of the guidance ranges. Our strong Adjusted EBITDA performance, controlled capital spending and lower interest expense than projected contributed to our exceeding Free Cash Flow guidance.”
2018 Fiscal Year Guidance
For its 2018 fiscal year, RadNet announces its guidance ranges as follows:
Total Net Revenue | $950 million - $975 million | |
Adjusted EBITDA(1) | $145 million - $155 million | |
Capital Expenditures (a) | $50 million - $55 million | |
Cash Interest Expense | $33 million - $38 million | |
Free Cash Flow Generation (b) |
$50 million - $60 million | |
(a) | Net of proceeds from the sale of equipment, imaging centers and joint venture interests. |
(b) | Defined by the Company as Adjusted EBITDA(1) less total capital expenditures and cash paid for interest. |
Dr. Berger noted, “We are optimistic about 2018. First, Medicare rates for 2018 are commensurate with 2017 reimbursement. Second, we expect to benefit from some of the capital expenditures, infrastructure investments and acquisitions we made during 2017. Third, in 2018, we have launched the MemorialCare joint venture and expect to expand other joint ventures we currently operate on both costs. Fourth, we expect additional Revenue in 2018 from our continued adoption of 3D breast imaging. Fifth, we expect to continue to benefit from the migration of services from hospital settings to the outpatient marketplace. Lastly, we anticipate an ongoing earnings benefit from a significant reduction in our overall effective tax rate from the Tax Cut and Jobs Act of 2017. It should also be noted that we are anticipating spending less on capital expenditures in 2018 than we did during the last two fiscal years as a result of having substantially completed the upgrade of our x-ray systems and the transition to 3D mammography.”
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 today, at 10:30 a.m. Eastern Time. During the call, management will discuss the Company's 2017 fourth quarter and year-end results.
Conference Call Details:
Date: Thursday, March 8, 2018
Time: 10:30 a.m. ET
Dial In-Number: 800-239-9838
International Dial-In Number: 323-794-2551
There will also be simultaneous and archived webcasts available at http://public.viavid.com/index.php?id=128646
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or http://www.radnet.com under the “About RadNEt” menu section and “News & Press 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 2086619.
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 297 owned and/or operated outpatient imaging centers. RadNet's core markets include California, Maryland, Delaware, New Jersey and New York. Together with affiliated radiologists, and inclusive of full-time and per diem employees and technicians, RadNet has a total of approximately 7,400 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 the Company’s acquired operations, successfully achieving 2018 financial guidance, achieving cost savings, successfully developing and integrating its information technology operations as well as 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 speak only as of the date they are made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.
CONTACTS:
RadNet, Inc.
Mark Stolper, 310-445-2800
Executive Vice President and Chief Financial Officer
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RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
As of December 31, | ||||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 51,322 | $ | 20,638 | ||||
Accounts receivable, net | 155,518 | 164,210 | ||||||
Due from affiliates | 2,343 | 2,428 | ||||||
Prepaid expenses and other current assets | 26,168 | 28,435 | ||||||
Assets held for sale | – | 2,203 | ||||||
Total current assets | 235,351 | 217,914 | ||||||
PROPERTY AND EQUIPMENT, NET | 244,301 | 247,725 | ||||||
OTHER ASSETS | ||||||||
Goodwill | 256,776 | 239,553 | ||||||
Other intangible assets | 40,422 | 42,682 | ||||||
Deferred financing costs, net of current portion | 1,895 | 2,004 | ||||||
Investment in joint ventures | 52,435 | 43,509 | ||||||
Deferred tax assets, net of current portion | 30,852 | 50,356 | ||||||
Deposits and other | 6,947 | 5,733 | ||||||
Total assets | $ | 868,979 | $ | 849,476 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable, accrued expenses and other | $ | 135,809 | $ | 111,166 | ||||
Due to affiliates | 16,387 | 13,141 | ||||||
Deferred revenue | 2,606 | 1,516 | ||||||
Current portion of deferred rent | 2,714 | 2,961 | ||||||
Current portion of notes payable | 30,224 | 22,031 | ||||||
Current portion of obligations under capital leases | 3,866 | 4,526 | ||||||
Total current liabilities | 191,606 | 155,341 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred rent, net of current portion | 26,251 | 24,799 | ||||||
Notes payable, net of current portion | 572,365 | 609,445 | ||||||
Obligations under capital lease, net of current portion | 2,672 | 2,730 | ||||||
Other non-current liabilities | 6,160 | 5,108 | ||||||
Total liabilities | 799,054 | 797,423 | ||||||
EQUITY | ||||||||
RadNet, Inc. stockholders' equity: | ||||||||
Common stock - $.0001 par value, 200,000,000 shares authorized; 47,723,915 and 46,574,904 shares issued and outstanding at December 31, 2017 and 2016, respectively | 5 | 4 | ||||||
Additional paid-in-capital | 212,261 | 198,387 | ||||||
Accumulated other comprehensive (loss) gain | (548 | ) | 306 | |||||
Accumulated deficit | (150,158 | ) | (150,211 | ) | ||||
Total RadNet, Inc.'s stockholders' equity | 61,560 | 48,486 | ||||||
Non-controlling interests | 8,365 | 3,567 | ||||||
Total equity | 69,925 | 52,053 | ||||||
Total liabilities and equity | $ | 868,979 | $ | 849,476 |
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RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
NET REVENUE | ||||||||||||
Service fee revenue, net of contractual allowances and discounts | $ | 857,178 | $ | 821,587 | $ | 746,756 | ||||||
Provision for bad debts | (46,555 | ) | (45,387 | ) | (36,033 | ) | ||||||
Net service fee revenue | 810,623 | 776,200 | 710,723 | |||||||||
Revenue under capitation arrangements | 111,563 | 108,335 | 98,905 | |||||||||
Total net revenue | 922,186 | 884,535 | 809,628 | |||||||||
OPERATING EXPENSES | ||||||||||||
Cost of operations, excluding depreciation and amortization | 802,377 | 775,801 | 708,289 | |||||||||
Depreciation and amortization | 66,796 | 66,610 | 60,611 | |||||||||
Loss on sale and disposal of equipment | 1,142 | 767 | 866 | |||||||||
Severance costs | 1,821 | 2,877 | 745 | |||||||||
Total operating expenses | 872,136 | 846,055 | 770,511 | |||||||||
INCOME FROM OPERATIONS | 50,050 | 38,480 | 39,117 | |||||||||
OTHER INCOME AND EXPENSES | ||||||||||||
Interest expense | 40,623 | 43,455 | 41,684 | |||||||||
Meaningful use incentive | (250 | ) | (2,808 | ) | (3,270 | ) | ||||||
Equity in earnings of joint ventures | (13,554 | ) | (9,767 | ) | (8,927 | ) | ||||||
Gain on sale of imaging centers and medical practice | (3,146 | ) | – | (5,434 | ) | |||||||
Gain on return of common stock | – | (5,032 | ) | – | ||||||||
Other (income) expenses | (8 | ) | 196 | 419 | ||||||||
Total other expenses | 23,665 | 26,044 | 24,472 | |||||||||
INCOME BEFORE INCOME TAXES | 26,385 | 12,436 | 14,645 | |||||||||
Provision for income taxes | (24,310 | ) | (4,432 | ) | (6,007 | ) | ||||||
NET INCOME | 2,075 | 8,004 | 8,638 | |||||||||
Net income attributable to noncontrolling interests | 2,022 | 774 | 929 | |||||||||
NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 53 | $ | 7,230 | $ | 7,709 | ||||||
BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 0.00 | $ | 0.16 | $ | 0.18 | ||||||
DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | 0.00 | $ | 0.15 | $ | 0.17 | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
Basic | 46,880,775 | 46,244,188 | 43,805,794 | |||||||||
Diluted | 47,401,921 | 46,655,032 | 45,171,372 |
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RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 2,075 | $ | 8,004 | $ | 8,638 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 66,796 | 66,610 | 60,611 | |||||||||
Provision for bad debts | 46,555 | 45,387 | 36,033 | |||||||||
Gain on return from common stock | – | (5,032 | ) | – | ||||||||
Equity in earnings of joint ventures | (13,554 | ) | (9,767 | ) | (8,927 | ) | ||||||
Distributions from joint ventures | 8,690 | 2,926 | 7,731 | |||||||||
Amortization and write off of deferred financing costs and loan discount | 3,483 | 5,045 | 5,369 | |||||||||
Loss on sale and disposal of equipment | 1,142 | 767 | 866 | |||||||||
Gain on sale of imaging centers | (3,146 | ) | – | (5,434 | ) | |||||||
Stock-based compensation | 6,787 | 5,826 | 7,647 | |||||||||
Non cash severance | 1,047 | – | – | |||||||||
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: | ||||||||||||
Accounts receivable | (37,164 | ) | (47,055 | ) | (34,514 | ) | ||||||
Other current assets | 1,461 | 11,038 | (14,198 | ) | ||||||||
Other assets | (801 | ) | 1,267 | (3,813 | ) | |||||||
Deferred taxes | 19,504 | 3,446 | 4,036 | |||||||||
Deferred rent | 2,135 | (1,668 | ) | 7,011 | ||||||||
Deferred revenue | 1,034 | (82 | ) | (366 | ) | |||||||
Accounts payable, accrued expenses and other | 35,143 | 4,929 | (3,653 | ) | ||||||||
Net cash provided by operating activities | 141,187 | 91,641 | 67,037 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Purchase of imaging facilities | (27,612 | ) | (6,641 | ) | (90,792 | ) | ||||||
Investment at cost | (500 | ) | ||||||||||
Purchase of property and equipment | (61,336 | ) | (59,251 | ) | (42,964 | ) | ||||||
Proceeds from sale of equipment | 852 | 481 | 1,282 | |||||||||
Proceeds from sale of imaging and medical practice assets | 8,429 | – | 35,500 | |||||||||
Proceeds from sale of internal use software | 492 | 301 | 443 | |||||||||
Cash contribution from partner in JV formation | 1,473 | 994 | – | |||||||||
Equity contributions in existing and purchase of interest in joint ventures | (80 | ) | (1,374 | ) | (265 | ) | ||||||
Net cash used in investing activities | (78,282 | ) | (65,490 | ) | (96,796 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Principal payments on notes and leases payable | (6,836 | ) | (11,880 | ) | (9,773 | ) | ||||||
Proceeds from borrowings | 170,000 | 476,504 | 73,869 | |||||||||
Payments on senior notes | (196,666 | ) | (469,086 | ) | (23,727 | ) | ||||||
Deferred financing costs and debt discount | (5,062 | ) | (945 | ) | – | |||||||
Distributions paid to noncontrolling interests | (1,528 | ) | (492 | ) | (729 | ) | ||||||
Proceeds from sale of noncontrolling interest, net of taxes | 7,720 | 992 | 5,005 | |||||||||
Contributions from noncontrolling partners | 125 | – | – | |||||||||
Proceeds from revolving credit facility | 200,700 | 435,900 | 248,400 | |||||||||
Payments on revolving credit facility | (200,700 | ) | (435,900 | ) | (263,700 | ) | ||||||
Purchase of non-controlling interests | – | (1,153 | ) | – | ||||||||
Proceeds from issuance of common stock upon exercise of options | – | 150 | 594 | |||||||||
Net cash (used in) provided by financing activities | (32,247 | ) | (5,910 | ) | 29,939 | |||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 26 | (49 | ) | (41 | ) | |||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 30,684 | 20,192 | 139 | |||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 20,638 | 446 | 307 | |||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 51,322 | $ | 20,638 | $ | 446 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
Cash paid during the period for interest | $ | 34,197 | $ | 37,487 | $ | 36,028 | ||||||
Cash paid during the period for income taxes | $ | 4,939 | $ | 2,798 | $ | 1,781 |
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RADNET, INC. AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
(IN THOUSANDS EXCEPT SHARE DATA) | ||||||||
(unaudited) | ||||||||
Three Months Ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
NET REVENUE | ||||||||
Service fee revenue, net of contractual allowances and discounts | $ | 219,059 | $ | 208,556 | ||||
Provision for bad debts | (11,368 | ) | (11,504 | ) | ||||
Net service fee revenue | 207,691 | 197,052 | ||||||
Revenue under capitation arrangements | 27,861 | 27,887 | ||||||
Total net revenue | 235,552 | 224,939 | ||||||
OPERATING EXPENSES | ||||||||
Cost of operations, excluding depreciation and amortization | 200,206 | 192,161 | ||||||
Depreciation and amortization | 16,477 | 17,069 | ||||||
Loss on sale and disposal of equipment | 314 | 392 | ||||||
Severance costs | 255 | 349 | ||||||
Total operating expenses | 217,252 | 209,971 | ||||||
INCOME FROM OPERATIONS | 18,300 | 14,968 | ||||||
OTHER INCOME AND EXPENSES | ||||||||
Interest expense | 9,911 | 10,625 | ||||||
Meaningful use incentive | – | – | ||||||
Equity in earnings of joint ventures | (5,182 | ) | (1,638 | ) | ||||
Gain on sale of imaging centers | – | – | ||||||
Other (income) expenses | (22 | ) | 16 | |||||
Total other expenses | 4,707 | 9,003 | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | 13,593 | 5,965 | ||||||
(Provision for) benefit from income taxes | (20,133 | ) | (1,901 | ) | ||||
NET INCOME (LOSS) | (6,540 | ) | 4,064 | |||||
Net income attributable to noncontrolling interests | 736 | 383 | ||||||
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | (7,276 | ) | $ | 3,681 | |||
BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | (0.15 | ) | $ | 0.08 | |||
DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS | $ | (0.15 | ) | $ | 0.08 | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
Basic | 47,237,431 | 45,966,569 | ||||||
Diluted | 47,885,681 | 46,389,458 |
9 |
RADNET, INC.
RECONCILIATION OF GAAP NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON SHAREHOLDERS TO ADJUSTED EBITDA(1)
(IN THOUSANDS)
Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Net Income Attributable to RadNet, Inc. Common Stockholders | $ | (7,273 | ) | $ | 3,681 | |||
Plus Provision for Income Taxes | 20,133 | 1,901 | ||||||
Plus Other Expenses | (22 | ) | 16 | |||||
Plus Interest Expense | 9,911 | 10,625 | ||||||
Plus Severance Costs | 255 | 349 | ||||||
Plus Loss on Disposal of Equipment | 314 | 392 | ||||||
Plus Depreciation and Amortization | 16,477 | 17,069 | ||||||
Plus Non Cash Employee Stock Compensation | 944 | 908 | ||||||
Adjusted EBITDA(1) | $ | 40,739 | $ | 34,941 |
Fiscal Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
Net Income Attributable to RadNet, Inc. Common Stockholders | $ | 53 | $ | 7,230 | ||||
Plus Provision for Income Taxes | 24,310 | 4,432 | ||||||
Plus Other Expenses | (8 | ) | 196 | |||||
Plus Loss (Gain) on Sale of Imaging Centers | (3,146 | ) | – | |||||
Plus Loss (Gain) from Return of Common Stock | – | (5,032 | ) | |||||
Plus Interest Expense | 40,623 | 43,455 | ||||||
Plus Severance Costs | 1,821 | 2,877 | ||||||
Plus Loss on Disposal of Equipment | 1,142 | 767 | ||||||
Plus Acquisition Related Working Capital Adjustment | – | 6,072 | ||||||
Plus Expneses of Divested/Closed Operations | 3,186 | – | ||||||
Plus Refinancing Fees | 235 | 606 | ||||||
Plus Reimbursable Legal Expenses | 723 | – | ||||||
Plus Depreciation and Amortization | 66,796 | 66,610 | ||||||
Plus Non Cash Employee Stock Compensation | 6,786 | 5,826 | ||||||
Adjusted EBITDA(1) | $ | 142,521 | $ | 133,039 |
10 |
PAYOR CLASS BREAKDOWN**
Fourth Quarter | ||
2017 | ||
Commercial Insurance | 59.4% | |
Medicare | 20.2% | |
Capitation | 11.3% | |
Workers Compensation/Personal Injury | 3.5% | |
Medicaid | 2.6% | |
Other | 3.0% | |
Total | 100.0% |
**Capitation percentage has been calculated based upon its proportion of Revenue Under Capitation Arrangements in the period to Service Fee Revenue, Net of Contractual Allowances and Discounts plus Revenue Under Capitation Arrangements. After deducting the capitation percentage from 100%, all other payor class percentages are based upon a proportion to global payments received from consolidated imaging centers from that periods dates of services and excludes payments from hospital contracts, Breastlink, imaging center management fees, eRAD, Imaging on Call and other miscellaneous revenue.
RADNET PAYMENTS BY MODALITY *
Fourth Quarter | Full Year | Full Year | Full Year | Full Year | ||||||||||||||||
2017 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
MRI | 34.6% | 34.9% | 34.7% | 35.3% | 36.1% | |||||||||||||||
CT | 16.0% | 16.2% | 15.8% | 15.7% | 15.3% | |||||||||||||||
PET/CT | 5.5% | 5.2% | 5.0% | 5.1% | 5.7% | |||||||||||||||
X-ray | 8.4% | 8.9% | 9.3% | 9.6% | 10.2% | |||||||||||||||
Ultrasound | 12.2% | 12.1% | 12.3% | 11.5% | 11.1% | |||||||||||||||
Mammography | 17.1% | 16.3% | 16.5% | 16.4% | 16.5% | |||||||||||||||
Nuclear Medicine | 1.1% | 1.1% | 1.2% | 1.3% | 1.4% | |||||||||||||||
Other | 5.2% | 5.2% | 5.2% | 5.1% | 3.7% | |||||||||||||||
100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
Note
* Based upon global payments received from consolidated Imaging Centers from that year's dates of service.
Excludes payments from hospital contracts, Breastlink, Imaging on Call, eRAD, Center Management Fees and other miscellaneous operating activities.
11 |
Footnotes
(1) The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains 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 and extraordinary events which took 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.
12 |
Exhibit 99.2
C O R P O R A T E P A R T I C I P A N T S
Mark D. Stolper, Executive Vice President & Chief Financial Officer
Dr. Howard G. Berger, Chairman, President, Chief Executive Officer & Treasurer
C O N F E R E N C E C A L L P A R T I C I P A N T S
Brian Tanquilut, Jefferies LLC
P R E S E N T A T I O N
Operator:
Good day, and welcome to the RadNet, Inc., Fourth Quarter and Year End Financial Results. Today's conference is being recorded. At this time, I would now like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead.
Mark Stolper:
Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's fourth quarter and full year 2017 financial results.
Before we begin today, we'd like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance, RadNet's ability to continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and Adjusted EBITDA for the acquired operations as estimated among others, 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 RadNet's actual results to differ materially from the statements contained herein. These results and uncertainties include those risks set forth in RadNet's reports filed with the SEC from time to time, including RadNet's Annual Report on Form 10-K for the year ended December 31, 2017 to be filed shortly.
Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is 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.
With that, I'd like to turn the call over to Dr. Berger.
1 |
RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
Dr. Howard G. Berger:
Thank you, Mark. Good morning, everyone and thank you for joining us today. On today's call, Mark and I plan to provide you with highlights from our fourth quarter and full year 2017 results, give you more insight into factors which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest in our Company and for dedicating a portion of your day to our conference call this morning.
Twenty seventeen was an active and very productive year for RadNet. We made progress on all strategic fronts and I believe our performance demonstrated the power of the RadNet model and the multi-faceted aspects to our business that make it unique in healthcare. I'd like to begin by highlighting some of the accomplishments of 2017.
First, our operations teams were successful in driving same center growth. For the year, our same center procedural volume growth in operations, including all joint ventures exceeded 2%. When we are able to drive more patient volume and procedures through existing facilities, the incremental profitability is high, since many of our costs are fixed. This contributed to our improved EBITDA and profitability through 2017. In addition, our contracting groups were successful in negotiating better reimbursement with several commercial health plans in key markets.
Second, the capital expenditures that we made during 2016 and 2017 added both capacity to see additional patients and new capabilities to our centers. In particular, our recent investments in 3D, digital mammography is associated with increased reimbursement as compared with the traditional 2D mammography exams. Our ability to make capital investments further distances our centers and service offerings from those of our smaller competitors. We believe the medical communities that we serve recognize these differences that set RadNet apart.
Our organic growth is also benefiting from the migration of outpatient services from hospitals into lower cost, and in many cases higher quality ambulatory settings. On our last call, we were asked about the announcement that Anthem made several months ago regarding its commitment to direct outpatient imaging to freestanding centers and away from hospital settings. This announcement is representative of the thinking of not just Anthem but many of the larger regional and national health insurers. We have noted in our markets that hospital imaging rates are between two to five times those of freestanding outpatient facilities. This simply is not sustainable. We believe we will continue to benefit from patients being directed to lower cost facilities by their health plans and patients in high deductible plans becoming more engaged in deciding where to get their health care services.
During 2017, we furthered our hospital joint venture strategy by expanding existing joint ventures and establishing new JVs with two of the premier health systems in Southern California, Cedars-Sinai and MemorialCare. We expect 2018 will bring new joint venture opportunities as health systems seek affiliations and solutions to manage their radiology delivery and offerings.
During 2017, we streamlined our business through divesting of non-core operations. In April, we completed the sale of five centers in Rhode Island to another operator in that market. The five centers were originally part of RadNet's acquisition completed in November 2011 of the U.S. operations of CML HealthCare. When we purchased the assets of CML, we were most interested in CML's operations in Maryland. Managing the Rhode Island region consumed time and resources in a marketplace that we felt was unlikely for us to grow.
Also in April, as part of a larger strategic relationship with Cedars-Sinai, we sold to Cedars, our medical oncology practices in the San Fernando Valley of Los Angeles. We originally purchased these oncology practices because of their connection with our Breastlink business and because they rely heavily on diagnostic imaging. Operating medical oncology practices was never our core business and we're able to sell our ownership to Cedars, who continues to utilize RadNet for the imaging needs of those patients.
2 |
RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
In September, we sold to Verity Health our interest in Breastlink California, our integrated breast disease management operations. Like the San Fernando Valley oncology operations, we created Breastlink partially to capture substantial imaging volumes resulting from breast cancer screening and treatment. By transferring the professional operations of Breastlink to Verity, like Cedars another strategic partner, we will remain the imaging provider of choice to these patients.
During 2017, we also completed several strategic acquisitions in our core markets. The most notable one was the acquisition of Diagnostic Imaging Associate, RadNet's principal non-hospital outpatient competitor, in Delaware. DIA has been a respected competitor of ours since we entered into the Delaware marketplace in 2008. Through the combination of RadNet's existing eight facilities with DIA's centers, we have become the clear leader of non-hospital outpatient imaging operators in Delaware. Through the integration of DIA with our existing operations in Delaware, we should benefit from unique consolidation and revenue opportunities.
We made certain infrastructure investments to position ourselves to be an effective and scalable platform from which we will continue to grow. These investments were made to address challenges in our business which should result in better future performance and more efficient operations. Most notably, we invested significantly in our revenue cycle operations. As we have discussed in the past, we are attempting to keep pace with the challenges in healthcare around effective billing and collection for services. Health plans have made the procedures and requirements more and more cumbersome to get reimbursed. We are forced to collect more money than ever from patients directly at the time of service and afterwards as a result of higher deductable health plans and more significant office visit charges and co-insurance. As a result, we have recruited and hired new senior Management in this area expanding customer service, call center personnel and hours of operations, increased the size of our patient collection teams and invested in new tools and technology to increase productivity. We are beginning to see benefits from these investments and expect to see performance enhancement in revenue cycle throughout 2018.
The last achievement of 2017 I'd like to discuss is our improved balance sheet and cash flow, which is a direct result of our operating performance in 2016 and 2017 and our commitment to deleveraging. In 2017, we produced over $50 million of free cash flow. This cash we generated after the deduction of our capital expenditures and cash interest expense. Essentially, this is cash we can use to repay debt or make strategic acquisitions.
During 2017, we lowered our leverage from 4.8 times net debt to EBITDA to 4 times and we ended the year with over $50 million on our balance sheet and undrawn on our $117 million revolving credit facility. Our consistent deleveraging over the past 18 months, as well as strong capital market conditions allowed us to amend our credit facility in August, but we repaid in its entirety the second lien term loan we had outstanding, extended debt maturities and lowered our cost of capital. From the balance sheet perspective and in terms of our liquidity, we are in the best position we have ever been in, which allows us to continue to execute our strategic growth plan.
At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our fourth quarter 2017 performance. When he is finished, I will have some closing remarks.
Mark Stolper:
Thank you, Howard. I'm now going to briefly review our fourth quarter and full year 2017 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our fourth quarter and full year 2017 performance. I will also provide 2018 financial guidance levels which were released in this morning's financial results press release.
3 |
RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
In my discussion, I will use the term Adjusted EBITDA, which is a non-GAAP financial measure. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments and non-cash equity composition. Adjusted EBITDA includes equity and earnings in unconsolidated operations, and subtracts allocations of earnings to non-controlling interest in subsidiaries, as adjusted for non-cash or extraordinary and one-time items taken place during the period. A full quantitative reconciliation of Adjusted EBITDA to net income or loss attributed to RadNet Inc., common shareholders is included in our earnings release.
With that said, I'd now like to review our fourth quarter and full year 2017 results. For the three months ended December 31, 2017, RadNet reported revenue and Adjusted EBITDA of $235.6 million and $40.7 million respectively. Revenue increased $10.6 million or 4.7% over the prior year same quarter and Adjusted EBITDA increased $5.8 million or 16.6% over the prior year same quarter. The vast majority of the revenue and EBITDA increase in the quarter is the result of increases in procedural volumes, mostly same center increases and the effect of several payer increases we received in the latter half of 2017.
For the fourth quarter of 2017, as compared with the prior year's fourth quarter, and adjusting for the sale of our Rhode Island subsidiary, which we completed in April of 2017, aggregate MRI volume increased 4.7%, CT volume increased 8.1% and PET/CT volume increased 11.6%. Overall volume taking into account routine imaging exams inclusive of x-ray, ultrasound, mammography and all other exams increased 3.4% over the prior year's fourth quarter.
I will now discuss procedural volumes. Note that, beginning in the second quarter of 2017 all procedural numbers I've been discussing includes all of our joint ventures, whether consolidated or unconsolidated from an accounting perspective. Our JVs have become a material part of our business and by including their procedural volumes, it provides a more accurate and complete picture of our operations. I will restate the prior period procedural volumes in the same manner to make meaningful comparison.
In the fourth quarter of 2017, we performed 1,779,246 total procedures. The procedures were consistent with our multi-modality approach whereby 75.9% of all the work we did by volume was from routine imaging. Our procedures in the fourth quarter of 2017 were as follows: 241,191 MRIs compared with 230,389 MRIs in the fourth quarter of 2016; 177,970 CTs as compared with 164,697 CTs in the fourth quarter of 2016; 9,241 PET/CTs as compared with 8,281 PET/CTs in the fourth quarter of 2016; 1,350,844 routine imagining exams, which include nuclear medicine, ultrasound, mammography, x-ray and all other exams as compared with 1,317,736 exams in the fourth quarter of 2016.
Net income adjusted for a one-time $13.5 million non-cash increase to our income tax expense in the quarter as a result of the Tax Cut and Jobs Act of 2017 and the revaluation of our deferred tax asset, for the fourth quarter of 2017 was $6.3 million, or $0.13 per share compared to net income of $3.7 million or $0.08 per share in 2016. This is based upon weighted average number of shares outstanding of 47.9 million and 46.4 million for these periods in 2017 and 2016 respectively.
With respect to the one-time tax adjustment, many of you are aware that the Tax Cut and Jobs Act was enacted on December 22, 2017. The Act reduces the U.S. Federal Corporate tax rate from 34% to 21%, along with adopting a number of tax provisions related to foreign entities. As part of our work for the fourth quarter, we made a reasonable estimate of the effects of our existing deferred tax balances. As a result of these analyses, during the quarter, we recognized a one-time non-cash provisional amount of $13.5 million to our income tax expense, and will continue to make and refine our calculations as additional work is completed.
Going forward, we anticipated a benefit to our earnings from the lower Corporate Federal tax rate. We expect our effective corporate tax rate which is inclusive of both Federal and State taxes to be reduced from approximately 41% to approximately 29%. I will report more on this matter on our first quarter financial results call after we've completed additional work.
4 |
RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
Other than the one-time tax adjustment to the tax provision, affecting adjusted net income in the fourth quarter of 2017 were certain non-cash expenses and non-recurring items including the following: $944,000 of non-cash employee stock compensation expense resulting from the vesting of certain options in restricted stock; $255,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $314,000 loss on the disposal of certain capital equipment; and $974,000 of amortization and write-off of deferred financing costs and loan discounts related to our existing credit facilities. With regard to some specific income statement accounts, overall GAAP interest expense for the fourth quarter of 2017 was $9.9 million. This compares with GAAP interest expense in the fourth quarter of 2016 of $10.6 million.
For the fourth quarter of 2017, bad debt expense was 5.2% of our service fee revenue compared with 5.5% for the fourth quarter of 2016. We are pleased with the slight decrease in our bad debt percentage as we are being required to collect more dollars from patients directly in the form of copayments and coinsurance. The controls and procedures we put in place at the centers have to become more effective in collecting money from patients are enabling us to keep bad debt from increasing relative to our service fee revenue. Additionally, investments we made in our customer service and collection teams are also paying dividends and positively impacting bad debt, DSOs and cash flow.
For the full year of 2017, the Company reported $922 million of revenue and Adjusted EBITDA of $142.5 million and adjusted net income of $13.6 million. Revenue increased $37.7 million or 4.3% and Adjusted EBITDA increased $9.5 million or 7.1% over 2016. As Dr. Berger mentioned in his prepared remarks, the improved performance relative to 2016 was the result of same center procedural and revenue growth, contribution from several tuck-in acquisitions, expansion of our JV strategy and containment on our cost structure. One thing to note that in 2017 for the first time in our Company's history, we instituted a 401(k) match program for our employees. We accrued throughout the year $2.4 million of additional salaries and wages as a result of this program. Although our EBITDA and profitability was impacted, we are proud to recognize the hard work and dedication of our employee base.
For the year ended December 31, 2017, as compared to 2016, and adjusting for the sale of our Rhode Island centers in April, MRI volume increased 4.8%, CT volume increased 6.7% and PET/CT volume increased 7.4%. Overall volume, taking into account all of the routine imaging exams, increased 3.1% for the 12 months of 2017 over 2016. In 2017, again adjusting for the sale of Rhode Island, and restating prior period numbers to include our JV operations, we performed 7,101,086 total procedures. The procedures were consistent with our multi-modality approach whereby 76.1% of all the work we did by volume was from routine imaging.
Our procedures in 2017 were as follows: 957,752 MRIs as compared with 913,971 MRIs in 2016; 706,164 CTs as compared with 661,890 CTs in 2016; 35,428 PET/CTs as compared with 32,988 PET/CTs in 2016; and 5,401,742 routine imaging exams as compared with 5,276,426 of all these exams in 2016.
Adjusted net income for 2017 was $0.29 per diluted share compared to adjusted net income of $0.15 per diluted share in 2016. This is based upon weighted average number of diluted shares outstanding of 47.4 million in 2017 and 46.7 million shares in 2016. Affecting adjusted net income in 2017 were certain non-cash and non-recurring items including the following: $6.8 million of non-cash employee stock compensation expense resulting from divesting of certain options and restricted stock; $1.8 million of severance paid in connection with headcount reductions related to cost savings initiatives and $1.1 million loss on the disposal of certain capital equipment; $3.1 million gain on the sale of imaging centers; $3.2 million of expenses related to divested and closed operations; and $3.5 million of amortization and write-off of deferred financing fees and discount on issuance of debt related to our existing credit facilities and refinancing transaction.
With regard to some specific income statement accounts, overall GAAP interest expense for 2017 was $40.6 million. Adjusting for non-cash impacts of items such as amortization of financing fees and accrued interest, cash interest expense for the year was $34.2 million. This compares with GAAP interest expense in 2016 of $43.5 million and cash paid for interest in 2016 of $37.5 million. For 2017, bad debt expense was 5.4% of our service fee revenue compared with an overall blended rate of 5.5% for the full year of 2016.
5 |
RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
With regards to our balance sheet, as of December 31, 2017, unadjusted for bonds and term loan discounts, we had $576.3 million of debt, which is our total par value of debt less our cash balance. This compares with $634.9 million of debt at December 31, 2016. Thus we reduced net debt during 2017 by $58.6 million.
As of the end of 2017, we were undrawn on our $117.5 million revolving line of credit and had a cash balance of $51.3 million. As Dr. Berger mentioned earlier, we reduced our debt-to-EBITDA leverage ratio by over 0.8 turns of leverage in one year from 4.8 times net debt-to-EBITDA at the end of 2006 down to 4.0 times net debt-to-EBITDA at the end of 2017.
At December 31, 2017, our accounts receivable balance was $155.5 million, a decrease of $8.7 million from the year end of 2016. The decrease in accounts receivable is mainly from additional efforts and resources dedicated to patient collections. Our DSO, or day sales outstanding was 57.1 days at December 31, 2017, lower by 4.1 days when compared to 61.2 days as of that date one year ago. This is mainly due to improved collection. Throughout 2017, we had total capital expenditures net of asset dispositions and sale of imaging center assets and joint venture interests of $57.6 million. Approximately $61.3 million was paid for in cash, approximately $5.5 million was financed with capital leases and we recognized $9.3 million in proceeds from the sales of equipment and imaging and medical practice assets.
I will now discuss how RadNet performed relative to 2017 guidance levels, which we released first upon our fourth quarter and full year 2016 financial results. Our guidance level for revenue for 2017 was $895 million to $925 million. Our actual results were $922.2 million. Our Adjusted EBITDA guidance was $135 million to $145 million. Our actual results were $142.5 million. Our capital expenditure guidance level was $55 million to $60 million, our actual results were $57.6 million. Our cash interest, expense guidance level was $35 million to $40 million, our actual results were $34.2 million. Our free cash flow generation guidance level was $40 million to $50 million, our actual results were $50.7 million. Thus we met or exceeded our 2017 guidance levels in all categories. Our revenue and Adjusted EBITDA were at the high end of the guidance ranges and our strong Adjusted EBITDA performance, controlled capital spending and lower interest expense than projected contributed to our exceeding free cash flow guidance.
At this time, I'd like to review our 2018 financial guidance levels, which we released this morning in our financial results press release. For total net revenue, our guidance level for 2018 is $950 million to $975 million. For Adjusted EBITDA, our guidance levels are $145 million to $155 million. For capital expenditures, our guidance levels are $50 million to $55 million. For cash interest expense, our guidance levels are $33 million to $38 million. For free cash flow generation, our guidance level is between $50 million and $60 million. This guidance assumes no acquisitions and is derived from a true same center model. It is built from a budgeting process that is completed at the center level and takes into account all opportunities and risks facing each center.
We are projecting that capital expenditures will be lower in 2018 relative to last couple of years, as a result of having substantially completed our transition to 3D mammography and the upgrade of our x-ray systems. Our cash interest expense guidance reflects the amendment and repricing of our senior credit facilities, partially mitigated by our expected higher LIBOR rate relative to 2017.
I'd now like to turn the call back over to Dr. Berger, who will make some closing remarks.
6 |
RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
Dr. Howard G. Berger:
Thank you, Mark. The lines in healthcare are blurring. The roles of traditional healthcare insurers, hospitals and providers are changing in dynamic ways. Nobody might have predicted that Aetna and CVS would combine, or that United through its Optum subsidiary would be purchasing physician practices, surgery centers and urgent care locations, hence themselves becoming a provider, or that Humana would purchase Kindred and get into the nursing home, home health and rehabilitation, or even most unlikely, that Berkshire Hathaway, Amazon and JPMorgan would form a healthcare alliance designed to address their rising healthcare spend. Add to that today's announcement of Cigna buying Expess Scripts.
What is for certain however, is that RadNet is positioned well to play an important role in delivery of healthcare in this country. Diagnostic imaging is necessary and irreplaceable in its ability to diagnose disease quickly and accurately and with relatively low costs, that are more than recouped in the form of earlier and more effective treatment. We have positioned ourselves to be relevant to the insurance companies, physician practices, hospitals and virtually all the medical disciplines that rely on imaging as a diagnostic tool.
Through our capitation model, we are participating in and furthering alternative payment models and risk taking. We are aligning payers with providers. With our eRAD solution, we are participating in the transition to the digital medical record and to electronic healthcare information systems. Through our joint venture model, we are affording health systems the opportunity to transform from being inpatient providers to having a broader, more distributed reach into the communities in which they serve.
Radiology and imaging will continue to evolve as a result of technological advances from both equipment and software development. RadNet will adapt to these changes not merely as a consumer, but through strategic investments and alignments which are now possible due to our improved financial position. An example of this is the recent announcement of our investment into Turner Imaging Systems.
Our results in 2017 demonstrated the power of our core operating model. As we move into 2018, our focus will continue to be executing on our multifaceted operating strategy to include driving same center growth and efficiencies, making tuck-in acquisitions, expanding our health system joint venture model, designing innovative IT capabilities such as artificial intelligence and computer aided diagnostics and furthering alternative payment models. What's most gratifying to me is that we have never been better positioned as a Company competitively or financially to accomplish all of this than we are today.
I look forward to updating you on the many initiatives we've discussed on our call today during our first quarter financial results call in May.
Operator, we are now ready for the question-and-answer portion of the call.
Operator:
Thank you. If you would like to signal for a question, please press star, one. Once again that's star, one to be placed in the queue, and we will pause for a moment to allow everyone an opportunity to signal for questions. Again as a reminder that's star, one to signal.
We'll go first to Brian Tanquilut with Jefferies
Brian Tanquilut:
Hey, good morning guys, congrats. Mark, first question for you, so as I think about—just clarifying on Q4, I know you gave the volume same-store, but if you don't mind just giving like total same-store revenue, I think in the past you have given that?
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RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
Mark Stolper:
Yes, you will see that in the K when we release it in the MD&A section, Brian. But, our same-store revenue exceeded our same-store procedure volume growth pretty significantly this quarter. Most of it was due to some payer increases that we received both on the West Coast and the East Coast, and so we saw some pricing benefit in several of our different markets. So you'll see, same-store revenue growth over double exceeding our procedural volume growth.
Brian Tanquilut:
Okay that's good to know. Then as I think about your guidance for 2018, as I back into it, after analyzing Q4, it seems like you're assuming like 2% same-store revenue. Is that the right ballpark, and given the price increases that you just mentioned, I mean how should we be thinking about a moving part on same-store for 2018?
Mark Stolper:
Sure, I mean typically, the low end of our range assumes pretty modest, zero to 1% same procedural volume growth in—which is no different in 2018 and the high end is about 3%. We're projecting to be, somewhere in that range, given some of the early indications that we saw at the end of last year and earlier on in this year, as well as some of the growth will come from some small tuck-in acquisitions that would be—will have the full year benefit here in 2018 as well, some of the expansions of our JVs both on the East Coast and the West Coast and then the new joint venture out here on the West Coast with the Memorial Health System, which we began operations on January 1st.
So, I would, we—it, we are hard pressed to put in a lot of organic growth, although that we—the last few years we have been kind of comping in the 1% to 3% range and we're still comfortable with that going forward.
Brian Tanquilut:
No, that's good and then Mark, as I think about that and it appears that your margin outlook guidance is essentially flat right, but in a positive same-store environment kind of like you just described, is that just conservatism or do you think there is opportunity to drive margins up this year?
Mark Stolper:
Yes. I think there is opportunity to drive margins. I mean, we have and are continuing to make some investments in our infrastructure. We talked about a little bit in our prepared remarks some significant investments we've made on the revenue cycle area of our Company. So, as we make those investments, there is some sort of—some lag before we see improved financial results from those investments. For instance in revenue cycle, we hired some additional senior Management to help with controls around self-pay, controls around special group bills. We've beefed up our call center, our customer service support center in Dallas. We invested in some technology regarding an automated dialer system for our collection team in Dallas. We're outsourcing some more of the difficult older AR to some strategic partners.
So, all this, it's starting to show through on our DSOs, it's starting to show through on our cash flow. But these types of investments take a while to run through our P&L before they create margin enhancements. But, we believe that our margin for 2018 will be flat with some upside possibilities.
Brian Tanquilut:
Got it, and then last question from me for Howard, as I think about the Memorial JV and some of the other JVs that you have done—two questions, number one, I mean, how do you see the opportunity to grow those JVs? I mean, are these essentially new businesses that have a lot of runway to expand both on the top line and the margin side in terms of operational improvements you can put through? Then, the second part of the question is, as you talked—as Mark talked about price increases for Managed Care, is that a result of some of these joint ventures or is there another dynamic that's driving pricing growth?
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RadNet, Inc. - Fourth Quarter and Full Year 2017 Financial Results Conference Call, March 8, 2018
Dr. Howard G. Berger:
Well, I will try to take the first part of your question. Our strategy with the joint ventures should be noted that it's not with a single hospital. It's with the hospital system. So, we're looking in each of our markets for a system that recognizes the value proposition that RadNet can bring both in terms of its operating capabilities in the radiology and imaging space, as well as expanding the reach that that hospital might have into the community that can help generate additional hospital visits for their systems as a result of the more encounters that we're likely to have on an outpatient basis.
But, it should also be noted that virtually every hospital system that we deal with is also in the market for consolidation and vertical alignment with primary care physicians. So, as we contract with these hospitals through the joint ventures, we also get the benefit of the hospitals physician groups and their ability to direct their imaging and keep it within their system of which we now become a part of. So, the growth opportunities are there. Also as we mentioned in our remarks, most of the systems are aware of what is the inexorable movement of imaging out of the hospitals and into outpatient facilities. So we also expect to benefit along with them as our partner as that business continues to be directed away from hospitals and hospital licensed facilities.
In regards to other opportunities, as we get larger and even more essential into the delivery of healthcare in these markets with our hospital partners, we have a better seat at the table in terms of negotiating not only, I think better reimbursement, but also in terms of really starting to craft alternative payment methods, maybe even bundling of services that allow radiology to fit with the other services that hospitals offer, not just hospitalization, but lab and pharmacy, outpatient surgery centers etc. The best example of this that I can give you has been an extremely successful negotiation with all of the major payers in New Jersey, when we had our Barnabas Health System partner with us, shoulder to shoulder in negotiating new rates.
So, all of the reasons that I believe are inherent in a joint venture with a hospital system are capable for us to benefit from on a number of different levels, and I think that will be further recognized by other systems, perhaps not just in the markets that we're in but in others where we can use this experience to potentially look for other joint venture partners that clearly need some kind of help with their radiology delivery and operations.
Brian Tanquilut:
I appreciate that. Thanks guys.
Dr. Howard G. Berger:
Thanks Brian.
Operator:
Once again as a reminder, that's star, one to signal. We have no further questions at this time.
Dr. Howard G. Berger:
Okay. Thank you, Operator, and thank everybody for the opportunity to speak with you about our results. I'd like to take the opportunity to thank all of our shareholders for their continued support and the employees of RadNet for their dedication and hard work. Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you for your time today, and I look forward to speaking to you on our next call. Good day.
Operator:
That does conclude today's conference. Thank you for your participation. You may now disconnect.
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