OREANDA-NEWS. RadNet, Inc. (NASDAQ:RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 310 owned and/or operated outpatient imaging centers, today reported financial results for its second quarter of 2016.

Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented, “I am very pleased with our operational results this quarter and the improvements we are making to our business.  Normalizing our results for the one-time non-cash gains and losses in the quarter related to our New York acquisitions, our business produced double digit revenue growth, positive same store procedural growth for the ninth quarter in a row and higher EBITDA and Earnings as compared with last year’s second quarter.  Additionally, sequentially from our first quarter of this year, our EBITDA increased almost 30%, raising EBITDA margins from 12.5% in the first quarter to 15.6% in the second quarter of 2016.”  

Dr. Berger continued, “I’m excited about the opportunities we have in front of us to continue to expand and improve our business organically, particularly our ability to leverage best practices of the most successful aspects of our business on the east and west coasts.  For example, we are pursuing several new health system partnerships on the west coast, a business model that has traditionally been a strength of our east coast operations, and we are looking to expand existing joint ventures on the east coast.  During the quarter, we announced and commenced operations with our first California health system partnership with Dignity Health in the city of Glendale.  This announcement and other initiatives we are working on in California with our Breastlink and oncology capabilities have created keen interest from other prominent health systems.  We are more encouraged than ever that the joint venture partnership model that we’ve successfully demonstrated in the mid-Atlantic and New Jersey marketplaces will become more prominent for our west coast operations in the coming quarters.”

Dr. Berger added, “Another example of the sharing of best practices between our east and west coast operations is the opportunity to bring capitation and risk-based contracting outside of our California marketplace, where it has been such an integral aspect of how we’ve successfully grown our business.  Diagnostic Imaging Group, which we acquired last year, had a small risk-based component of its business.  With the combination of DIG’s assets with our other significant New York metropolitan operations which include Lenox Hill Radiology, New York Radiology Partners and our Mid-Rockland Imaging centers, we have begun to initiate meaningful conversations with medical groups on the east coast interested in our risk-based exclusive network contracting capabilities.  I’m more confident than ever that this will be the successful model of the post-Affordable Care Act era, and that RadNet will be the first imaging center company to meaningfully align with major capitated medical groups, health systems and Accountable Care Organizations across all of our target markets.  We expect to be in a position to discuss these opportunities more meaningfully before year end.”

“From a financial perspective, we’ve never been in a stronger position to grow our business.  We completed the refinancing of our senior debt facilities on July 1st, where we lengthened the maturities on our debt to 2023 (in the case of our first lien term loan) and 2021 in the case of our senior revolving credit facility.  At the same time, we availed ourselves of additional operating flexibility to continue to grow our business and pursue the types of opportunities for expansion that we envision will be available to us over the next several years.  We believe that securing our capital structure in a low interest rate environment was prudent and allows us to focus on operations without having concern about risks associated with the capital markets in years to come,” finished Dr. Berger.

Second Quarter Financial Results

For the second quarter of 2016, RadNet reported Adjusted Revenue of $224.6 million, after adding back $6.1 million of one-time non-cash working capital adjustments related to New York acquisitions which served to lower GAAP Revenue by such an amount during the quarter.  Adjusted EBITDA(1) for the second quarter was $35.1 million.  Adjusted Revenue increased $20.3 million (or 10.0%) and Adjusted EBITDA(1) increased $1.6 million (or 4.7%) from the second quarter of last year.

For the second quarter, RadNet reported Adjusted Net Income of $4.4 million, which is modified by removing certain tax effected non-cash items including (i) the $6.1 million of working capital adjustments mentioned above; (ii) a $5.0 million settlement gain on the return of common stock relating to the acquisition of Diagnostic Imaging Group; and (iii) a $221,000 one-time adjustment to depreciation in conjunction with the finalization of the purchase price allocation related to the Diagnostic Imaging Group acquisition.  Adjusted Net Income increased $987,000 over the second quarter of 2015.

Per share Adjusted Net Income for the second quarter was $0.09, compared to per share Adjusted Net Income in the second quarter of 2015 of $0.08 (based upon a weighted average number of diluted shares outstanding of 46.9 million and 44.7 million for these periods in 2016 and 2015, respectively).

Affecting Net Income in the second quarter of 2016 were certain non-cash expenses and non-recurring items including:  $5.0 million settlement gain related to the return of common stock in connection with our acquisition of Diagnostic Imaging Group; $6.1 million charge to Revenue related to working capital adjustments also pertaining to acquisitions we completed in New York; $221,000 of one-time depreciation expense related to the finalization of the purchase price allocation related to the Diagnostic Imaging Group acquisition; $1.0 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $173,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $441,000 loss on the sale of certain capital equipment; and $1.4 million of non-cash amortization of deferred financing costs and discount on debt issuances.

For the second quarter of 2016, as compared with the prior year’s second quarter, MRI volume increased 7.5%, CT volume increased 8.9% and PET/CT volume increased 4.8%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 9.6% over the prior year’s second quarter.  On a same-center basis, including only those centers which were part of RadNet for both the second quarters of 2016 and 2015, MRI volume increased 3.0%, CT volume increased 4.4% and PET/CT volume increased 1.3%.Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 0.4% over the prior year’s same quarter.

Six Month Financial Results

For the six months ended June 30, 2016, RadNet reported Adjusted Revenue of $441.0 million, after adding back $6.1 million of one-time non-cash working capital adjustments related to NY acquisitions which served to lower GAAP Revenue by such an amount during the six month period.  Adjusted EBITDA(1) for the six month period in 2016 was $62.2 million.  Adjusted Revenue increased $55.4 million (or 14.4%) and Adjusted EBITDA(1) increased $8.5 million (or 15.8%) from the same six month period last year.

For the six month period in 2016, RadNet reported Adjusted Net Income of $2.6 million, which is modified by removing certain tax effected non-cash items including (i) the $6.1 million of working capital adjustments mentioned above; (ii) a $5.0 million settlement gain on the return of common stock relating to the acquisition of Diagnostic Imaging Group; and (iii) a $110,000 one-time adjustment to depreciation in conjunction with the finalization of the purchase price allocation related to the Diagnostic Imaging Group acquisition.

Adjusted Net Income increased $3.8 million over the six month period of 2015.  Per share Adjusted Net Income for the six month period in 2016 was $0.06, compared to per share Adjusted Net Loss in the prior year’s same period of $(0.03) (based upon a weighted average number of diluted shares outstanding of 47.0 million and 43.1 million for these periods in 2016 and 2015, respectively).

Affecting operating results in the six months ended June 30, 2016 were certain non-cash expenses and non-recurring items including:  $5.0 million settlement gain related to the return of common stock in connection with the acquisition of Diagnostic Imaging Group; $6.1 million charge to Revenue related to a working capital adjustment also pertaining to acquisitions we completed in New York; $110,000 of one-time depreciation expense related to the finalization of the purchase price allocation related to the Diagnostic Imaging Group acquisition;  $3.8 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $340,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $441,000 loss on the sale of certain capital equipment; and $2.7 million of non-cash amortization of deferred financing costs and discount on debt issuances.

2016 Guidance Update

RadNet reaffirms its previously announced 2016 guidance ranges as follows:

   
Total Net Revenue (a) $870 million - $910 million
Adjusted EBITDA(1) $130 million - $140 million
Capital Expenditures (b) $50 million - $55 million
Cash Interest Expense $37 million - $40 million
Free Cash Flow Generation (c) $40 million - $50 million

(a) Note the change from prior years.  This metric is now presented after the subtraction of bad debt.
(b) Net of proceeds from the sale of equipment, imaging centers and joint venture interests.  Represents an increase of $5 million from originally announced guidance range.
(c) Defined by the Company as Adjusted EBITDA(1) less total capital expenditures and cash paid for interest.

Dr. Berger added, “We are on track to meet our guidance ranges for the year.  All ranges remain unchanged from what we announced earlier in the year with the exception of increasing our targeted capital expenditure range by $5 million.  This increase is to fund a replacement program of our computed radiography (CR x-ray) scanners to provide them with digital wireless transmitting capabilities.  This will improve quality, lower labor costs and comply with a new CMS ruling which would otherwise lower our x-ray reimbursement from traditional CR systems beginning in 2018.”

 

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 310 owned and/or operated outpatient imaging centers. RadNet's core markets include California, Maryland, Delaware, New Jersey, New York and Rhode Island. 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 7,300 employees. 

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 2015 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.

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
                     
                June 30,   December 31,
                  2016       2015  
                (unaudited)    
ASSETS
CURRENT ASSETS                    
 Cash and cash equivalents             $   433     $   446  
 Accounts receivable, net                 165,086         162,843  
 Current portion of deferred tax assets                 22,278         22,279  
 Due from affiliates                 4,273         4,815  
 Prepaid expenses and other current assets                  30,511         38,986  
 Total current assets             222,581         229,369  
PROPERTY AND EQUIPMENT, NET                   250,426         256,722  
OTHER ASSETS                    
 Goodwill                 240,520         239,408  
 Other intangible assets                 44,032         45,253  
 Deferred financing costs                 2,012         2,841  
 Investment in joint ventures                 39,483         33,584  
 Deferred tax assets, net of current portion                 24,352         24,685  
 Deposits and other                 4,935         4,565  
 Total assets         $   828,341     $   836,427  
LIABILITIES AND EQUITY
CURRENT LIABILITIES                   
 Accounts payable, accrued expenses and other             $   108,075     $   113,813  
 Due to affiliates                 8,545         6,564  
 Deferred revenue                 1,599         1,598  
 Current portion of notes payable                 21,609         22,383  
 Current portion of deferred rent                 2,551         2,563  
 Current portion of obligations under capital leases                 7,713         10,038  
 Total current liabilities             150,092         156,959  
LONG-TERM LIABILITIES                    
 Deferred rent, net of current portion                 27,929         26,865  
 Line of credit               13,800         -   
 Notes payable, net of current portion                 589,177         599,914  
 Obligations under capital lease, net of current portion                 4,710         6,385  
 Other non-current liabilities                 5,667         9,843  
 Total liabilities             791,375         799,966  
EQUITY                    
 RadNet, Inc. stockholders' equity:                  
 Common stock - $.0001 par value, 200,000,000 shares authorized;                  
  46,432,404 and 46,281,189 shares issued and outstanding at        
  June 30, 2016 and December 31, 2015, respectively               4         4  
 Additional paid-in-capital                 196,026         197,297  
 Accumulated other comprehensive loss                 (169 )       (153 )
 Accumulated deficit                 (162,669 )       (164,571 )
  Total RadNet, Inc.'s stockholders' equity               33,192         32,577  
 Noncontrolling interests                 3,774         3,884  
  Total equity             36,966         36,461  
  Total liabilities and equity         $   828,341     $   836,427  
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
 
                Three Months Ended   Six Months Ended
                June 30,   June 30,
                  2016       2015       2016       2015  
                             
NET REVENUE                          
  Service fee revenue, net of contractual allowances and discounts           $   203,759     $   188,403     $   404,601     $   353,433  
  Provision for bad debts               (12,326 )       (8,387 )       (22,630 )       (15,862 )
  Net service fee revenue               191,433         180,016         381,971         337,571  
  Revenue under capitation arrangements               27,132         24,273         52,982         47,985  
   Total net revenue             218,565         204,289         434,953         385,556  
OPERATING EXPENSES                          
  Cost of operations, excluding depreciation and amortization               194,062         175,796         390,888         344,717  
  Depreciation and amortization               15,811         14,941         32,223         29,235  
  Loss on sale and disposal of equipment               441         74         441         36  
  Severance costs               173         94         340         130  
   Total operating expenses             210,487         190,905         423,892         374,118  
INCOME FROM OPERATIONS                 8,078         13,384         11,061         11,438  
                             
OTHER INCOME AND EXPENSES                          
  Interest expense               10,745         10,423         21,426         20,419  
  Meaningful use incentive               -          -          (2,808 )       (3,270 )
  Equity in earnings of joint ventures               (3,274 )       (3,207 )       (5,553 )       (4,309 )
  Gain on sale of imaging centers               -          -          -          -   
  Gain from return of common stock               (5,032 )       -          (5,032 )       -   
  Loss on early extinguishment of Senior Notes               -          -          -          -   
  Other expenses               4         413         6         410  
   Total other expenses             2,443         7,629         8,039         13,250  
INCOME (LOSS) BEFORE INCOME TAXES               5,635         5,755         3,022         (1,812 )
   (Provision for) benefit from income taxes               (2,253 )       (2,192 )       (1,073 )       899  
NET INCOME (LOSS)                 3,382         3,563         1,949         (913 )
  Net (loss) income attributable to noncontrolling interests               (243 )       168         47         246  
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC.                           
  COMMON STOCKHOLDERS           $   3,625     $   3,395     $   1,902     $   (1,159 )
                             
BASIC  NET INCOME (LOSS) PER SHARE                           
  ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS           $   0.08     $   0.08     $   0.04     $   (0.03 )
DILUTED NET INCOME (LOSS) PER SHARE                           
  ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS           $   0.08     $   0.08     $   0.04     $   (0.03 )
WEIGHTED AVERAGE SHARES OUTSTANDING                          
 Basic               46,558,944         43,370,024         46,576,631         43,059,686  
 Diluted               46,882,383         44,685,599         46,960,226         43,059,686  
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
                Six Months Ended June 30,
                  2016       2015    
 CASH FLOWS FROM OPERATING ACTIVITIES                 
                       
   Net income (loss)            $   1,949     $   (913 )  
   Adjustments to reconcile net income (loss)               
   to net cash provided by operating activities:             
   Depreciation and amortization              32,223         29,235    
   Provision for bad debts                22,630         15,862    
   Gain from return of common stock              (5,032 )       -     
   Equity in earnings of joint ventures              (5,553 )       (4,309 )  
   Distributions from joint ventures              2,098         6,195    
   Amortization and write off of deferred financing costs and loan discount        2,738         2,631    
   Loss on sale and disposal of equipment                  441           36    
   Stock-based compensation                3,761         5,571    
   Changes in operating assets and liabilities, net of assets             
   acquired and liabilities assumed in purchase transactions:           
   Accounts receivable            (24,873 )       (19,368 )  
   Other current assets            8,454         (3,058 )  
    Other assets              220         (3,687 )  
    Deferred taxes            333         (1,854 )  
    Deferred rent            1,052         4,602    
    Deferred revenue            -          (564 )  
    Accounts payable, accrued expenses and other        10,983         (2,423 )  
    Net cash provided by operating activities      51,424         27,956    
 CASH FLOWS FROM INVESTING ACTIVITIES                 
   Purchase of imaging facilities              (6,603 )       (34,407 )  
   Purchase of property and equipment              (40,267 )       (31,649 )  
   Proceeds from sale of equipment              63         205    
   Cash distribution from existing JV partner                  994         -     
   Equity contributions in existing and purchase of interest in joint ventures                  (734 )       (265 )  
   Net cash used in investing activities        (46,547 )       (66,116 )  
 CASH FLOWS FROM FINANCING ACTIVITIES                 
   Principal payments on notes and leases payable            (6,310 )       (3,969 )  
   Proceeds from borrowings                -          74,401    
   Payments on Term Loan Debt                  (12,357 )       (11,369 )  
   Deferred financing costs                -          (531 )  
   Net proceeds on revolving credit facility              13,800         (15,300 )  
   Distributions paid to noncontrolling interests            (157 )       (613 )  
   Proceeds from issuance of common stock upon exercise of options/warrants        150         594    
   Net cash (used in) provided by financing activities      (4,874 )       43,213    
 EFFECT OF EXCHANGE RATE CHANGES ON CASH            (16 )       (41 )  
 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS          (13 )       5,012    
 CASH AND CASH EQUIVALENTS, beginning of period            446         307    
 CASH AND CASH EQUIVALENTS, end of period          $   433     $   5,319    
                       
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION             
   Cash paid during the period for interest          $   18,545     $   18,283    

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, 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.