Agiliti(AGTI) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited Q1 2021 financial statements reflect significant revenue growth, a shift to net income, asset and liability increases from the Northfield acquisition, and improved operating cash flow Condensed Consolidated Balance Sheets The balance sheets show total assets increased to $2.20 billion driven by the Northfield acquisition, with total liabilities rising to $1.73 billion due to increased long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $13,328 | $206,505 | | Goodwill | $1,122,530 | $817,113 | | Total assets | $2,195,836 | $1,903,356 | | Liabilities & Equity | | | | Long-term debt, less current portion | $1,350,035 | $1,145,055 | | Total liabilities | $1,729,783 | $1,461,411 | | Total equity | $466,053 | $441,945 | Condensed Consolidated Statements of Operations Q1 2021 revenue increased 31.2% to $235.2 million, with gross margin improving to 43.1% and a shift from net loss to $9.6 million net income Q1 2021 vs Q1 2020 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenue | $235,245 | $179,240 | | Gross Margin | $101,323 | $57,807 | | Operating Income | $32,099 | $1,241 | | Consolidated Net Income (Loss) | $9,583 | $(12,548) | | Diluted Income (Loss) Per Share | $0.09 | $(0.13) | Condensed Consolidated Statements of Cash Flows Operating cash flow more than doubled to $62.9 million, while investing activities saw a $457.5 million outflow primarily for acquisitions, funded by $201.4 million in financing Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62,909 | $27,679 | | Net cash used in investing activities | $(457,525) | $(101,139) | | Net cash provided by financing activities | $201,439 | $134,483 | | Net change in cash and cash equivalents | $(193,177) | $61,023 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, the $475 million Northfield Medical acquisition, the post-quarter IPO raising $397.4 million for debt repayment, and a significant 20% revenue contract with HHS - On March 19, 2021, the company acquired Northfield Medical, Inc. for a total consideration of approximately $475 million, consisting of $461.0 million in cash and $11.3 million in common stock, funded by additional borrowings[31][32][34] - Subsequent to the quarter end, on April 27, 2021, the company closed its IPO, raising net proceeds of approximately $397.4 million, used to repay $240.0 million of the Second Lien Term Loan, $80.0 million of the First Lien Term Loan, and $10.0 million of the Revolving Loan[91][93] - For the three months ended March 31, 2021, approximately 20% of total revenue was derived from contracts with the U.S. Department of Health and Human Services[88] - Total long-term debt increased to $1.37 billion as of March 31, 2021, from $1.16 billion at year-end 2020, primarily to finance the Northfield acquisition[55] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2021 performance to 31.2% revenue growth across all service lines, gross margin expansion to 43.1%, and 77.0% Adjusted EBITDA growth to $86.2 million Revenue by Service Solution (in thousands) | Service Solution | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Equipment Solutions | $82,471 | $68,405 | 20.6% | | Clinical Engineering | $75,106 | $66,014 | 13.8% | | Onsite Managed Services | $77,668 | $44,821 | 73.3% | | Total Revenue | $235,245 | $179,240 | 31.2% | - The positive impact from COVID-19 within the Equipment Solutions segment was estimated to be in the $10 million to $12 million range for Q1 2021[112] - Gross margin increased to 43.1% of revenue in Q1 2021 from 32.3% in Q1 2020, primarily due to favorable leverage from volume growth, allowing the company to better utilize its fixed cost infrastructure[114][115] Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net income (loss) attributable to Agiliti | $9,553 | $(12,622) | | Interest expense | $18,021 | $17,817 | | Income tax expense (benefit) | $4,495 | $(4,028) | | Depreciation and amortization | $43,563 | $40,166 | | EBITDA | $75,632 | $41,333 | | Non-cash share-based compensation | $2,412 | $2,383 | | Management and other expenses | $563 | $4,111 | | Transaction costs | $3,451 | $889 | | Tax receivable agreement remeasurement | $4,148 | — | | Adjusted EBITDA | $86,206 | $48,716 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, fuel costs, and pension valuation, with a 1.0 percentage point interest rate change impacting annual expense by $8.7 million - The company's primary market risks are related to interest rates, fuel costs, and pension valuation[138] - As of March 31, 2021, the company had $869.4 million in variable rate debt, where a 1.0 percentage point change in interest rates would result in an annual interest expense fluctuation of approximately $8.7 million[139] - A hypothetical 10% increase in gasoline prices would increase annual fuel costs by approximately $0.3 million, based on Q1 2021 usage levels[140] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (March 31, 2021)[143] - No changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[145] PART II - OTHER INFORMATION Legal Proceedings The company faces ordinary course liability claims, but management believes their resolution will not materially adversely affect financial position or operations - The company is subject to liability claims related to employees and equipment in the ordinary course of business, but management does not expect these to have a material adverse effect[146] Risk Factors Key risks include potential non-renewal of the significant HHS contract, impairment charges for goodwill, and challenges associated with substantial indebtedness - A key risk is the potential non-renewal of a one-year agreement with HHS, which accounted for approximately 20% of total revenue for the three months ended March 31, 2021, and is set to expire on July 21, 2021[152][153] - The company faces risk of impairment charges for goodwill or other long-lived assets, as testing for impairment requires estimates about future performance that are subject to significant assumptions[154] - As of March 31, 2021, the company had substantial indebtedness, with approximately $1.12 billion under its First Lien Term Loan and $240.0 million under its Second Lien Term Loan, which could make it difficult to satisfy debt obligations and limit financial flexibility[156] Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered equity for the Northfield acquisition and RSU settlement, then completed an IPO raising $397.4 million primarily for debt repayment - In connection with the Northfield Acquisition on March 19, 2021, the company issued 752,328 shares of common stock to the Northfield management team[158] - On April 27, 2021, the company completed its IPO, receiving net proceeds of $397.4 million after underwriting discounts and expenses[160] - Approximately $330.0 million of the IPO proceeds were used to repay debt: $240.0 million for the Second Lien Term Loan, $80.0 million for the First Lien Term Loan, and $10.0 million for the Revolving Loan[162] Exhibits This section lists all exhibits filed with the quarterly report, including certifications from the Principal Executive Officer and Principal Financial Officer - This section provides a list of all exhibits filed with the quarterly report, including certifications from the Principal Executive Officer and Principal Financial Officer[165]