Agiliti(AGTI) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Consolidated Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Agiliti, Inc. for the quarterly period ended March 31, 2023, showing slight revenue growth but decreased net income and operating cash flow Consolidated Balance Sheets As of March 31, 2023, total assets remained stable at $2.443 billion, with increased cash and cash equivalents and a slight rise in total equity Consolidated Balance Sheet Highlights (in thousands USD) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $14,453 | $5,577 | | Total current assets | $333,643 | $316,313 | | Goodwill | $1,239,432 | $1,239,106 | | Total assets | $2,443,409 | $2,444,107 | | Liabilities & Equity | | | | Total current liabilities | $197,161 | $197,381 | | Long-term debt, less current portion | $1,083,572 | $1,077,293 | | Total liabilities | $1,496,211 | $1,497,782 | | Total equity | $947,198 | $946,325 | Consolidated Statements of Operations For Q1 2023, revenue increased 1.9% to $299.9 million, but gross margin decreased 11.5% and net income attributable to Agiliti significantly dropped to $3.0 million Q1 2023 vs Q1 2022 Statement of Operations (in thousands USD, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue | $299,904 | $294,444 | | Gross Margin | $109,374 | $123,627 | | Operating Income | $20,537 | $37,489 | | Net Income Attributable to Agiliti | $3,013 | $19,892 | | Diluted EPS | $0.02 | $0.14 | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $54.9 million in Q1 2023, while investing activities increased, and financing activities decreased due to lower debt repayments Cash Flow Summary (in thousands USD) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,896 | $67,124 | | Net cash used in investing activities | ($17,829) | ($14,576) | | Net cash used in financing activities | ($28,191) | ($74,770) | | Net change in cash and cash equivalents | $8,876 | ($22,222) | | Cash and cash equivalents at end of period | $14,453 | $52,103 | Condensed Notes to Consolidated Financial Statements These notes detail accounting policies, revenue by segment, acquisitions, debt, and subsequent events, including recent credit facility amendments Revenue by Service Solution (in thousands USD) | Service Solution | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Equipment Solutions | $120,866 | $121,855 | | Clinical Engineering | $113,475 | $102,799 | | Onsite Managed Services | $65,563 | $69,790 | | Total revenue | $299,904 | $294,444 | - For the three months ended March 31, 2023, approximately 11.1% of total revenue was related to various contracts with the U.S. Department of Health and Human Services (HHS/ASPR)[80] - Subsequent to quarter end, on April 6, 2023, the company amended its Revolving Credit Facility, increasing it to $300.0 million and extending the maturity to April 2028. On May 1, 2023, it refinanced its term loan facility, extending the maturity to May 2030[82][83][86] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 revenue growth driven by Clinical Engineering, offset by declines in other segments, leading to decreased gross margin, increased interest expense, and lower Adjusted EBITDA Results of Operations Total revenue for Q1 2023 increased 1.9% to $299.9 million, primarily from Clinical Engineering growth, while gross margin declined to 36.5% and interest expense rose significantly Revenue Change by Service Solution (Q1 2023 vs Q1 2022, in thousands USD) | Service Solution | Q1 2023 Revenue (in thousands) | Q1 2022 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Equipment Solutions | $120,866 | $121,855 | (0.8)% | | Clinical Engineering | $113,475 | $102,799 | 10.4% | | Onsite Managed Services | $65,563 | $69,790 | (6.1)% | | Total revenue | $299,904 | $294,444 | 1.9% | - Gross margin decreased to 36.5% of revenue in Q1 2023 from 42.0% in Q1 2022. The decrease was primarily impacted by a lower mix of peak need rental placements post-COVID-19 and the renewal of a government contract[107] Adjusted EBITDA Reconciliation (in thousands USD) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income attributable to Agiliti, Inc. | $3,013 | $19,892 | | Interest expense | $15,831 | $10,664 | | Income tax expense | $1,656 | $6,905 | | Depreciation and amortization | $42,106 | $44,831 | | EBITDA | $62,606 | $82,292 | | Non-cash share-based compensation | $6,889 | $4,637 | | Management and other expenses | $961 | — | | Transaction costs | $1,512 | $2,226 | | Adjusted EBITDA | $71,968 | $89,155 | Liquidity and Capital Resources The company's liquidity relies on cash from operations and its Revolving Credit Facility, with Q1 2023 operating cash flow decreasing to $54.9 million due to lower net income - Net cash provided by operating activities decreased from $67.1 million in Q1 2022 to $54.9 million in Q1 2023, attributed to lower consolidated net income and timing of accounts receivable collections[120] - Net cash used in financing activities decreased from $74.8 million in Q1 2022 to $28.2 million in Q1 2023, mainly due to proceeds from the revolving loan, partially offset by a $24.8 million payment under the tax receivable agreement[122] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates and fuel costs, with a 1.0 percentage point interest rate change impacting annual interest expense by approximately $5.5 million - A 1.0 percentage point change in interest rates on variable rate debt would have resulted in an approximate $5.5 million increase in annual interest expense, based on debt levels at March 31, 2023[130] - A hypothetical 10% increase in gasoline prices during Q1 2023 would have increased fuel costs by approximately $0.2 million[131] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2023, due to previously reported material weaknesses in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting[136] - The material weaknesses relate to: (1) identification of risks, (2) design of process-level controls, and (3) ineffective IT general controls (ITGC) concerning user access, change management, and segregation of duties[138] - Remediation efforts are underway, including enhancing policies, recruiting key personnel, providing additional training, and improving user access and change management controls[142] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, other information, and exhibits filed with the Form 10-Q Legal Proceedings The company is subject to various liability claims in the ordinary course of business, but management believes their resolution will not materially affect financial position or results - The company is subject to liability claims related to employees and equipment rentals/services in the ordinary course of business, but management believes any resolution would not have a material adverse effect[145] Risk Factors For the quarter ended March 31, 2023, there were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2022 Form 10-K Report[146] Other Information Effective May 4, 2023, Derrick Johnson was designated as the company's principal operating officer with an increased annual base salary - Effective May 4, 2023, Derrick Johnson was designated as the Company's principal operating officer and his annual base salary was increased to $400,000[147] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications by key officers and recent credit agreement amendments - The filing includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and recent credit agreement amendments (Exhibits 10.1, 10.2)[149]