Exhibit 99.1

RULE 13a-14(a) CERTIFICATION

I, Riadh Zine, certify that:

1. I have reviewed this annual report on Form 40-F/A of Akumin Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.

5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

 

Date: November 15, 2021						By: /s/ Riadh Zine
						Riadh Zine Co-Chief Executive Officer
						By: /s/ Rhonda Longmore-Grund Rhonda Longmore-Grund Co-Chief Executive Officer

Exhibit 99.2

RULE 13a-14(a) CERTIFICATION

I, William Edward Larkin, certify that:

1. I have reviewed this annual report on Form 40-F/A of Akumin Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.

5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

 

Date: November 15, 2021						By: /s/ William Edward Larkin
						William Edward Larkin Chief Financial Officer

Exhibit 99.3

SECTION 1350 CERTIFICATIONS

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350 of chapter 63 of title 18 of the United States Code), the undersigned officer of Akumin Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:

This annual report on Form 40-F/A for the fiscal year ended December 31, 2020 (the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 15, 2021						By: /s/ Riadh Zine
						Riadh Zine Co-Chief Executive Officer
						By: /s/ Rhonda Longmore-Grund Rhonda Longmore-Grund Co-Chief Executive Officer

SECTION 1350 CERTIFICATIONS

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350 of chapter 63 of title 18 of the United States Code), the undersigned officer of Akumin Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:

This annual report on Form 40-F/A for the fiscal year ended December 31, 2020 (the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 15, 2021						By: /s/ William Edward Larkin
						William Edward Larkin Chief Financial Officer

Exhibit 99.5

 

Management’s Discussion and

Analysis of Financial Condition

and Results of Operations (Restated

For the years ended December 31, 2020 and 2019

November 15, 2021

Table of Contents

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			1
RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS FOR THE CORRECTION OF AN OVERSTATEMENT OF ACCOUNTS RECEIVABLE AND PROPERTY AND EQUIPMENT			1
NON-GAAP MEASURES			2
FORWARD-LOOKING STATEMENTS			2
OVERVIEW			4
SUMMARY OF FACTORS AFFECTING OUR PERFORMANCE			4
Number of Clinics			4
Competition			5
Industry Trends			5
HOW WE ASSESS THE PERFORMANCE OF OUR BUSINESS			5
GAAP Measures			5
Non-GAAP Measures			7
FACTORS AFFECTING THE COMPARABILITY OF OUR RESULTS			7
Acquisition Activity			7
Newly Adopted Accounting Standards			8
Segments			8
RECENT DEVELOPMENTS			8
GAAP Adoption			8
COVID-19			8
Tuck-in Acquisitions			9
Government Payments			9
Amended May 2019 Loans			10
2025 Senior Notes			10
ADG Acquisition Earn-out			10
Exercise of Certain RSUs and Warrants			11
Subsequent Events			11
RESULTS OF OPERATIONS			15
SELECTED CONSOLIDATED BALANCE SHEET INFORMATION			21
SELECTED FINANCIAL INFORMATION (RESTATED)			23
LIQUIDITY AND CAPITAL RESOURCES			24
General			24
Lending Arrangements and Debt			25
CONTRACTUAL OBLIGATIONS			27
FINANCIAL INSTRUMENTS			27
OFF-BALANCE SHEET ARRANGEMENTS			28
SHARE INFORMATION			28
RELATED PARTY TRANSACTIONS			28
CRITICAL ACCOUNTING ESTIMATES			29
Accounts Receivable			29
Impairment of Goodwill and Long-Lived Assets			29
Income Taxes			30
Business Combinations			30
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING			30
Identification of material weaknesses			31
Accounts Receivable			31
Capitalization Adjustments			32
Remediation of material weakness in internal control over financial reporting			32

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      2

RISK FACTORS			33
ADDITIONAL INFORMATION			54
SUPPLEMENTAL FINANCIAL INFORMATION			55
Restated information for financial statements for March 31, 2020			55
Restated information for financial statements for March 31, 2020 (cont’d)			56
Restated information for financial statements for March 31, 2020 (cont’d)			57
Restated information for financial statements for June 30, 2020			58
Restated information for financial statements for June 30, 2020 (cont’d)			59
Restated information for financial statements for June 30, 2020 (cont’d)			60
Restated information for financial statements for September 30, 2020			61
Restated information for financial statements for September 30, 2020 (cont’d)			62
Restated information for financial statements for September 30, 2020 (cont’d)			63

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      3

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following restated management’s discussion and analysis dated November 15, 2021 (“MD&A”) provides information concerning Akumin Inc.’s (“Akumin” or the “Company”) financial condition and results of operations. You should read the following MD&A together with our restated audited consolidated financial statements and related notes for the year ended December 31, 2020 (the “2020 Annual Financial Statements”). This MD&A contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements because of certain factors, including, but not limited to, those which are not within our control. See “Forward-Looking Statements”.

Amounts stated in this MD&A are in thousands of U.S. dollars, unless otherwise stated.

Restatement of previously issued Consolidated Financial Statements for the correction of an overstatement of accounts receivable and property and equipment

At June 30, 2021, management determined that the accounts receivable balance would need to be reduced by net cumulative implicit price concessions of approximately $28.9 million at December 31, 2020. Accounts receivable are reported on a net realizable value, based on the amount expected to be collected from customers, which considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive based on negotiated discounts, historical collection experience and other anticipated adjustments. The implicit price concessions impact was (i) a decrease of accounts receivable of $28.9 million, $29.5 million and $5.6 million as of December 31, 2020, December 31, 2019 and January 1, 2019, respectively, (ii) a decrease of goodwill of $9.6 million, $3.7 million and $2.6 million as of December 31, 2020, December 31, 2019 and January 1, 2019, respectively, and (iii) a decrease of revenue of $5.7 million and $26.4 million for the years ending December 31, 2020 and December 31, 2019 respectively. Refer to Note 3 of the Restated Consolidated Financial Statements as at December 31, 2020.

While performing its review of the interim financial statements for the quarter ended June 30, 2021, management identified costs associated with certain replacement components on equipment when repaired were capitalized and recorded in property and equipment in the Company’s consolidated balance sheets as of December 31, 2020 and 2019 and prior periods. Management determined the costs of the replacement components should have been expensed as repairs and maintenance, rather than capitalized. The Company has made adjustments (“Capitalization Adjustments”) to correct these errors that have been reflected as a reduction to the carrying value of property and equipment (and the associated amounts of accumulated depreciation and depreciation expense), resulting in an increase in repairs and maintenance costs and a decrease in depreciation expense, which are both included in operating expenses.

The Capitalization Adjustments consisted of (i) a decrease of property and equipment, net, of $16.6 million, $11.8 million and $7.3 million as of December 31, 2020, December 31, 2019 and January 1, 2019, respectively, (ii) an increase in the cost of operations of $8.5 million and $6.6 million for the years ended December 31, 2020 and December 31, 2019, respectively, (iii) a decrease in depreciation expense of $3.4 million and $2.1 million for the years ended December 31, 2020 and December 31, 2019, respectively, and (iv) a decrease to the loss on disposal of property and equipment of $0.2 million and $0.04 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The cumulative impact of the above-noted items, certain previously unadjusted immaterial items and the related tax impacts on shareholders’ equity as at December 31, 2020 was $54.6 million.

The changes in the implicit price concessions and Capitalization Adjustments are considered corrections of errors for accounting purposes and, as such, required a restatement of the financial statements for the years ended December 31, 2020 and December 31, 2019. Due to these accounting errors, the Company’s management has concluded that material weaknesses in its internal controls over financial reporting existed at December 31, 2020 and December 31, 2019, and through the current date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A further description is included below under the heading “Disclosure Controls and Procedures and Internal Controls Over Financial Reporting”.

Non-GAAP Measures

This MD&A makes reference to certain non-GAAP measures. These non-GAAP measures are not recognized measures under United States generally accepted accounting principles (“GAAP”) and do not have a standardized meaning prescribed by GAAP. There is unlikely to be comparable or similar measures presented by other companies. Rather, these non-GAAP measures are provided as additional information to complement those GAAP measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these non-GAAP measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under GAAP. We use non-GAAP financial measures, including “EBITDA”, “Adjusted EBITDA”, “Adjusted EBITDA Margin” and “Adjusted net income (loss) attributable to shareholders of Akumin” (each as defined below). These non-GAAP measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on GAAP measures. We believe the use of these non-GAAP measures, along with GAAP financial measures, enhances the reader’s understanding of our operating results and is useful to us and to investors in comparing performance with competitors, estimating enterprise value, and making investment decisions. We also believe that securities analysts, investors, and other interested parties frequently use non-GAAP measures in the evaluation of issuers. Our management uses non-GAAP measures to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation.

We define such non-GAAP measures as follows:

“EBITDA” means net income (loss) attributable to shareholders of the Company before interest expense (net), income tax expense (benefit) and depreciation and amortization.

“Adjusted EBITDA” means EBITDA, as further adjusted for stock-based compensation, impairment of property and equipment, provisions for certain credit losses, settlement costs, provisions, acquisition-related and public offering costs, gains (losses) in the period, deferred rent expense (credit) and one-time adjustments.

“Adjusted EBITDA Margin” means Adjusted EBITDA divided by the total revenue in the period.

“Adjusted net income (loss) attributable to shareholders of Akumin” means Adjusted EBITDA less depreciation and amortization and interest expense, taxed at Akumin’s estimated effective tax rate, which is a blend of U.S. federal and state statutory tax rates for Akumin for the period.

Forward-Looking Statements

This MD&A contains or incorporates by reference “forward-looking information” or “forward-looking statements” within the meaning of applicable Canadian securities laws. Forward-looking statements describe our future plans, strategies, expectations and objectives, and are generally identifiable by use of the words “may”, “will”, “should”, “continue”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan” or “project” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements contained in this MD&A include, without limitation, statements regarding:

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      2

·

expected performance and cash flows;

 

·

changes in laws and regulations affecting the Company;

 

·

expenses incurred by the Company as a public company;

 

·

future growth of the diagnostic imaging market;

 

·

changes in reimbursement rates by payors;

 

·

remediation and effectiveness of the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting;

 

·

the outcome of litigation and payment obligations in respect of prior settlements;

 

·

the availability of radiologists at our contracted radiology practices;

 

·

competition;

 

·

acquisitions and divestitures of businesses;

 

·

potential synergies from acquisitions;

 

·

non-wholly owned and other business arrangements;

 

·

access to capital and the terms relating thereto;

 

·

technological changes in our industry;

 

·

successful execution of internal plans;

 

·

compliance with our debt covenants;

 

·

anticipated costs of capital investments; and

 

·

future compensation of named executive officers.

Such statements may not prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. The following are some of the risks and other important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements:

 

·

our ability to successfully grow the market and sell our services;

 

·

general market conditions in our industry;

 

·

our ability to service existing debt;

 

·

our ability to acquire new centers and, upon acquisition, to successfully market and sell new services that we acquire;

 

·

our ability to achieve the financing necessary to complete our acquisitions;

 

·

our ability to enforce any claims relating to breaches of indemnities or representations and warranties in connection with any acquisitions;

 

·

market conditions in the capital markets and our industry that make raising capital or consummating acquisitions difficult, expensive or both, or which may disrupt our annual operating budget and forecasts;

 

·

unanticipated cash requirements to support current operations, to expand our business or for capital expenditures;

 

·

delays or setbacks with respect to governmental approvals, or manufacturing or commercial activities;

 

·

changes in laws and regulations;

 

·

the loss of key management or personnel;

 

·

the risk that the Company is not able to arrange sufficient, cost-effective financing to repay maturing debt and to fund expenditures, future operational activities and acquisitions, and other obligations; and

 

·

the risks associated with legislative and regulatory developments that may affect costs, revenues, the speed and degree of competition entering the market, global capital markets activity and general economic conditions in geographic areas where we operate.

Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. Those assumptions and factors are based on information currently available to us, including information obtained from third-party industry analysts and other third-party sources. In some instances, material assumptions and factors are presented or discussed elsewhere in this MD&A in connection with the statements or disclosure containing the forward-looking information. The reader is cautioned that the following list of material factors and assumptions is not exhaustive. The factors and assumptions include, but are not limited to:

 

·

no unforeseen changes in the legislative and operating framework for our business;

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      3

·

no unforeseen changes in the prices for our services in markets where prices are regulated;

 

·

no unforeseen changes in the regulatory environment for our services;

 

·

a stable competitive environment; and

 

·

no significant event occurring outside the ordinary course of business such as a natural disaster or other calamity.

Although we have attempted to identify important factors that could cause our actual results to differ materially from our plans, strategies, expectations and objectives, there may be other factors that could cause our results to differ from what we currently anticipate, estimate, or intend. Forward-looking statements are provided to assist external stakeholders in understanding management’s expectations and plans relating to the future as of the date of the original document and may not be appropriate for other purposes. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required under applicable securities laws, we undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

We qualify all the forward-looking statements contained in this MD&A by the foregoing cautionary statements.

Overview

We are a provider of outpatient diagnostic imaging services in the United States. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders to help reduce unnecessary invasive procedures, determine the appropriate amount of care and minimize the cost for patients. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), ultrasound, X-ray, mammography as well as other diagnostic or interventional radiology procedures.

We seek to develop leading positions in regional markets to leverage operational efficiencies. Our scale and density within selected geographies in the United States provides for long-term relationships with key payors, radiology groups and referring physicians. Our operations team is dedicated to meeting our standards of patient care, managing relationships with local physicians and payors, and improving profitability. We provide corporate training programs, standardized policies and procedures and share best practices among the physicians in our regional networks so that they can be implemented.

Our scalable and integrated operating platform supports our ability to drive organic growth, realize cost efficiencies and create value from integrating acquisitions. Strategic acquisitions and organic growth have helped us strengthen our position in core geographies.

Summary of Factors Affecting Our Performance

Building on our track record, we believe that we have an important growth opportunity ahead of us. We believe that our performance and ability to achieve both organic and non-organic growth depends on many factors. These factors are also subject to a number of inherent risks and challenges, some of which are discussed below and in the “Risk Factors” section of this MD&A.

Number of Clinics

We have a meaningful opportunity to continue to grow the number of our diagnostic imaging facilities in the United States through organic and non-organic growth. The opening and success of new facilities is subject to many factors, including our ability to finance acquisitions, build relationships with referring doctors in new regions, and negotiate suitable lease terms for new locations, among other factors, some of which are beyond Akumin’s control.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      4

The following table shows the number of Akumin diagnostic imaging facilities as at each given date:

 

		As at Dec 31, 2020				As at Dec 31, 2019				As at Dec 31, 2018				As at   Dec 31, 2017
Number of Diagnostic Imaging Facilities			127				129				96				74

During fiscal 2020, the Company permanently closed two centers in Texas, one center in Pennsylvania, and one center in Delaware. The Company completed the acquisition of two individual centers, one in Illinois and one in Florida, on January 1, 2020. The operations of those closed centers were consolidated into neighboring centers. While the COVID-19 pandemic may have accelerated the closure of these centers, management views the closure of these centers as being in the ordinary course of operations.

Competition

The market for diagnostic imaging services is highly competitive. We compete principally on the basis of our reputation, our ability to provide multiple modalities at many of our facilities, the location of our facilities and the quality of our diagnostic imaging services. In the markets in which we are operating, or anticipate operating, we compete locally with groups of radiologists, established hospitals, clinics and other independent organizations that own and operate imaging equipment.

We also face competition from other diagnostic imaging companies and investors in acquiring diagnostic imaging centers, which makes it more difficult to find attractive acquisition targets on favourable terms.

Akumin’s multi-modality imaging offering provides a one-stop-shop for patients and referring physicians and diversifies the Company’s revenue sources. The Company’s scalable and integrated operating platform is expected to create value from future acquisitions, cost efficiencies, and organic growth.

Industry Trends

Our revenue is impacted by changes to U.S. healthcare laws, our partners’ and contractors’ healthcare costs, and/or reimbursement rates by payors.

How We Assess the Performance of Our Business

The key performance indicator measures below are used by management in evaluating the performance of and assessing our business. We refer to certain key performance indicators used by management and typically used by our competitors in the diagnostic imaging industry, certain of which are not recognized under GAAP. See “Non-GAAP Measures”.

GAAP Measures

Revenue. Our revenue is comprised of service fee revenue and other revenue. The following is a brief description of the components of our revenue:

 

·

Service fee revenue is recorded during the period in which the Company’s performance obligations are satisfied, based on the estimated collectible amounts from the patients and third party payers. The Company’s performance obligations are satisfied when services are rendered to the patient. Since the gap between payment and delivery of services to patients is generally expected to be less than one year, the Company does not adjust the service fee revenue for a significant financing component, as a practical expedient. Third party payers include federal and state agencies (under the Medicare and Medicaid programs), managed care health

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      5

plans, commercial insurance companies, attorneys, and employers. Estimates of contractual allowances and the transaction price are based on the terms specified in the related contractual agreements, negotiated rates and historical and expected payment patterns. The Company estimates its expected reimbursement for patients based on the applicable contract terms and negotiated rates. The Company believes its review process enables it to identify instances on a timely basis where such estimates need to be revised.

 

·

Other revenue consists of miscellaneous fees under contractual arrangements, including service fee revenue under capitation arrangements with third party payers, management fees, government grants and fees for other services provided to third parties. Revenue is recorded during the period in which the Company’s performance obligations under the contract are satisfied by the Company.

Other GAAP measures. The management also uses net income attributable to shareholders of Akumin in evaluating the performance of and assessing our business.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      6

Non-GAAP Measures

This MD&A makes reference to certain non-GAAP measures. For a discussion on how we utilize non-GAAP measures, see the section above under the heading “Non-GAAP Measures”. The following table reconciles EBITDA, Adjusted EBITDA and Adjusted net income attributable to shareholders of Akumin to the most directly comparable GAAP financial performance measure.

 

		(Restated)				(Restated)				(Restated)				(Restated)
(in thousands)		Three-month period ended Dec 31, 2020				Three-month period ended Dec 31, 2019				Year ended Dec 31, 2020				Year ended Dec 31, 2019
Net income (loss) attributable to shareholders of Akumin			(18,689)				(1,901)				(36,740)				(12,930)
Income tax provision (benefit)			63				602				561				(2,798)
Depreciation and amortization			4,059				3,597				17,060				13,491
Interest expense			8,343				7,627				32,781				20,783
EBITDA			(6,224)				9,925				13,662				18,546
Adjustments:
Stock-based compensation			358				749				2,084				3,555
Settlement costs (recoveries)			(167)				(443)				2,324				(1,881)
Acquisition-related costs			605				410				1,079				3,403
Operational financial instrument revaluation and other (gains) losses			353				345				(4,129)				980
Other financial instruments revaluation and other (gains) losses			18,198				(577)				22,387				1,498
Deferred rent expense (credit)(1)			(48)				708				2,953				2,380
Adjusted EBITDA			13,075				11,117				40,360				28,481
Revenue			66,878				68,652				245,626				221,045
Adjusted EBITDA Margin			20%				16%				16%				13%
Adjusted EBITDA			13,075				11,117				40,360				28,481
Less:
Depreciation and amortization			4,059				3,597				17,060				13,491
Interest expense			8,343				7,627				32,781				20,783
Sub-total			673				(107)				(9,481)				(5,793)
Effective tax rate(3)			24.1%				24.3%				24.1%				24.3%
Tax effect			162				(26)				(2,281)				(1,405)
Adjusted net income (loss) attributable to shareholders of Akumin			511				(81)				(7,200)				(4,388)

 

(1)	Based on note 10 of the Company’s 2020 financial statements; Deferred rent expense (credit) is defined as operating lease cost less operating cash flows from operating leases.

(2)	Akumin’s estimated effective tax rate is a blend of U.S. federal and state statutory tax rates for the period.

Factors Affecting the Comparability of Our Results

Acquisition Activity

The timing of acquisitions and the opening of new facilities impacts our revenue and the comparability of our results from period to period. In addition, facilities operating in different regions in the United States may have dissimilar results due to prevailing reimbursement rates for diagnostic imaging services or other factors.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      7

Newly Adopted Accounting Standards

As noted below, the Company adopted GAAP as the basis of preparation for the 2020 Annual Financial Statements effective for the fiscal year-ended December 31, 2020. Please refer to note 19 of the 2020 Annual Financial Statements for discussion of standards and interpretations that are issued, but not yet effective, up to the date of issuances of the consolidated financial statements.

Segments

We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions. We have identified one operating segment: outpatient diagnostic medical imaging services.

Recent Developments

GAAP Adoption

The Company adopted GAAP as the basis of preparation for the 2020 Annual Financial Statements effective for the fiscal year-ended December 31, 2020. Previously, the Company’s financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), for the period up to and including the 9-months ended September 30, 2020. On August 28, 2020, the Company filed a Form 40-F with the United States Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934. This filing resulted in the Company becoming an “SEC Issuer” for purposes of National Instrument 51-102 — Continuous Disclosure Obligations and as such the Company is entitled to prepare and report its financial statements in GAAP as opposed to IFRS.

COVID-19

Commencing during the three-month period ended March 31, 2020, and continuing through the present and beyond, a pandemic relating to the novel coronavirus known as COVID-19 occurred causing significant financial market disruption and social dislocation. The pandemic is dynamic, with various cities, counties, states and countries around the world responding or having responded in different ways to address and contain the outbreak, including the declaration of a global pandemic by the World Health Organization, a National State of Emergency in the United States and state and local executive orders and ordinances forcing the closure of non-essential businesses and persons not employed in or using essential services to “stay at home” or “shelter in place”. At this stage, we have no certainty as to how long the pandemic, or a more limited epidemic, will last, what regions will be most affected, to what extent containment measures will be applied, or the nature and timing of possible vaccinations. Imaging centers are healthcare facilities, and are generally considered an essential service with the expectation that they continue to operate during the pandemic. However, actions taken by government, referring physicians or individuals, in response to containment or avoidance of COVID-19 may impact a patient’s ability or decision to seek imaging services at a given time. Such actions may have a significant impact on volume at our imaging centers leading to temporary or prolonged staff layoffs, reduced hours, closures and other cost containment efforts. Further, there is the potential that certain non-urgent services that may be deferred without significant harm to a patient’s health may be delayed, either by us in response to local laws or public health guidance or voluntarily by the patient. In addition, the COVID-19 pandemic may impact supply chains, including our supply of personal protective equipment, and lead to personnel shortages, each of which could impact our ability to safely perform imaging services. It is also possible that social distancing efforts and sanitization and decontamination procedures could cause delays in the performance of imaging services. Depending on the severity and duration of the COVID-19 pandemic, we may incur incremental credit losses beyond what is currently expected, reduced revenue and income and asset impairments. See “Risk Factors” below.

The Company instituted several realignment and cost containment measures to respond to the drop in volume that resulted from the COVID-19 pandemic and related government orders. On March 23, 2020, the Company issued a press

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      8

release to describe the realignment of its operational resources to dedicate certain imaging centers to focus on patients showing active symptoms of COVID-19 in an effort to better allocate resources and respond to public health needs associated with the COVID-19 pandemic.

The Company’s cost containment measures included the temporary closure of 17 of the Company’s imaging centers to consolidate volume to nearby centers and reduced operating hours at the remainder of its imaging centers, with highest number of centers closed in mid-April, 2020. At that same time, the Company furloughed or laid off nearly 29% of its workforce, reduced work hours for its hourly personnel and reduced salaries by up to 20%, as well as negotiated deferral of certain costs due to landlords and other vendors.

In light of the improving business environment for the Company, reflected by increases in relative-value-units (“RVUs”) volume in Q3 2020 and Q4 2020, without contribution from new acquisitions (please refer “Selected Financial Information” below), the Company gradually increased its workforce through the remainder of 2020 (though total personnel remained below pre-COVID-19 levels through to the end of 2020). Effective January 1, 2021, all reduced salaries had been returned to normal levels. Clinical operations have resumed to normal operating hours as patient volumes allow and substantially all of the clinics that had temporarily closed due to the COVID-19 pandemic have resumed normal operations. If the future economic or legislative environment related to the COVID-19 pandemic again leads to weakened business volume, the Company might re-institute cost containment measures similar to those described above in order to preserve its liquidity.

The Company did not alter its capital expenditure plans in 2020 as a result of the pandemic in any material manner.

Since the start of the COVID-19 pandemic, the Company has increased the frequency of disinfecting its clinical areas, with a focus on “high touch” areas, procured increased inventories of personal protective equipment (such as masks, gowns, and gloves) and took precautions to follow guidance from the Centers for Disease Control (or CDC) and relevant state health departments in its clinics and corporate offices. To date, the Company has generally been able to procure enough personal protective equipment to meet its requirements.

As noted below (see “Recent Developments – 2025 Senior Notes”), in November 2020, the Company issued 7.0% fixed interest rate notes to refinance its variable interest rate long-term debt. This reduced interest rate risk for the Company which could have otherwise negatively affected the Company during the pandemic. As of December 31, 2020, the Company’s cost of capital has not been negatively affected due to COVID-19.

Finally, as further described below (see “Recent Developments – Government Payments”), the Company received grant funds in April 2020 and December 2020 from Health and Human Services and advanced payments in April 2020 from Centers for Medicare and Medicaid Services, both of which were made available under U.S. federal government stimulus made available pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Tuck-in Acquisitions

On January 1, 2020, the Company acquired, through subsidiaries, and in two separate transactions, a single outpatient diagnostic imaging center in Coral Springs, Florida and a single outpatient diagnostic imaging center in Crystal Lake, Illinois, for aggregate cash consideration of approximately $3.3 million (the “2020 Acquisitions”). Both acquisitions were opportunities for the Company to increase its presence in their respective markets.

Government Payments

In April 2020, the Company received approximately $1.1 million under the first appropriation made by Health and Human Services (“HHS”) to Medicare providers pursuant to the CARES Act. Subsequently, in December 2020, the Company received an additional grant from the HHS of approximately $4.1 million. Additional grants may be available to the Company through subsequent appropriations under this program. The Company applied for these grants after determining that it was eligible to do so and has incurred expenses and experienced loss of revenue that are eligible to be

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      9

reimbursed under these grants. The grants received are recorded in the consolidated statements of operations comprehensive income (loss) in the category “Other revenue”.

In April 2020, the Company received approximately $3.1 million of accelerated Medicare payments under the expanded Accelerated and Advance Payments Program from Centers for Medicare & Medicaid Service (“CMS”). These payments are currently required to be repaid beginning one year after their receipt, being in or about April 2021, through the adjudication of Medicare claims over a future period. These payments to the Company are recorded in the consolidated balance sheets in the category “Accounts payable and accrued liabilities” until earned.

Amended May 2019 Loans

The credit agreement related to the Amended May 2019 Loans (as defined below) was amended on June 2, 2020. Pursuant to this amendment, Akumin’s revolving credit facility was increased from $50 million to $69 million. Any draw on the revolving credit facility above a principal amount of $50 million would require consent of lenders holding two-thirds of the outstanding principal of the Term Loan B (as defined below) facility and lenders holding two-thirds of the outstanding principal of the other senior credit facilities. As at the time of the amendment, the Company had approximately $28.4 million drawn on its revolving credit facility.

Among other things, the amendment adjusted Akumin’s leverage and fixed charge ratios for the four quarters ended March 31, 2021, providing the Company with greater flexibility in its financial ratio covenants. While no prepayment is required, if a prepayment is made on the Term Loan B (as defined below) facility, an additional payment equal to 2% of the amount prepaid must be paid at the time of prepayment until June 2, 2021, and equal to 1% of the amount prepaid within the subsequent 12 months. As discussed under “Recent Developments — 2025 Senior Notes” below, the Amended May 2019 Loans (as defined below) were completely settled in November 2020.

2025 Senior Notes

On November 2, 2020, the Company closed its previously announced offering of $400 million of aggregate principal amount of 7.00% senior secured notes due November 1, 2025 (the “2025 Senior Notes”). The net proceeds from this offering were used to repay in full the Amended May 2019 Loans (as defined below) and the net derivative financial instrument liabilities and to pay related financing fees and expenses. The balance was retained as cash. The 2025 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the Company and each of its direct or indirect wholly owned subsidiaries, including professional service affiliates of the Company.

Concurrently with the closing of the 2025 Senior Notes, the Company entered into a new revolving credit agreement (the “November 2020 Revolving Credit Agreement”) with BBVA USA, as administrative and collateral agent, to provide for a senior secured revolving credit facility in an aggregate principal amount of $55 million (the “November 2020 Revolving Facility”), with sub-limits for the issuance of letters of credit and for swingline loans. The November 2020 Revolving Facility is secured pari passu with the obligations under the 2025 Senior Notes. The November 2020 Revolving Facility will mature on the date that is five years after the issue date (the “November 2020 Revolving Facility Maturity Date”); provided that, if more than $50 million in aggregate principal amount of notes is outstanding on the date that is 181 days prior to the November 2020 Revolving Facility Maturity Date, then the November 2020 Revolving Facility Maturity Date shall instead be the date that is 181 days prior to the November 2020 Revolving Facility Maturity Date.

The availability of borrowings under the November 2020 Revolving Facility is subject to customary terms and conditions. As of December 31, 2020, the Company had no drawdowns on the new revolving credit facility.

ADG Acquisition Earn-out

On November 2, 2020, the Company reached a settlement with the sellers of its Georgia business pursuant to the process contemplated by the purchase agreement for that business which valued the ADG Acquisition Earn-out (as defined below) at approximately $9.4 million. In accordance with the terms of the purchase agreement between the parties, 50% of

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      10

the value of ADG Acquisition Earn-out (approximately $4.7 million) was paid within five business days after the value was finally determined, being November and the balance is to be paid six months thereafter, in May 2021.

Exercise of Certain RSUs and Warrants

As at December 31, 2019, the Company had 337,500 restricted share units (“RSUs”) outstanding. All of these outstanding RSUs vested between January 1, 2020 and March 12, 2020. 285,000 of these RSUs were settled for common shares on March 12, 2020 in accordance with the terms of the Company’s RSU plan, resulting in 52,500 vested RSUs outstanding as at March 31, 2020. All of the remaining 52,500 RSUs were settled for common shares in accordance with the terms of the Company’s RSU plan during the three-month period ended June 30, 2020. As at June 30, 2020 and through the balance of fiscal 2020, the Company had no RSUs outstanding.

During May 2018, the Company had issued 525,000 warrants to purchase common shares on a 1:1 basis at an exercise price of $4.00 per common share. These warrants were not exercised into common shares and expired on May 2, 2020.

Subsequent Events

 

a)

The Company announced on February 11, 2021 that it completed its private offering of $75 million aggregate principal amount of additional 7.00% senior secured notes due November 2025 (the “New Notes”). The New Notes were offered as additional notes under the same indenture as the previously issued 2025 Senior Notes and will be treated as a single series with the 2025 Senior Notes.

The Company expects to use the net proceeds from this offering for future acquisitions, with any unused proceeds to be used for working capital and other general corporate purposes, which may include reducing debt. The New Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each wholly owned subsidiary of the Company, including professional service affiliates of the Company and the guarantors.

 

b)

Effective March 1, 2021, the Company completed a common equity investment in an artificial intelligence business as part of a private placement offering for approximately $4.6 million. The target develops artificial intelligence aided software programs for use in medical businesses, including outpatient imaging services of the sort provided by the Company. As a result of the investment, a previous investment in a convertible note instrument issued by the target to the Company in May 2020 converted for common equity. The Company’s total investment is estimated to be valued at approximately $8.0 million and represents a 34.5% interest in the target. In addition, the Company holds share purchase warrants which, subject to the occurrence of certain events, and the payment of approximately $0.4 million, would entitle the Company to acquire a further 2.4% interest in the target’s common equity.

 

c)

On March 9, 2021, the Board granted 645,000 RSUs and 70,000 options to certain employees and consultants of the Company pursuant to the Company’s RSU plan and stock option plan, respectively, in connection with the Company’s equity bonus awards. In addition, 84,032 RSUs were granted to non-executive directors of the Company as part of their 2021 compensation and 50,000 RSUs were awarded as part of a signing bonus to an executive who started with the Company on March 29, 2021. Subject to and in accordance with the terms of the RSU plan, 50% of the RSUs granted will vest and settle for common shares one year after the date of grant and the remaining 50% will vest and settle for common shares two years after the date of grant. Subject to and in accordance with the stock option plan, the options were granted with an exercise price of $3.58 per share, representing the 5-day volume weighted average price of the shares prior to the date of grant and an expiry date of 7 years after the date of grant. The options granted will vest as follows: 34% of the grant vest one year after the date of grant, 33% two years after the date of grant and the remaining 33% three years after the date of grant.

 

d)

On May 1, 2021, the Company acquired, through a subsidiary, six outpatient diagnostic imaging centers in Florida in six simultaneous transactions with related sellers, for aggregate cash consideration of

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      11

approximately $34.6 million and share consideration of approximately $3.0 million through issuance of approximately 0.97 million common shares of the Company at a price of $3.09 per share based on the share price at the close of April 30, 2021 (the “Florida Acquisition”). Under the purchase agreements, the share consideration was based on a price of $4.00 per common share of the Company.

In addition, on May 1, 2021, the Company acquired a single clinic in South Florida.

In addition, effective June 1, 2021, the Company, through a subsidiary, acquired InMed Diagnostic Services of MA, LLC (“Akumin Massachusetts”). Akumin Massachusetts operates three imaging centers in Massachusetts focused on women’s health.

 

e)

On August 15, 2021, the Company announced that both management and its external auditors, Ernst & Young LLP, agreed that additional information and analysis was necessary to complete the interim financial report for the quarter ended June 30, 2021 and Ernst & Young’s review of such report and the production of this additional information and analysis would not be completed prior to the filing deadline of August 16, 2021. As a result, Akumin did not file such financial report, or the related management’s discussion and analysis and CEO and CFO certificates (such filings, collectively, the “Required Documents”) before the August 16, 2021 deadline and only filed the Required Documents on November 15, 2021.

The Company applied to the Ontario Securities Commission, its principal regulator, for the imposition of a management cease trade order under National Policy 12-203 – Management Cease Trade Orders (NP 12-203). The management cease trade order was granted on August 20, 2021. It restricts all trading by certain members of management in Akumin securities and will remain in force until two full trading days after the Company has filed the Required Documents.

In connection with its failure to file the Required Documents, and its inability to deliver the related compliance certificate under the 2020 Revolving Credit Agreement, the Company entered into an amendment and waiver with the lenders of the 2020 Revolving Credit Agreement on September 11, 2021 and a further amendment and waiver on October 22, 2021. Pursuant to the amendments and waivers, the lenders have waived any default related to the Company having not delivered the Required Reports to the lenders in accordance with the 2020 Revolving Credit Agreement until November 15, 2021. Further, until the Required Reports are delivered to the lenders, the amount available to draw under the 2020 Revolving Credit Facility was reduced from $55 million to $10 million.

 

f)

On August 9, 2021, the Company closed its offering of $375 million of aggregate principal amount of 7.5% senior secured notes due August 1, 2028 (the 2028 Senior Notes). The offering was completed by Akumin Escrow Inc., a wholly-owned subsidiary of the Company, in escrow. The proceeds of the offering were used to fund the acquisition of Alliance (as discussed below) and were released from escrow contemporaneously with the completion of that acquisition. Upon closing of the acquisition, the Company assumed all obligations of Akumin Escrow Inc., including all obligations due under the 2028 Senior Notes, and all assets of Akumin Escrow Inc. were liquidated to the Company.

The 2028 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by the Company and each of its direct or indirect wholly owned subsidiaries, including the Revenue Practices and Alliance and its wholly owned subsidiaries, and secured against substantially all of the assets of the Company and the guarantors pari passu with the security granted in connection with the 2025 Senior Notes and 2020 Revolving Facility.

The 2028 Senior Notes indenture is substantially similar to the indenture for the 2025 Senior Notes, except that the principal payment is due at maturity on August 1, 2028. Interest is accrued and payable every six months on February 1 and August 1, respectively, at a rate of 7.5% per annum.

 

g)

On September 1, 2021, the Company acquired all of the issued and outstanding equity interests of Alliance HealthCare Services, Inc. (“Alliance”), a leading national provider of radiology and oncology solutions to hospitals, health systems and physician groups, through a wholly-owned indirect subsidiary, for $820 million, subject to customary closing adjustments.

The purchase price for Alliance was funded with cash on hand, assumption of debt, equity issued to the seller, debt and equity commitments from Stonepeak (the “Stonepeak Financing”) and proceeds from the 2028 Senior Notes.

For the Stonepeak Financing, Stonepeak Magnet Holdings LP (‘Stonepeak Magnet”) purchased on September 1, 2021 $340,000 principal amount of unsecured notes of Akumin Corp., a wholly-owned indirect

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      12

subsidiary of the Company (the “Stonepeak Notes”), together with warrants to purchase 17,114,093 common shares of Akumin (the “Stonepeak Warrants”) with a strike price of $2.98 per share and 3,500,000 common shares of the Company (the “Stonepeak Shares”) at a price of $2.98 per share for total consideration of $10,430. No consideration was paid for the Stonepeak Warrants. The Stonepeak Notes, Stonepeak Warrants, Stonepeak Shares, and additional draws were made available on the terms of the Series A Notes and Common Share Purchase Agreement dated June 25, 2021 between the Company, Akumin Corp., and Stonepeak Magnet.

14,223,570 common shares of the Company were issued to the seller of Alliance as part of the purchase price for Alliance at a price of $2.98 per share for aggregate consideration of $42,386.

For a three-year period following the closing, provided certain conditions are met, the Company will be permitted to draw up to an additional $349,570 from Stonepeak Magnet. Any such future subscription by Stonepeak Magnet will involve a further issuance of Stonepeak Notes and Stonepeak Warrants, in each case terms substantially similar to those issued upon closing of the Alliance acquisition; provided, however, that the number of additional Stonepeak Warrants would equal 20% of the dollar amount drawn by the Company divided by 120% of the 10-day volume weighted average price of the Company’s common shares ending on the trading day immediately prior to the earlier of the announcement or issuance of such Stonepeak Warrants, and the exercise price for such additional Stonepeak Warrants would be equal to that same volume weighted average price, subject to regulatory approval. The proceeds relating to any such future subscription would be used to finance the Company’s organic growth as well as future acquisition opportunities that are agreed to between the Company and Stonepeak Magnet.

At any time after seven years from the issuance date of the Stonepeak Notes, the Company may redeem such Stonepeak Notes, in whole or in part, by paying in cash the principal amount and any accrued but unpaid interest, in each case, plus 5%. To the extent that the Company has not redeemed any Stonepeak Notes by the eleventh anniversary of the issuance date of such Stonepeak Notes, the Company will be required to redeem: (a) 50% of such Stonepeak Notes on the eleventh anniversary of such issuance date by paying in cash the principal amount and any accrued but unpaid interest, in each case, plus 5%; and (b) the remaining balance by the twelfth anniversary of such issuance date by paying in cash the principal amount and any accrued but unpaid interest, in each case, plus 5%.

 

i)

In connection with the acquisition of Alliance, the Company granted to the seller of Alliance a right to nominate a single representative (the “Seller’s Nominee”) to the board of directors of the Company (the “Board”) for so long as such seller owns at least 50% of the shares of the Company issued to such seller at closing of the acquisition pursuant to the terms of a letter agreement dated September 1, 2021, subject to certain conditions, including applicable securities law and stock exchange rules.

Effective upon closing of the Alliance acquisition, the Company’s board of directors exercised its right in accordance with applicable corporate laws to increase the size of the board from five members to six and appointed the Seller’s Nominee to fill the vacancy until the next annual general meeting of the shareholders of the Company.

In addition, in connection with the Alliance acquisition, the Company agreed to convene a special meeting of its shareholders within 90 days (being no later than November 30, 2021) in order to obtain the approval of its shareholders for the appointment of three additional nominees to the Company’s board of directors. Such nominees are to consist of: (i) a nominee of Stonepeak Magnet pursuant to the terms of a board representation and observation rights agreement dated September 1, 2021 between the Company and Stonepeak Magnet; (ii) an executive director from Alliance; and (iii) an independent director of Alliance. Pursuant to a special resolution previously adopted by the shareholders of Akumin, the board of directors is empowered to determine the number of directors to be elected, which may vary from time to time, within the stated minimum and maximum number set out in the Company’s articles of amalgamation, being between three and ten.

Further, upon closing of the Alliance acquisition, the board of directors of the Company confirmed that Riadh Zine was chairman of the board of directors and Stan Dunford became chairman emeritus, as well as the appointment of certain officers of the Company such that, effective as of September 1, 2021, the only officers of the Company were:

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      13

Name		Offices
Gina Bonica		General Counsel, Chief Risk Officer & Assistant Secretary
Matt Cameron		Chief Legal Officer & Corporate Secretary
Holly Huso		Enterprise Sales Officer
Richard Jones		President, Radiology
Prudence Kuai		Chief Information Officer
William Larkin		Chief Financial Officer
Rhonda Longmore-Grund		President & Co-Chief Executive Officer
Douglas McCracken		President, Oncology
Laurie Miller		Chief HR Officer
Rohit Navani		Executive Vice President & Chief Transformation Officer
Tracy Wiese		Chief Strategy & Marketing Officer
Riadh Zine		Chairman & Co-Chief Executive Officer

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      14

Results of Operations

 

(i)	Three-month period ended December 31, 2020 compared to three-month period ended December 31, 2019

The following tables summarize our results of operations for the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019.

 

		(Restated)				(Restated)
(in thousands)		Three-month period ended Dec 31, 2020				Three-month period ended Dec 31, 2019
Service fees – net of allowances and discounts			62,283				67,879
Other revenue			4,595				773
Revenue			66,878				68,652
Employee compensation			21,967				25,442
Reading fees			9,964				11,002
Rent and utilities			7,319				7,532
Third party services and professional fees			7,268				8,243
Administrative			3,351				3,099
Medical supplies and other expenses			3,177				2,902
Depreciation and amortization			4,059				3,597
Stock-based compensation			358				749
Operational financial instruments revaluation and other (gains) losses			353				345
Interest expense			8,343				7,627
Settlement costs (recoveries)			(167	)			(443	)
Acquisition related costs			605				410
Other financial instruments revaluation and other (gains) losses			18,198				(577	)
Income (loss) before income taxes			(17,917	)			(1,276	)
Income tax provision (benefit)			63				602
Non-controlling interests			709				23
Net income (loss) attributable to shareholders of Akumin			(18,689	)			(1,901	)

 

		(Restated)				(Restated)
Adjusted EBITDA (in thousands)		Three-month period ended Dec 31, 2020				Three-month period ended Dec 31, 2019
Revenue			66,878				68,652
Less:
Employee compensation			21,967				25,442
Reading fees			9,964				11,002
Rent and utilities			7,319				7,532
Third party services and professional fees			7,268				8,243
Administrative			3,351				3,099
Medical supplies and other expenses			3,177				2,902
Deferred rent (expense) credit			48				(708)
Sub-total			53,094				57,512
Non-controlling interests			709				23
Adjusted EBITDA			13,075				11,117
Adjusted EBITDA Margin			20%				16%

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      15

Volume and revenue. The Company reports the measurement of volume of diagnostic imaging procedures at its facilities based on RVUs. RVUs are a standardized measure of value used in the United States Medicare reimbursement formula for physician services. RVUs related to service fee revenues in the three-month period ended December 31, 2020 were 1,533 (in thousands) compared to 1,583 in the three-month period ended December 31, 2019. In fiscal 2019, the Company completed an acquisition in Davie, Florida effective April 1, 2019, the acquisition of Advanced Diagnostic Group and its related entities effective May 31, 2019, an acquisition in Deltona, Florida effective May 31, 2019, an acquisition in El Paso, Texas effective August 16, 2019 and an acquisition in West Palm Beach, Florida effective October 4, 2019 (collectively, the “2019 Acquisitions”). The Company completed two separate acquisitions on January 1, 2020, one for an outpatient diagnostic imaging center in Coral Springs, Florida and one for an outpatient diagnostic imaging center in Crystal Lake, Illinois (the “2020 Acquisitions”). Excluding or pro rating for the contribution of acquisitions, on a same-center basis, RVUs were 1,488 in the three-month period ended December 31, 2020 compared to 1,575 in the three-month period ended December 31, 2019, which represents a decrease of approximately 6%. This represents a significant recovery from a same-center basis decline of 30% in the three-month period ended June 30, 2020.

Revenue was $66,878 and $68,652 for the three-month periods ended December 31, 2020 and 2019, respectively. The variance is mainly due to the 2019 Acquisitions and 2020 Acquisitions and HHS grants received under the CARES Act of $4,053 (see “Recent Developments – Government Payments”), offset by lower volume (approximately 3% overall as compared to 6% decline on a same-center basis) and lower service fee revenue per RVU (approximately 5%). The lower volume is due to the current economic environment and reduced demand for imaging services as a result of the COVID-19 pandemic and related government “stay-at-home” orders and other restrictions, as well as patients deferring elective procedures, which would have required our imaging services, due to the pandemic. The lower service fee revenue per RVU resulted from higher implicit price concessions and payor and service mix. Going forward, the Company expects organic growth to improve, however, the COVID-19 pandemic may result in fluctuation of organic growth rates over time.

In the three-month period ended December 31, 2020, approximately 15% of service fee revenue was earned from attorney payors, compared to approximately 7% in the three-month period ended December 31, 2019.

Employee compensation. Payroll and staffing costs, as a percentage of revenue, decreased from 37% to 33% in the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019. The decrease, as a percentage of revenue, is mainly due to the 2019 Acquisitions, 2020 Acquisitions, HHS grants received and cost control measures taken in response to the COVID-19 pandemic. Expenses for employee compensation were approximately $3,475 lower for the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019 due mainly to furloughs, layoffs and salary cuts as part of the Company’s cost containment measures in response to the COVID-19 pandemic. See “Recent Developments – COVID-19” above.

Reading fees. Reading fees, as a percentage of revenue, decreased from 16% to 15% in the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019. The decrease is mainly due to the HHS grants received. Our reading fees are largely based on the volume of procedures performed. As a result, reading fee expenses are variable and closely tied to revenue.

Rent and utilities. Rent and utilities, as a percentage of revenue, remained consistent at 11% in the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019. Rent and utilities expenses for the three-month period ended December 31, 2020 were broadly comparable to the three-month period ended December 31, 2019.

Third party services and professional fees. Third party services and professional fees, as a percentage of revenue, decreased from 12% to 11% in the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019. The decrease, as a percentage of revenue, is partly due to HHS grants received in the three month-period ended December 31, 2020.

Administrative expenses, medical supplies and other expenses. Administrative expenses, medical supplies and other expenses, as a percentage of revenue, increased from 9% to 10% in the three-month period ended December 31, 2020 compared to the three-month period ended December 31, 2019. The increase is mainly due to relatively lower volume due to weaker economic environment, partly offset by HHS grants received. Administrative expenses, medical supplies and other expenses increased by approximately $527 for the three-month period ended December 31, 2020 compared to

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      16

the three-month period ended December 31, 2019, which reflects additional medical supplies expenses incurred for the purchase of personal protective equipment as part of our response to the COVID-19 pandemic as well as additional director and officer insurance premium costs related to the Company having become a registrant with the United States Securities and Exchange Commission.

Adjusted EBITDA. Adjusted EBITDA for the three-month period ended December 31, 2020 was $13,075 compared to $11,117 for the three-month period ended December 31, 2019. The variance is mainly attributable to the 2019 Acquisitions and the 2020 Acquisitions, inclusion of the HHS grants received, partly offset by relatively lower volume due to weaker economic environment. Adjusted EBITDA Margin for the three-month period ended December 31, 2020 was 20% compared to 16% for the three-month period ended December 31, 2019. The increase in margin is mainly due HHS grants received, partly offset by increased implicit price concessions in the three-months ended December 31, 2020.

Net income (loss) attributable to shareholders of Akumin. The net loss attributable to shareholders of Akumin was $18,689 (28% of revenue) for the three-month period ended December 31, 2020 and net loss for the three-month period ended December 31, 2019 was $1,901 (3% of revenue). The decrease in net income is mainly due to an $18 million loss on extinguishment of the Amended May 2019 Loans (as defined below), relatively lower volume due to weaker economic environment, partly offset by approximately $4.1 million in HHS grants received.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      17

(ii)	Year ended December 31, 2020 compared to year ended December 31, 2019

The following tables summarize our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.

 

		(Restated)				(Restated)
(in thousands)		Year ended Dec 31, 2020				Year ended Dec 31, 2019
Service fees – net of allowances and discounts			238,324				218,450
Other revenue			7,302				2,595
Revenue			245,626				221,045
Employee compensation			84,038				85,900
Reading fees			37,817				35,244
Rent and utilities			30,203				26,332
Third party services and professional fees			30,183				25,636
Administrative			12,231				11,442
Medical supplies and other expenses			11,163				8,784
Depreciation and amortization			17,060				13,491
Stock-based compensation			2,084				3,555
Operational financial instruments revaluation and other (gains) losses			(4,129)				980
Interest expense			32,781				20,783
Settlement costs (recoveries)			2,324				(1,881)
Acquisition related costs			1,079				3,403
Other financial instruments revaluation and other (gains) losses			22,387				1,498
Income (loss) before income taxes			(33,595)				(14,122)
Income tax provision (benefit)			561				(2,798)
Non-controlling interests			2,584				1,606
Net income (loss) attributable to shareholders of Akumin			(36,740)				(12,930)

 

		(Restated)								(Restated)
Adjusted EBITDA   (in thousands)		Year ended Dec 31, 2020								Year ended Dec 31, 2019
Revenue			245,626								221,045
Less:
Employee compensation			84,038								85,900
Reading fees			37,817								35,244
Rent and utilities			30,203								26,332
Third party services and professional fees			30,183								25,636
Administrative			12,231								11,442
Medical supplies and other expenses			11,163								8,784
Deferred rent (expense) credit			(2,953)								(2,380)
Sub-total			202,682								190,958
Non-controlling interests			2,584								1,606
Adjusted EBITDA			40,360								28,481
Adjusted EBITDA Margin			16%								13%

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      18

Volume and revenue. RVUs related to service fee revenues in the year ended December 31, 2020 were 5,641 (in thousands) compared to 5,247 in the year ended December 31, 2019. Excluding or pro rating for the contribution of acquisitions, on a same-center basis, RVUs were 4,635 in the year ended December 31, 2020 compared to 5,203 in the year ended December 31, 2019, which represents a decrease of approximately 11%. However, as mentioned on page 15, the Company experienced a lower decline in same-center volume during the three-month period ended December 31, 2020 relative to the three-month period ended December 31, 2019.

Revenue was $245,626 and $221,045 for the year ended December 31, 2020 and 2019, respectively. The variance is mainly due to the 2019 Acquisitions and 2020 Acquisitions and HHS grants received under the CARES Act of $5,126, partly offset by lower same-center volume (approximately 11% as compared to approximately 8% increase in overall volume due to 2019 Acquisitions and 2020 Acquisitions) and higher service fee revenue per RVU (approximately 1%). The lower volume is due to the current economic environment, which lessened demand for imaging services as a result of the COVID-19 pandemic and related government “stay-at-home” orders and other restrictions, as well as patients deferring elective procedures, which would have required our imaging services, due to the pandemic. The higher service fee revenue per RVU resulted from changes to payor and service mix partly resulting from acquisitions. In response to decreased demand during 2020, management implemented temporary site closures of 17 locations and reduced operating hours for certain sites. In light of the improving business environment for the Company, it has since reopened most of its temporarily closed imaging centers and increased its operating hours. Going forward, the Company expects organic growth to improve, however, the COVID-19 pandemic may result in the fluctuation of organic growth rates over time.

In the year ended December 31, 2020, approximately 10% of service fee revenue was earned from attorney payors, compared to approximately 6% in the year ended December 31, 2019.

Employee compensation. Payroll and staffing costs, as a percentage of revenue, decreased from 39% to 34% in the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease, as a percentage of revenue, is mainly attributable to the 2019 Acquisitions and 2020 Acquisitions and cost control measures taken in response to the COVID-19 pandemic, and HHS grants received. Expenses for employee compensation for the year ended December 31, 2020 were down $1,862 compared to the year ended December 31, 2019 as expenses related to growth from 2019 Acquisitions were offset by furloughs, layoffs and salary cuts as part of the Company’s cost containment measures in response to the COVID-19 pandemic. See “Recent Developments – COVID-19” above.

Reading fees. Reading fees, as a percentage of revenue, decreased from 16% to 15% in the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease, as a percentage of revenue, is mainly due to HHS grants received during 2020. Our reading fees are largely based on the volume of procedures performed. As a result, reading fee expenses are variable and closely tied to revenue.

Rent and utilities. Rent and utilities, as a percentage of revenue, remained consistent at 12% in the year ended December 31, 2020 compared to the year ended December 31, 2019. Rent and utilities expenses for the year ended December 31, 2020 increased by $3,871 compared to the year ended December 31, 2019 mainly due to the timing of 2019 Acquisitions and 2020 Acquisitions.

Third party services and professional fees. Third party services and professional fees, as a percentage of revenue, remained consistent at 12% in the year ended December 31, 2020 compared to the year ended December 31, 2019.

Administrative expenses, medical supplies and other expenses. Administrative expenses, medical supplies and other expenses, as a percentage of revenue, remained consistent at approximately 9% in the year ended December 31, 2020 compared to the year ended December 31, 2019. Administrative expenses, medical supplies and other expenses increased by approximately $3,168 for the year ended December 31, 2020 as compared to the year ended December 31, 2019, due to timing of the 2019 Acquisitions and 2020 Acquisitions, additional medical supplies expenses incurred for the purchase of personal protective equipment as part of our response to the COVID-19 pandemic as well as additional director and officer insurance premium costs related to having become a registrant with the United States Securities and Exchange Commission, all partially offset our cost containment measures implemented in response to the COVID-19 pandemic. See “Recent Developments – COVID-19” above.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      19

Adjusted EBITDA. Adjusted EBITDA for the year ended December 31, 2020 was $40,360 compared to $28,841 for the year ended December 31, 2019. The variance is mainly attributable to the 2019 Acquisitions, 2020 Acquisitions and HHS grants received, partly offset by the negative impact on our business volume of COVID-19 starting in March 2020. As a result, Adjusted EBITDA Margin for the year ended December 31, 2020 compared to the year ended December 31, 2019, increased from 13% to 16%.

Net income (loss) attributable to shareholders of Akumin. The net loss attributable to shareholders of Akumin was $36,740 (15% of revenue) for the year ended December 31, 2020 and net loss for the year ended December 31, 2019 was $12,930 (6% of revenue). This decrease in net income is mainly due to relatively lower volume due to weaker economic environment and an $18 million loss on extinguishment of the Amended May 2019 Loans (as defined below), partly offset by the timing of the above noted 2019 Acquisitions and 2020 Acquisitions, cost control measures and approximately $5.1 million in HHS grants received.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      20

Selected Consolidated Balance Sheet Information

 

Consolidated Balance Sheet   Information (Restated)     (in thousands)		As at Dec 31, 2020				As at         Dec 31, 2019
Cash			44,396				23,389
Total assets			665,051				639,418
Less: Right of use assets			127,062				126,676
Total assets, excluding right of use assets			537,989				512,742
Total debt (1)			537,858				478,276
Less: Operating lease liabilities			132,299				129,050
Total debt, excluding Operating lease liabilities			405,559				349,226
Total non-current liabilities			527,882				471,801
Non-controlling interests			4,337				3,500
Shareholders’ equity attributable to shareholders of Akumin Inc.			80,832				115,489
Cash dividends declared (per-share)			n/a				n/a

 

(1)

Total debt consists of borrowings under the 2025 Senior Notes, Amended May 2019 Loans, Subordinated Note - Earn-out (as defined below), Wesley Chapel Loan (as defined below), derivative financial instrument liabilities and leases (including finance leases and operating leases), including both the current and non-current portions.

Cash was $44,396 as at December 31, 2020, an increase of $21,007, as compared to $23,389 as at December 31, 2019. The increase in cash during the year ended December 31, 2020 was due to $18,615 from operating activities and $11,399 from financing activities, partly offset by $9,007 used in investing activities.

Accounts receivable were $62,259 as at December 31, 2020, an increase of $8,933, as compared to $53,326 as at December 31, 2019. We do not consider the impact of the COVID-19 pandemic material to the Company’s cash collections. However, from March 2020 through December 2020, the Company’s cash collections were impacted by COVID-19 in the following ways:

 

·

Paper-filing payors (which represent a small proportion of the Company’s payors as opposed to electronic filing payors) were temporarily delayed due to work-from-home staff’s inability to process paperwork;

 

·

The Company’s internal and external billing resources were temporarily impacted by the COVID-19 pandemic, resulting in lower than usual available personnel;

 

·

Payments from attorney payors were lower due to delays in court hearings caused by courthouse closures or deferrals of court cases, and by “stay-at-home” and similar orders; and

 

·

We believe, certain smaller payors may be delaying payments in order to manage their own cash flows during the pandemic.

The Company has a diverse mix of payors, including private, managed care, capitated and government payors. Credit risk arises from the potential a counterparty will fail to perform its obligations. The Company is exposed to credit risk from its payors but the concentration of the risk is minimized because of the large customer base and its dispersion across different payors.

Collectability of the receivables is actively monitored on an ongoing basis and an allowance or a write-off of allowance for bad debts is established by management. At each reporting period, the Company determines whether an allowance or write-off is required by estimating the expected credit losses based on a combination of probability-weighted historic and actual bad debts experience with consideration of forward-looking information including changes to economic conditions that would impact its customers (such as unemployment rate and general economic environment for non-individual payors). During the period affected by the COVID-19 pandemic, management’s consideration of those changes

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      21

to economic conditions included the impact of the COVID-19 pandemic. The aging of the Company’s receivables, net of allowances, is as follows.

 

		(Restated)				(Restated)
		As at         Dec 31, 2020				As at Dec 31, 2019
Accounts receivable
0 – 90 days			27,200			26,755
91 – 180 days			10,507			11,828
More than 180 days			24,552			14,743
			62,259			53,326

Property and equipment excluding operating leases right-of-use assets were $63,714 at December 31, 2020, an decrease of $463, as compared to $64,177 as at December 31, 2019. This decrease is mainly attributable to property and equipment recognized in the purchase price allocations for the 2020 Acquisitions (collectively, $1,232) and capital expenditures ($14,233), offset by depreciation ($14,370) and net disposals ($1,558).

Operating leases right-of-use assets were $127,062 at December 31, 2020, an increase of $386, as compared to $126,676 as at December 31, 2019. This increase is mainly attributable to property and equipment recognized in the purchase price allocations for the 2020 Acquisitions (collectively, $2,982), and additions to right of use assets ($10,818), partly offset by notional depreciation ($10,934) and net disposals ($2,480).

Intangible assets were $6,748 at December 31, 2020, a decrease of $2,684, as compared to $9,432 as at December 31, 2019. This decrease is mainly due to amortization recorded in the period.

Goodwill was $351,610 at December 31, 2020, a decrease of $4,057, of as compared to $355,667 as at December 31, 2019. This decrease is attributable to measurement period adjustments recorded for the 2019 Acquisitions, partly offset by goodwill recognized from the 2020 Acquisitions (collectively, $1,675) and working capital settlement adjustments related to 2019 Acquisitions.

Total debt (excluding operating lease liabilities) was $405,559 at December 31, 2020, an increase of $56,333 as compared to $349,226 as at December 31, 2019. This increase is attributable to gross proceeds under the 2025 Notes ($400,000) and additional borrowings under the Amended May 2019 Loans ($6,300), non-cash interest accretion and paid-in-kind interest ($5,416), loss on revaluation of derivative financial instruments liability ($4,161), loss on extinguishment of the Amended May 2019 Loans ($18,279) and Subordinated Note – Earn-out ($15), allocation of issuance cost of credit facility of Amended May 2019 Loans to November 2020 Revolving Facility ($895) and increase in finance lease liabilities ($7,158), partly offset by loan repayments ($371,524), debt issuance costs ($14,167) and repayment of Subordinated Note – Earn-out ($200).

The shareholders’ equity attributable to shareholders of Akumin Inc. was $80,832 at December 31, 2020, a decrease of $34,657 as compared to $115,489 as at December 31, 2019. This decrease is due to net loss of $36,740 during the year ended December 31, 2020, offset by stock-based compensation of $2,084.

Non-controlling interests were $4,337 as at December 31, 2020, an increase of $837, as compared to $3,500 as at December 31, 2019. In the year ended December 31, 2020 net income attributable to the non-controlling interests was $2,584, partly offset by distributions of $1,747.

From fiscal 2018 through fiscal year 2020 the Company’s revenues, assets and financial liabilities have grown significantly primarily through acquisitions undertaken in 2018 and 2019. The Company financed these acquisitions through issuance of debt and common equity. The Company’s revenue and net income during fiscal 2020 have been partially impacted by the weak economic environment resulting due to the COVID-19 pandemic. The Company’s net income during fiscal 2019 and 2020 has also been affected by higher interest costs related to increased debt issued to finance acquisitions. For additional discussion relating to the risks affecting the Company, see the “Risk Factors” section below.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      22

Selected Financial Information (Restated)

The following table shows selected quarterly financial information for the past eight quarters:

 

(in thousands, except EPS)		Q4 2020				Q3 2020				Q2 2020				Q1 2020				Q4 2019				Q3 2019				Q2 2019				Q1 2019
RVUs			1,533				1,490				1,094				1,525				1,583				1,435				1,163				1,066
Revenue			66,878				63,213				47,365				68,170				68,652				62,294				48,864				41,234
Adjusted EBITDA			13,075				11,741				5,635				9,908				11,117				10,115				5,676				1,573
Adjusted EBITDA Margin			20%				19%				12%				15%				16%				16%				12%				4%
Depreciation and amortization			4,059				4,358				4,368				4,274				3,597				4,144				3,035				2,714
Interest expense			8,343				8,961				8,014				7,463				7,627				7,664				3,617				1,875
Net income (loss) attributable to shareholders of Akumin			(18,689)				(7,211)				(7,937)				(2,903)				(1,901)				(3,333)				(4,396)				(3,301)
EPS – Basic			(0.27)				(0.10)				(0.11)				(0.04)				(0.03)				(0.05)				(0.07)				(0.05)
EPS – Diluted			(0.27)				(0.10)				(0.11)				(0.04)				(0.03)				(0.05)				(0.07)				(0.05)
Effective tax rate (1)			24.1%				24.1%				24.1%				24.1%				24.3%				24.3%				24.3%				24.3%
Adjusted net income (loss) attributable to shareholders of Akumin			511				(1,198)				(5,120)				(1,388)				(81)				(1,283)				(740)				(2,286)
Adjusted EPS – Basic (2)(3)			0.01				(0.02)				(0.07)				(0.02)				0.00				(0.02)				(0.01)				(0.04)
Adjusted EPS – Diluted (2)(3)			0.01				(0.02)				(0.07)				(0.02)				0.00				(0.02)				(0.01)				(0.04)
Cash			44,396				27,357				28,075				16,620				23,389				17,476				22,018				18,897
Total assets			665,051				648,869				645,728				641,750				639,418				619,532				605,734				347,992
Right of use assets			127,062				132,131				130,739				130,337				126,676				124,955				123,942				108,677
Total assets, excluding right of use assets			537,990				516,738				514,989				511,413				512,742				494,578				481,792				239,315
Total debt			537,858				501,090				498,784				493,210				478,276				453,614				437,662				226,551
Operating lease liabilities			132,299				137,417				135,626				133,380				129,050				126,621				125,011				109,216
Total debt, excluding operating lease liabilities			405,559				363,673				363,158				359,830				349,226				326,993				312,651				117,335
Non-controlling interests			4,337				4,254				3,827				3,665				3,500				3,955				3,820				3,734
Shareholders’ equity (common)			80,832				99,164				105,807				113,179				115,489				116,641				119,121				98,248
Capital (4)			441,995				435,480				440,890				456,389				441,326				426,158				409,754				196,686

 

(1)	Akumin’s estimated effective tax rate is a blend of U.S. federal and state statutory tax rates for the period.

(2)	Some quarters may have one-time adjustments and as a result the sum of the quarters in any fiscal year may not equal the contribution of that fiscal year.

(3)	Adjusted EPS means Adjusted net income (loss) attributable to shareholders of Akumin divided by Akumin’s weighted average common shares outstanding for the period (basic or diluted).

(4)	Capital is defined as shareholders’ equity plus total debt excluding operating lease liabilities less cash.

 

AKUMIN INC   |   Management’s Discussion and Analysis   |   2020      23