Radiology and oncology services provider Akumin has been beset with problems in 2023 and has formed a special committee to explore ways to address its strained capital structure.
Radiology revenues decreased $4.6 million (2.9%) in 2023’s second quarter due to delays in mobile equipment delivery, along with the ongoing closure of a key imaging center in Port Charlotte, Florida. The latter sustained significant damage from Hurricane Ian earlier this year, and Akumin has faced challenges in obtaining necessary approvals to reopen the facility.
“While we are working diligently with the local building authorities to secure permits to complete the necessary renovations, this process has proven to be more onerous and time consuming than originally anticipated,” Chairman and CEO Riadh Zine told investors during the company’s second-quarter earnings call Thursday.
Revenues from the the Plantation, Florida, firm’s oncology outsourcing business dropped $2.7 million because of reduced collections following an “unresolved contract discrepancy” with one unnamed hospital customer, coupled with liquidity issues at another client. Expenses were up $3.9 million (2.5%) because of increases in the cost and use of special tracers for PET imaging exams, alongside ongoing inflation, particularly in pricing for medical supplies. The company also is facing ongoing labor shortages in some markets, particularly among clinical staff, which are preventing Akumin from growing its imaging volumes.
“We remain very focused on implementing measures to address the operating challenges we are facing,” Zine said. “While we do expect these measures to benefit our results and performance over time, we do not foresee material improvement prior to the end of 2023.”
Akumin is highly leveraged following the debt-supported purchase of Alliance Healthcare Services for $820 million in 2021. The company has been accruing interest on its loan from investment firm Stonepeak for two years. But on Sept. 1 its agreement switches to “cash pay,” initiating interest payments and placing further financial pressure on Akumin.
Given these challenges, the board of directors has formed a special committee to devise potential solutions. The group includes representatives from Stonepeak, which is still owed $451.3 million in unsecured debts (meaning not backed by collateral) from Akumin. Zine and colleagues said there is no timetable for the committee’s review, and they are offering no guarantees that the process will result in a transaction or other alternative action. Akumin added that it won’t provide ongoing updates unless the board approves any decisions.
Fitch Ratings recently added Akumin to its list of “top” companies that are at risk of defaulting on their debts in the next two years. The agency estimated that Akumin had some $850 million in outstanding bonds as of May, with the nearest maturity date arriving on Nov. 1, 2025. Total debts are nearly $1.36 billion, or roughly 10.6x adjusted EBITDA, with cash on hand of $38 million and a revolving credit line totaling $55 million more.
Radiology business remains strong
Leaders emphasized that Akumin’s core radiology business remains strong. Quarterly MRI volume was up 3.1% when comparing the same imaging centers that operated during the three months that ended June 30 versus Q2 of 2022. The number of patients starting oncology treatment climbed 3.4%, while the biggest bright spot continued to be PET/CT, which jumped 16.5%.
“Notwithstanding the challenges we face, we continue to see robust demand for our services, and the fundamentals of our industry remain very strong, which is why we are focused on taking measures to remedy these challenges,” Zine told investors.
Altogether, Akumin reached revenues of $184.8 million in the second quarter, down 4% or $7.3 million compared to Q2 of 2022. The company recorded a total net loss of $96.4 million for the quarter, an increase from the $70 million loss incurred during the same timeframe last year. This number was impacted by a $53.5 million “goodwill impairment charge” related to its radiology division, a write-down that denotes decreased value of previously acquired assets on the books. Adjusted earnings—before interest, taxes, depreciation and amortization—were $26.5 million, an $11.7 million (or 31%) year-over-year drop. Adjusted EBITDA margins were 14.4%, down from 19.9% in Q2 of 2022.
Amid these challenges, Akumin is dismissing Ernst & Young as its auditor effective Aug. 9 and switching to Deloitte & Touche. In a separate announcement, the radiology group said there were no disagreements on accounting matters between Akumin and E&Y, which had provided auditing services in 2021 and 2022.
Founded in 2014, Akumin operates across 178 outpatient radiology sites and 29 more in oncology, with the company shuttering several underperforming locations amid its challenges. Akumin’s stock was down nearly 24% late Thursday, trading at 16 cents.
Editor's Note: An earlier version of this story incorrectly stated Akumin's nearest bond maturity date, which is Nov. 1, 2025. Radiology Business regrets this error.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.