Radiology Partners saw its revenues climb to more than $2 billion last year, a 13-fold increase over the tally recorded five years ago.
That’s according to an update from S&P Global Ratings agency, shared on Wednesday. Back in 2016, the El Segundo, California-based organization collected $176 million in revenue. Since then, it has executed multiple debt-fueled acquisitions, including paying $885 million to acquire Mednax Radiology Solutions and $300 million more to obtain three unnamed imaging groups.
Rad Partners experienced volume declines in 2020’s second quarter stemming from COVID-19. But its numbers have rebounded to pre-pandemic levels, and S&P expects the provider group to benefit from size.
“We believe the increased scale will improve its geographic footprint and increase density in existing markets,” analysts Richa Deval and David Peknay wrote March 16. “Also, it will improve RP's operating efficiency, which will lead to margin improvement and strengthen its negotiating position with third-party payers.”
Rad Partners has “aggressively” acquired imaging groups in recent years, leaving the company “highly leveraged.” S&P estimated the company’s debt was about 10 to 11 times its adjusted earnings last year, and will remain around there in 2022, “including the impact of tuck-in acquisitions.”
Analysts expect acquisition-related costs to pressure RP’s margins. Net revenues per RVU for the final nine months last year dropped when compared to the same period in 2020. This was due to lower RVU mix, resulting from the Mednax radiology acquisition and specifically the vRad teleradiology business, the analysis noted. More moderate M&A activity and ongoing integration with new groups will likely benefit RVUs and improve margins, Deval and Peknay added. However, further aggressive growth via debt is likely to continue.
“As a result, we expect free cash flow to be negative in fiscal 2021, pressured by higher interest expense (due to additional borrowings for acquisitions), large working capital outflows, and capital expenditure investments for new and existing sites growth,” they added.
Rad Partners bills itself as the largest U.S. practice in the specialty, employing 2,769 radiologists across 3,259 sites in 35 states. Physicians own about 33% of the corporation, with private equity sponsors and others holding the remainder.
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.