AKUMIN INC. - Quarter Report: 2022 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number:

333-261815

AKUMIN INC.

(Exact name of registrant as specified in its charter)


Ontario		Not Applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


8300 W. Sunrise Boulevard
Plantation, Florida 33322
(844) 730-0050
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Not Applicable

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Shares, no par value	AKU	The Nasdaq Stock Market
Common Shares, no par value	AKU	The Toronto Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Act). Yes ☐ No ☒

As of May 10, 2022, there were 89,516,513 common shares outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.	Controls and Procedures		35

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3.	Defaults Upon Senior Securities		39
Item 4.	Mine Safety Disclosures		39
Item 5.	Other Information		39
Item 6.	Exhibits		39

SIGNATURES			40

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on

Form 10-Q and

the information incorporated by reference in this Quarterly Report on

Form 10-Q

contain or incorporate by reference “forward-looking information” or “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. Forward-looking statements describe Akumin Inc.’s (together with its subsidiaries, the “Company”) 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 include, but are not limited to, statements about:

•

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 outpatient diagnostic imaging and radiation oncology markets;

•

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;

•

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 our directors and 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 integrate 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 acquisition;

•

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 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;

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•

the risks related to the additional costs and expenses associated with being a U.S. domestic issuer as opposed to a foreign private issuer; 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 (including the adverse impact of the coronavirus

(“COVID-19”)

pandemic on the Company).

The existence

of the COVID-19 pandemic creates

a unique environment in which to consider the likelihood of forward-looking statements being accurate, and given the evolving circumstances

surrounding the COVID-19 pandemic, it

is difficult to predict how significant the adverse impact of the pandemic will be on the global and domestic economy and the business, operations and financial position of the Company.

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 Quarterly Report on

Form 10-Q 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;

•

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, public health epidemic 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 Quarterly Report on

Form 10-Q and

the information incorporated by reference in this Quarterly Report on

Form 10-Q by

the foregoing cautionary statements.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AKUMIN INC.

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Condensed Consolidated Balance Sheets			4

Condensed Consolidated Statements of Operations and Comprehensive Loss			5

Condensed Consolidated Statements of Equity			6

Condensed Consolidated Statements of Cash Flows			7

Notes to Condensed Consolidated Financial Statements			8-25

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AKUMIN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share amounts)


	March 31,			December 31,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	40,242		$	48,419
Accounts receivable		126,480			121,525
Prepaid expenses		8,409			8,196
Other current assets		5,012			7,025

Total current assets		180,143			185,165
Property and equipment, net		247,138			259,122
Operating lease right-of-use assets		189,263			194,565
Goodwill		840,874			840,353
Other intangible assets, net		409,157			414,146
Other assets		24,908			25,475

Total assets	$	1,891,483		$	1,918,826

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities:
Accounts payable	$	34,118		$	34,326
Current portion of long-term debt		15,667			14,789
Current portion of obligations under finance leases		6,031			6,460
Current portion of obligations under operating leases		20,764			20,794
Other accrued liabilities		85,476			87,813

Total current liabilities		162,056			164,182
Long-term debt, net of current portion		1,209,700			1,197,596
Obligations under finance leases, net of current portion		13,986			15,951
Obligations under operating leases, net of current portion		179,654			184,375
Other liabilities		36,829			35,574

Total liabilities		1,602,225			1,597,678

Redeemable noncontrolling interests		37,049			37,469
Shareholders’ equity:
Common stock, no par value; unlimited number of shares authorized; 89,516,513 and 89,026,997 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		229,656			228,595
Accumulated other comprehensive income		64			18
Accumulated deficit		(154,235	)		(123,424	)

Total shareholders’ equity		75,485			105,189
Noncontrolling interests		176,724			178,490

Total equity		252,209			283,679

Total liabilities, redeemable noncontrolling interests and equity	$	1,891,483		$	1,918,826

See accompanying notes to the condensed consolidated financial statements.

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AKUMIN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited; in thousands, except per share amounts)


	Three Months Ended March 31,
	2022			2021
Revenues	$	186,263		$	63,963
Operating expenses:
Cost of operations, excluding depreciation and amortization		157,479			55,142
Depreciation and amortization		24,731			4,490
Stock-based compensation		1,061			427
Other operating losses (gains), net		(54	)		90

Total operating expenses		183,217			60,149

Income from operations		3,046			3,814
Other expense (income):
Interest expense		28,681			8,368
Acquisition-related costs		382			1,279
Settlement and related recoveries		(137	)		(24	)
Other non-operating gains, net		(11	)		(3,366	)

Total other expense, net		28,915			6,257

Loss before income taxes		(25,869	)		(2,443	)
Income tax expense		563			65

Net loss		(26,432	)		(2,508	)
Less: Net income attributable to noncontrolling interests		4,379			369

Net loss attributable to common shareholders	$	(30,811	)	$	(2,877	)

Comprehensive loss, net of taxes:
Net loss	$	(26,432	)	$	(2,508	)
Other comprehensive income:
Unrealized gain on hedging transactions, net of taxes		29			—
Reclassification adjustment for losses included in net loss, net of taxes		17			—

Other comprehensive income		46			—

Comprehensive loss, net of taxes		(26,386	)		(2,508	)
Less: Comprehensive income attributable to noncontrolling interests		4,379			369

Comprehensive loss attributable to common shareholders	$	(30,765	)	$	(2,877	)

Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.35	)	$	(0.04	)

See accompanying notes to the condensed consolidated financial statements.

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AKUMIN INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in thousands, except share amounts)


	Common Stock				Accumulated Other Comprehensive		Accumulated			Total Shareholders’			Noncontrolling			Total
	Shares		Amount		Income		Deficit			Equity			Interests			Equity
Balance, December 31, 2020		70,178,428	$	160,965	$	—	$	(80,133	)	$	80,832		$	4,338		$	85,170
Net income (loss)		—		—		—		(2,877	)		(2,877	)		369			(2,508	)
Stock-based compensation		—		427		—		—			427			—			427
Distributions paid to noncontrolling interests		—		—		—		—			—			(449	)		(449	)

Balance, March 31, 2021		70,178,428	$	161,392	$	—	$	(83,010	)	$	78,382		$	4,258		$	82,640


	Common Stock				Accumulated Other Comprehensive		Accumulated			Total Shareholders’			Noncontrolling			Total
	Shares		Amount		Income		Deficit			Equity			Interests			Equity
Balance, December 31, 2021		89,026,997	$	228,595	$	18	$	(123,424	)	$	105,189		$	178,490		$	283,679
Net income (loss), net of the net income attributable to redeemable noncontrolling interests		—		—		—		(30,811	)		(30,811	)		3,799			(27,012	)
Issuance of common stock under stock-based awards		489,516		—		—		—			—			—			—
Stock-based compensation		—		1,061		—		—			1,061			—			1,061
Other comprehensive income		—		—		46		—			46			—			46
Distributions paid to noncontrolling interests		—		—		—		—			—			(5,726	)		(5,726	)
Other equity transactions		—		—		—		—			—			161			161

Balance, March 31, 2022		89,516,513	$	229,656	$	64	$	(154,235	)	$	75,485		$	176,724		$	252,209

See accompanying notes to the condensed consolidated financial statements.

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AKUMIN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)


	Three Months Ended March 31,
	2022			2021
Operating activities:
Net loss	$	(26,432	)	$	(2,508	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		24,731			4,490
Stock-based compensation		1,061			427
Non-cash interest expense		12,105			—
Amortization of deferred financing costs and accretion of discount on long-term debt		30			478
Deferred income taxes		307			—
Other non-cash items		607			(3,276	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(4,922	)		(1,902	)
Prepaid expenses and other assets		1,510			968
Accounts payable and other liabilities		(207	)		8,627
Operating lease liabilities and right-of-use assets		528			445

Net cash provided by operating activities		9,318			7,749

Investing activities:
Purchases of property and equipment		(9,878	)		(1,173	)
Other investing activities		3			(4,588	)

Net cash used in investing activities		(9,875	)		(5,761	)

Financing activities:
Proceeds from revolving loan		10,000			—
Principal payments on revolving loan		(10,000	)		—
Proceeds from long-term debt		5,539			78,750
Principal payments on long-term debt		(4,039	)		(99	)
Principal payments on finance leases		(2,394	)		(699	)
Payment of debt issuance costs		—			(1,162	)
Distributions paid to noncontrolling interests		(6,726	)		(449	)

Net cash provided by (used in) financing activities		(7,620	)		76,341

Net increase (decrease) in cash and cash equivalents		(8,177	)		78,329
Cash and cash equivalents, beginning of period		48,419			44,396

Cash and cash equivalents, end of period	$	40,242		$	122,725

Supplemental disclosure of cash flow information:
Interest paid	$	14,606		$	195
Income taxes paid, net		(10	)		(39	)
Supplemental disclosure of non-cash investing and financing activities:
Interest payable-in-kind on long-term debt		12,105			—
Property and equipment purchases in accounts payable and other accrued liabilities		6,118			306

See accompanying notes to the condensed consolidated financial statements.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Akumin Inc. (the “Company” or “Akumin”) and do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation have been included. The results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2021.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

2. New Accounting Standards

Recently Adopted Accounting Standards

ASU

2021-04,

Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic

470-50),

Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815-40)

In April 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2021-04,

Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic

470-50),

Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815-40).

This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. The Company adopted this standard as of January 1, 2022 and it did not have a material impact on the Company’s condensed consolidated financial statements.

ASU

2021-10

Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance

In November 2021, the FASB issued ASU

2021-10,

Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance

, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. ASU

2021-10

also adds a new Topic—ASC 832,

Government Assistance

—to the FASB’s Codification. The disclosure requirements only apply to transactions with a government that are accounted for by analogizing to either a grant model or a contribution model. The guidance in ASU

2021-10

is effective for financial statements of all entities, including private companies, for annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted this standard as of January 1, 2022 and it did not have a material impact of the Company’s condensed consolidated financial statements.

Recently Issued Accounting Standards Not Yet Effective

ASU

2016-13,

Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

, and related clarifying standards, which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. This ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2022. The Company is considered an Emerging Growth Company as classified by the Securities and Exchange Commission (“SEC”), which gives the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

ASU

2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU

2020-04,

Reference Rate Reform

(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. For all entities, the guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

ASU

2021-01,

Reference Rate Reform (Topic 848): Scope

In January 2021, the FASB issued ASU

2021-01,

Reference Rate Reform (Topic 848): Scope

. This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

ASU

2021-08,

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805)

In October 2021, the FASB issued ASU

2021-08,

Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

, creating an exception to the recognition and measurement principles in ASC 805,

Business Combinations

. The amendments require an acquirer to use the guidance in ASC 606,

Revenue from Contracts with Customers

, rather than using fair value, when recognizing and measuring contract assets and contract liabilities related to customer contracts assumed in a business combination. In addition, the amendments clarify that all contracts requiring the recognition of assets and liabilities in accordance with the guidance in ASC 606, such as contract liabilities derived from the sale of nonfinancial assets within the scope of ASC

610-20,

Gains and Losses from the Derecognition of Nonfinancial Assets

, fall within the scope of the amended guidance in ASC 805. The amendments do not affect the accounting for other assets or liabilities arising from revenue contracts with customers in a business combination, such as customer-related intangible assets and contract-based intangible assets, including

off-market

contract terms. This ASU is effective for public entities for fiscal years beginning after December 15, 2022, with early adoption permitted. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023. The Company is considered an Emerging Growth Company as classified by the SEC, which gives the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

3. Alliance Acquisition

On September 1, 2021, the Company acquired all of the issued and outstanding common stock of Thaihot Investment Company US Limited, which owns 100% of the common stock of Alliance, from Thaihot Investment Co., Ltd. for a total purchase price of $785.6 million (the “Alliance Acquisition”). The acquisition included Alliance’s ownership interests in its joint ventures which had a fair value of $212.0 million on the acquisition date.

As of the acquisition date, the Company had preliminarily estimated the fair value of the assets acquired and liabilities assumed and allocated a portion of the total purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the acquisition. Noncontrolling interests have also been recorded at fair value as of the acquisition date. The fair value of the total enterprise applicable to joint ventures has been allocated to the individual joint ventures.

During the three months ended March 31, 2022, the Company updated the preliminary assessment of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in certain changes to the preliminary amounts previously recorded. These changes were composed primarily of (i) a decrease in property and equipment acquired of $0.5 million due to a refinement in the valuation analysis, (ii) a decrease in other liabilities of $0.2 million due to an adjustment in an estimated accrued liability and (iii) an increase in noncontrolling interest of $0.2 million due to a refinement in the valuation analysis.

The net effect of the changes to preliminary fair value of the assets acquired and liabilities assumed resulted in an increase in goodwill of $0.5 million. The final determination of the fair value of certain assets acquired and liabilities assumed, including deferred tax liabilities and the assignment of goodwill to reporting units, was not complete as of March 31, 2022, but will be finalized within the allowable one-year measurement period.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

The following table summarizes the revised preliminary assessment of fair value of the assets acquired and liabilities assumed as of the date of the acquisition:


(in thousands)
Assets acquired:
Cash and cash equivalents	$	26,125
Net working capital		14,221
Property and equipment		205,940
Operating lease right-of-use assets		69,919
Goodwill		456,281
Intangibles – Customer contracts		266,224
Intangibles – Trade names		69,108
Intangibles – Third party management agreements		10,200
Intangibles – Certificates of need		69,558
Other assets		8,170

		1,195,746

Liabilities assumed:
Equipment debt		54,673
Obligations under finance leases		9,041
Obligations under operating leases		74,290
Deferred tax liabilities		52,760
Other liabilities		7,189

		197,953

Net assets acquired		997,793
Less redeemable noncontrolling interests		37,040
Less noncontrolling interests		175,137

Purchase price	$	785,616

4. Variable Interest Entities

In accordance with consolidation guidance, a reporting entity with a variable interest in another entity is required to include the assets and liabilities and revenues and expenses of that separate entity (i.e., consolidate with the financial statements of the reporting entity) when the variable interest is determined to be a controlling financial interest. A reporting entity is considered to have a controlling financial interest in a variable interest entity (“VIE”) if (i) the reporting entity has the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the reporting entity has the obligation to absorb losses of the VIE that could be potentially significant to the VIE.

As a result of the financial relationship established between the Company and certain entities (the “Revenue Practices”) through respective management service agreements, the Revenue Practices individually qualify as VIEs as the Company, which provides them

non-medical,

technical and administrative services, has the power to direct their respective activities and the obligation to absorb their gains and losses. As a result, the Company is considered the primary beneficiary of the Revenue Practices, and accordingly, the assets and liabilities and revenues and expenses of the Revenue Practices are included in the condensed consolidated financial statements. The following information excludes any intercompany transactions and costs allocated by the Company to the Revenue Practices. As of March 31, 2022 and December 31, 2021, the Revenue Practices’ assets included in the Company’s condensed consolidated balance sheets were $22.7 million and $20.4 million, respectively, and liabilities included in the Company’s condensed consolidated balance sheets were $0.1 million and $0.6 million, respectively. The assets of the Revenue Practices can only be used to settle their obligations. During the three months ended March 31, 2022 and 2021, the Revenue Practices’ revenues were $46.0 million and $39.0 million, respectively, and the net cash provided by operating activities was $46.3 million and $51.2 million, respectively.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

5. Property and Equipment

Property and equipment consist of the following:


(in thousands)	March 31, 2022		December 31, 2021
Medical equipment	$	233,510	$	227,796
Leasehold improvements		40,764		39,763
Equipment under finance leases		33,196		34,597
Office and computer equipment		17,794		16,701
Transportation and service equipment		8,980		8,996
Furniture and fixtures		3,336		3,130
Construction in progress		7,257		6,423

		344,837		337,406
Less accumulated depreciation		97,699		78,284

	$	247,138	$	259,122

Depreciation expense for the three months ended March 31, 2022 and 2021 was $19.7 million and $3.8 million, respectively.

As of March 31, 2022 and December 31, 2021, the equipment under finance leases had a net book value of $19.6 million and $22.2 million, respectively.

6. Goodwill

Changes in the carrying amount of goodwill are as follows:


(in thousands)	Radiology		Oncology		Total
Balance, December 31, 2021	$	681,993	$	158,360	$	840,353
Adjustments		360		161		521

Balance, March 31, 2022	$	682,353	$	158,521	$	840,874

The Company tests its goodwill and indefinite-lived intangible assets annually or more frequently depending on certain impairment indicators. As of March 31, 2022, there were no indications of impairment of the Company’s goodwill balances.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

7. Other Intangible Assets

Other intangible assets consist of the following:


	Weighted Average Useful Life (in years)		March 31, 2022							December 31, 2021
(dollars in thousands)	Weighted Average Useful Life (in years)		Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net		Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
Finite-lived intangible assets:
Customer contracts		20	$	266,224	$	(7,764	)	$	258,460	$	266,224	$	(4,437	)	$	261,787
Trade names		18		77,466		(7,337	)		70,129		77,466		(6,054	)		71,412
Management agreements		17		10,200		(350	)		9,850		10,200		(200	)		10,000
Other		4		4,814		(3,654	)		1,160		4,814		(3,425	)		1,389

Total			$	358,704	$	(19,105	)		339,599	$	358,704	$	(14,116	)		344,588

Certificates of Need									69,558							69,558

Total other intangible assets								$	409,157						$	414,146

The Company performs an impairment test when indicators of impairment are present. As of March 31, 2022, there were no indications of impairment of the Company’s other intangible assets balances.

The aggregate amortization expense for the Company’s finite-lived intangible assets was $5.0 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively.

Estimated annual amortization expense related to finite-lived intangible assets is presented below:


(in thousands)
Year ending December 31:
2022 (remaining nine months)	$	14,825
2023		18,837
2024		18,132
2025		17,475
2026		17,421
Thereafter		252,909

	$	339,599

8. Long-Term Debt

Long-term debt consists of the following:


	March 31,			December 31,
(in thousands)	2022			2021
2028 Senior Notes	$	375,000		$	375,000
2025 Senior Notes		475,000			475,000
Subordinated Notes		384,575			372,470
Equipment Debt		60,327			58,827

		1,294,902			1,281,297
Debt discount and deferred issuance costs		(69,535	)		(68,912	)

		1,225,367			1,212,385
Less current portion		15,667			14,789

Long-term debt, net of current portion	$	1,209,700		$	1,197,596

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

During the three months ended March 31, 2022, the Company elected to pay interest

in-kind

on the Subordinated Notes pursuant to the original agreement and, accordingly, $12.1 million of accrued interest was added to the principal balance of the Subordinated Notes.

The minimum annual principal payments with respect to long-term debt as of March 31, 2022 are as follows:


(in thousands)
Year ending December 31:
2022 (remaining nine months)	$	11,485
2023		16,900
2024		14,140
2025		485,404
2026		3,732
Thereafter		763,241

	$	1,294,902

Certain of the debt obligations are subject to covenants with which the Company must comply on a quarterly or annual basis. The Company was in compliance with all such covenants as of March 31, 2022.

9. Finance Leases

The information pertaining to obligations under finance leases is as follows:


(in thousands)	March 31, 2022		December 31, 2021
Obligations under finance leases	$	20,017	$	22,411
Less current portion		6,031		6,460

Non-current obligations under finance leases	$	13,986	$	15,951

The components of finance lease cost recognized in the condensed consolidated statements of operations and comprehensive loss are as follows.


	Three Months Ended March 31,
(in thousands)	2022		2021
Amortization expense for equipment under finance leases	$	1,271	$	916
Interest expense on finance lease liabilities		298		181

Finance lease cost	$	1,569	$	1,097

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

Undiscounted cash flows for finance leases recorded in the condensed consolidated balance sheet as of March 31, 2022 are as follows.


(in thousands)
Year ending December 31:
2022 (remaining nine months)	$	5,213
2023		5,666
2024		5,236
2025		3,411
2026		1,760
Thereafter		665

Total minimum lease payments		21,951
Less amount of lease payments representing interest		1,934

Present value of future minimum lease payments		20,017
Less current portion		6,031

Non-current obligations under finance leases	$	13,986

The lease term and discount rates are as follows:


	Three Months Ended March 31,
	2022			2021
Weighted average remaining lease term – finance leases (years)		3.7			4.8
Weighted average discount rate – finance leases		5.0	%		4.6	%

Supplemental cash flow information related to finance leases is as follows:


	Three Months Ended March 31,
(in thousands)	2022		2021
Operating cash flows from finance leases	$	298	$	181
Equipment acquired in exchange for finance lease obligations		—		617

10. Operating

Leases

The information pertaining to obligations under operating leases is as follows:


	March 31,		December 31,
(in thousands)	2022		2021
Obligations under operating leases	$	200,418	$	205,169
Less current portion		20,764		20,794

Non-current obligations under operating leases	$	179,654	$	184,375

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

The components of operating lease cost recognized in the condensed consolidated statements of operations and comprehensive loss are as follows.


	Three Months Ended March 31,
(in thousands)	2022		2021
Operating lease cost	$	9,666	$	5,094
Variable lease cost		1,936		959
Short-term lease cost		475		43

Total operating lease cost	$	12,077	$	6,096

Undiscounted cash flows for operating leases recorded in the condensed consolidated balance sheet as of March 31, 2022 are as follows.


(in thousands)
Year ending December 31:
2022 (remaining nine months)	$	20,485
2023		34,247
2024		30,930
2025		27,895
2026		23,377
Thereafter		178,953

Total minimum lease payments		315,887
Less amount of lease payments representing interest		115,469

Present value of future minimum lease payments		200,418
Less current portion		20,764

Non-current obligations under operating leases	$	179,654

The lease term and discount rates are as follows:


	Three Months Ended March 31,
	2022			2021
Weighted average remaining lease term – operating leases (years)		11.4			12.5
Weighted average discount rate – operating leases		7.7	%		7.4	%

Supplemental cash flow information related to operating leases is as follows:


	Three Months Ended March 31,
(in thousands)	2022		2021
Operating cash flows from operating leases	$	9,130	$	4,649
Right-of-use assets acquired in exchange for operating lease obligations		801		656

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

11. Other Accrued Liabilities

Other accrued liabilities consist of the following:


	March 31,		December 31,
(in thousands)	2022		2021
Accrued compensation and related expenses	$	34,283	$	26,486
Accrued interest expense		18,821		16,840
MAAPP funds (Note 23)		1,093		2,398
Other		31,279		42,089

Total	$	85,476	$	87,813

12. Redeemable Noncontrolling Interests

The Company has noncontrolling interests with redemption features. These redemption features could require the Company to make an offer to purchase the noncontrolling interests in the case of certain events, including (i) the expiration or termination of certain operating agreements of the joint venture, or (ii) the noncontrolling interests’

tax-exempt

status is jeopardized by the joint venture.

As of March 31, 2022, the Company holds redeemable noncontrolling interests of $37.0 million which are not currently redeemable or probable of becoming redeemable. The redemption of these noncontrolling interests is not solely within the Company’s control, therefore, they are presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The Company does not believe it is probable the redemption features related to these noncontrolling interest securities will be triggered as the triggering events are generally not probable until they occur. As such, these noncontrolling interests have not been remeasured to redemption value.

The following is a rollforward of the activity in the redeemable noncontrolling interests for the three months ended March 31, 2022:


(in thousands)
Balance, December 31, 2021	$	37,469
Net income attributable to redeemable noncontrolling interests		580
Distribution paid to redeemable noncontrolling interests		(1,000	)

Balance, March 31, 2022	$	37,049

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

13. Financial Instruments

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following table summarizes the valuation of the Company’s financial instruments that are reported at fair value on a recurring basis:


	Fair Value as of March 31, 2022								Fair Value as of December 31, 2021
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Current and long-term assets:
Interest rate contracts	$	—	$	25	$	—	$	25	$	—	$	3	$	—	$	3
Current and long-term liabilities:
Derivative in subordinated notes	$	—	$	—	$	7,692	$	7,692	$	—	$	—	$	7,522	$	7,522
Interest rate contracts	$	—	$	14	$	—	$	14	$	—	$	53	$	—	$	53

The derivative in subordinated notes relates to the Change of Control Redemption Election included in the Subordinated Notes (see Note 8). The estimated fair values of the Change of Control Redemption Election as of March 31, 2022 and December 31, 2021 use unobservable inputs for probability weighted time until an exit event of 4.1 years and 4.2 years, respectively, and an exit event probability weighting of 24.3% and 24.5%, respectively.

The following is a reconciliation of the opening and closing balances for the liability related to the embedded derivative included in the Subordinated Notes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2022:


(in thousands)
Balance, December 31, 2021	$	7,522
Change in fair value		170

Balance, March 31, 2022	$	7,692

The Company’s interest rate contracts are primarily

pay-fixed,

receive-variable interest rate swaps related to certain of the Company’s equipment debt. The amount that the Company expects to reclassify from accumulated other comprehensive income to interest expense over the next twelve months is immaterial.

Assets and Liabilities for which Fair Value is only Disclosed

The estimated fair values of other current and

non-current

liabilities are as follows:


	March 31,		December 31,
(in thousands)	2022		2021
2028 Senior Notes	$	292,500	$	345,938
2025 Senior Notes		389,500		446,500
Subordinated Notes		310,376		323,620
Equipment Debt		59,118		56,879

Total	$	1,051,494	$	1,172,937

As of March 31, 2022 and December 31, 2021, the estimated fair values of the 2028 Senior Notes and 2025 Senior Notes were determined using Level 2 inputs and the estimated fair values of the Subordinated Notes and Equipment Debt were determined using Level 3 inputs.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities, and the current portion of lease liabilities approximates their fair value given their short-term nature. The carrying value of the

non-current

portion of lease liabilities approximates their fair value given the difference between the discount rates used to recognize the liabilities in the condensed consolidated balance sheets and the normalized expected market rates of interest is insignificant.

Financial instruments are classified into one of the following categories: amortized cost, fair value through earnings and fair value through other comprehensive income. The following table summarizes information regarding the carrying value of the Company’s financial instruments:


	March 31,		December 31,
(in thousands)	2022		2021
Financial assets measured at amortized cost:
Cash and cash equivalents	$	40,242	$	48,419
Accounts receivable		126,480		121,525

	$	166,722	$	169,944

Financial liabilities measured at amortized cost:
Accounts payable	$	34,118	$	34,326
Current portion of long-term debt		15,667		14,789
Current portion of leases		26,795		27,254
Non-current portion of long-term debt		1,209,700		1,197,596
Non-current portion of leases		193,640		200,326
Other accrued liabilities		85,476		87,813

	$	1,565,396	$	1,562,104

Financial liabilities measured at fair value through earnings:
Derivative in subordinated notes	$	7,692	$	7,522

Financial assets measured at fair value through other comprehensive income:
Interest rate contracts	$	25	$	3

Financial liabilities measured at fair value through other comprehensive income:
Interest rate contracts	$	14	$	53

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

The Company measures certain

non-financial

assets at fair value on a nonrecurring basis, primarily intangible assets, goodwill and long-lived assets in connection with acquisitions and periodic evaluations for potential impairment. The Company estimates the fair value of these assets using primarily unobservable inputs; therefore, these are considered Level 3 fair value measurements.

Interest Rate Risk

Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Changes in lending rates can cause fluctuations in interest payments and cash flows. Certain of the Company’s equipment debt arrangements have interest rate swap agreements to hedge the future variable cash interest payments in order to avoid volatility in operating results due to fluctuations in interest rates. As of March 31, 2022 and December 31, 2021, the Company had $1.2 million and $1.8 million, respectively, of variable interest rate equipment debt that is not hedged. In addition, the Company is exposed to variable interest rates related to the 2020 Revolving Facility, which had no outstanding balance as of March 31, 2022 or December 31, 2021. The Company’s exposure to interest rate risk from a 1% increase or decrease in the variable interest rates is not material.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

14. Stock-Based Awards

The Company may grant stock-based awards to employees, directors and consultants under the Amended and Restated Restricted Share Unit Plan, adopted as of November 14, 2017 (the “RSU Plan”) and the Amended and Restated Stock Option Plan, adopted as of November 14, 2017 (the “Stock Option Plan” and together with the RSU Plan, the “2017 Stock Plans”). Under the 2017 Stock Plans, the collective maximum number of shares reserved for issuance is equal to 10% of the number of capital shares of the Company that are outstanding from time to time. As of March 31, 2022 and December 31, 2021, common shares reserved for issuance under the 2017 Stock Plans were 8,951,651 and 8,902,699, respectively. The 2017 Stock Plans are administered by the Board of Directors, which has authority to select eligible persons to receive awards and to determine the terms and conditions of the awards.

Restricted Share Units

Restricted stock units (“RSUs”) represent a right to receive a share of common stock at a future vesting date with no cash payment from the holder. RSUs granted generally vest over two years from the date of grant. A summary of RSU activity is as follows:


	Number of RSUs			Weighted- Average Grant Date Fair Value		Aggregate Fair Value (in thousands)
Outstanding and unvested at December 31, 2021		2,029,032		$	2.41
Granted		799,085			1.10	$	875
Vested		(489,516	)		3.19	$	1,561

Outstanding and unvested at March 31, 2022		2,338,601		$	1.80	$	4,210

Stock Options

Stock options are awarded as consideration in exchange for services rendered to the Company. Stock options granted generally have terms of 7 to 10 years and vest over 3 years. A summary of the stock option activity is as follows:


	Number of Options		Weighted- Average Exercise price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		5,680,120	$	2.54		4.4	$	2,344

Outstanding at March 31, 2022		5,680,120	$	2.54		4.1	$	1,144

Exercisable at March 31, 2022		5,084,519	$	2.45		4.0	$	1,144

Aggregate intrinsic value for outstanding and exercisable stock options in the table above represents the difference between the closing stock price on March 31, 2022 and the exercise price multiplied by the number of

in-the-money

options.

No stock options were granted during the three months ended March 31, 2022.

Stock-Based Compensation Expense

During the three months ended March 31, 2022 and 2021, the Company recorded total stock-based compensation expense related to all stock-based awards of $1.1 million and $0.4 million, respectively.

As of March 31, 2022, there was $3.1 million of total unrecognized compensation costs related to outstanding stock-based awards. These costs are expected to be recognized over a weighted-average period of 1.9 years.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

15. Commitments and Contingencies

Purchase Commitments

The Company has certain binding purchase commitments primarily for the purchase of equipment from various suppliers. As of March 31, 2022, the obligations for these future purchase commitments totaled $35.7 million, of which $24.7 million is expected to be paid during the remaining nine months of 2022 and $11.0 million is expected to be paid thereafter.

Guarantees and Indemnities

In the normal course of business, the Company has made certain guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. The Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims arising from a breach of representations or covenants. In addition, the Company has entered into indemnification agreements with its executive officers and directors and the Company’s bylaws contain similar indemnification obligations. Under these arrangements, the Company is obligated to indemnify, to the fullest extent permitted under applicable law, its current or former officers and directors for various amounts incurred with respect to actions, suits or proceedings in which they were made, or threatened to be made, a party as a result of acting as an officer or director.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made related to these indemnifications have been immaterial. As of March 31, 2022, the Company has determined that no liability is necessary related to these guarantees and indemnities.

Legal Matters

On November 22, 2021, an alleged shareholder of the Company filed a putative class action claim with the Ontario Superior Court of Justice against the Company and certain of its directors and officers alleging violations of Securities Act (Ontario), negligent misrepresentation and other related claims. The claims generally allege that certain of the Company’s prior public financial statements misrepresented the Company’s revenue, accounts receivable and the value of its assets based upon the Company’s August 12, 2021, October 12, 2021 and November 8, 2021 disclosures relating to a review of certain procedures related to its financial statements and to the restatement of financial statements affecting accounts receivable and net book value of property and equipment. The claim does not quantify a damage request. Defendants have not yet responded to the claim. On December 20, 2021, a second statement of claim was filed by a new plaintiff making similar allegations. Because the two statements of claim involve similar subject matter and some of the same class members, the second Ontario plaintiff firm requested a motion for carriage under the Class Proceedings Act, 1992 (Ontario) so the court could determine which plaintiff firm will have carriage of the class action proceedings. That carriage motion was heard by the court on March 31, 2022 and, on April 27, 2022, the court rendered a decision in favor of the second plaintiff. As such, the second plaintiff has been awarded carriage of the class action claim and the action by the first plaintiff is stayed.

Other Matters

The Company is party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, management evaluates the developments on a regular basis and accrues a liability when it believes a loss is probable and the amount can be reasonably estimated. Management believes that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on the Company’s business and condensed consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s results of operations and financial condition could be materially and adversely affected.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

16. Supplemental Revenue Information

Revenues consist primarily of net patient fees received from various payors and patients based on established contractual billing rates, less allowances for contractual adjustments and implicit price concessions. Revenues are also derived directly from hospitals and healthcare providers.

Other revenue consists of miscellaneous fees under contractual arrangements, including service fee revenue under capitation arrangements with third-party payors, management fees, government grants and fees for other services provided to third parties.

The following table summarizes the components of the Company’s revenues by payor category:


	Three Months Ended March 31,
(in thousands)	2022		2021
Patient fee payors:
Commercial	$	69,101	$	50,799
Medicare		21,172		8,184
Medicaid		3,102		1,831
Other patient revenue		3,274		2,652

		96,649		63,466
Hospitals and healthcare providers		87,459		—
Other revenue		2,155		497

	$	186,263	$	63,963

17. Cost of Operations, excluding Depreciation and Amortization

The following table summarizes the components of the Company’s cost of operations, excluding depreciation and amortization:


	Three Months Ended March 31,
(in thousands)	2022		2021
Employee compensation	$	77,365	$	23,118
Third-party services and professional fees		29,177		6,859
Rent and utilities		12,477		7,684
Reading fees		11,498		9,984
Administrative		11,624		4,356
Medical supplies and other		15,338		3,141

	$	157,479	$	55,142

18. Other Operating and

Non-Operating

Losses (Gains)

Other operating losses (gains) consist of the following:


	Three Months Ended March 31,
(in thousands)	2022			2021
Loss on disposal of property and equipment, net	$	202		$	90
Other, net		(256	)		—

	$	(54	)	$	90

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

Other

non-operating

losses (gains) consist of the following:


	Three Months Ended March 31,
(in thousands)	2022			2021
Earnings from equity method investments	$	(240	)	$	—
Fair value adjustment on derivative		170			—
Gain on conversion of debt to equity investment (Note 19)		—			(3,360	)
Other, net		59			(6	)

	$	(11	)	$	(3,366	)

19. Investments in Unconsolidated Investees

Effective March 1, 2021, the Company completed a common equity investment in an artificial intelligence business (“AI business”) as part of a private placement offering for $4.6 million. The AI business develops artificial intelligence aided software programs for use in medical businesses, including outpatient imaging services provided by the Company. As a result of the investment, a previous investment in a convertible note instrument issued by the AI business to the Company in May 2020 converted to common equity. The Company’s total common equity investment is estimated to be valued at $7.9 million and represents a 34.5% interest in the AI business on a

non-diluted

basis. In addition, the Company holds share purchase warrants which, subject to the occurrence of certain events and certain assumptions, and the payment of $0.4 million, would entitle the Company to acquire an additional 2.4% ownership interest in the AI business common equity. During the three months ended March 31, 2021, the Company recognized a gain of $3.4 million on the conversion of the convertible note instrument to common equity and the share purchase warrants. This gain is included in other

non-operating

losses (gains) in the condensed consolidated statements of operations and comprehensive loss.

The Company has a 15% direct ownership in an unconsolidated investee and provides management services under a management agreement with the investee. The Company provides services as part of its ongoing operations for and on behalf of the unconsolidated investee, which reimburses the Company for the actual amount of the expenses incurred. The Company records the expenses in cost of operations and the reimbursement as revenue in the condensed consolidated statement of operations and comprehensive loss.

The financial position and results of

operations

these

unconsolidated investees are not material to the Company’s condensed consolidated financial statements.

20. Income Taxes

The effective tax rate for the three months ended March 31, 2022 and 2021 differs from the Canadian statutory rate of 26.5% primarily due to earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory tax rate, as well as the impact of valuation allowances applied against losses in jurisdictions for which no tax benefit or expense is recognized.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

21. Basic and Diluted Loss per Share

The loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average common shares outstanding during the period.


	Three Months Ended March 31,
(in thousands, except share and per share amounts)	2022			2021
Net loss attributable to common shareholders	$	30,811		$	(2,877	)

Weighted average common shares outstanding:
Basic and diluted		89,074,282			70,178,428

Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.35	)	$	(0.04	)

Employee stock options, warrants and restricted stock units excluded from the computation of diluted per share amounts as their effect would be antidilutive		1,844,044			1,811,298

22. Segment Information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. Prior to the Alliance Acquisition, the Company had one reportable segment, which was outpatient diagnostic imaging services. As a result of the acquisition, the Company operates in two reportable segments: Radiology and Oncology. All intercompany revenues, expenses, payables and receivables are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segment’s performance is evaluated based on revenue and earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA.

The following table summarizes the Company’s revenues by segment:


	Three Months Ended March 31,
(in thousands)	2022		2021
Radiology	$	155,340	$	63,963
Oncology		30,923		—

	$	186,263	$	63,963

Adjusted EBITDA is defined as net income before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation, acquisition-related costs, losses (gains) on disposal of property and equipment, settlement and related costs (recoveries), financial instruments revaluation and related losses (gains), loss on extinguishment of debt, severance and related costs, restructuring charges, asset impairments, other losses (gains), deferred rent expense and

one-time

adjustments. Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the condensed consolidated financial statements as an indicator of financial performance or liquidity. Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation and may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA is the most frequently used measure of each segment’s performance and is commonly used in setting performance goals.

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

The following table summarizes the Company’s Adjusted EBITDA by segment:


	Three Months Ended March 31,
(in thousands)	2022			2021
Adjusted EBITDA:
Radiology	$	28,589		$	10,843
Oncology		10,033			—
Corporate		(6,604	)		(1,640	)

	$	32,018		$	9,203

A reconciliation of the net loss to total Adjusted EBITDA is shown below:


	Three Months Ended March 31,
(in thousands)	2022			2021
Net loss	$	(26,432	)	$	(2,508	)
Interest expense		28,681			8,368
Income tax expense		563			65
Depreciation and amortization		24,731			4,490

EBITDA		27,543			10,415
Adjustments:
Stock-based compensation		1,061			427
Acquisition-related costs		382			1,279
Loss on disposal of property and equipment, net		202			90
Settlement and related recoveries		(137	)		(24	)
Gain on conversion of debt to equity investment		—			(3,360	)
Severance, restructuring and other charges		2,453			—
Other losses (gains), net		182			(69	)
Deferred rent expense		332			445

Adjusted EBITDA	$	32,018		$	9,203

The following table summarizes the Company’s total assets by segment:


	March 31,		December 31,
(in thousands)	2022		2021
Identifiable assets:
Radiology	$	1,434,449	$	1,451,905
Oncology		432,931		440,416
Corporate		24,103		26,505

Total	$	1,891,483	$	1,918,826

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AKUMIN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2022

(Unaudited)

The following table summarizes the Company’s capital expenditures by segment:


	Three Months Ended March 31,
(in thousands)	2022		2021
Capital expenditures:
Radiology	$	8,812	$	1,173
Oncology		976		—
Corporate		90		—

Total	$	9,878	$	1,173

23. CARES Act

The CARES Act provided for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP”) during the

COVID-19

pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. During 2020, the Company applied for and received approval to receive $3.1 million of MAAPP funds from CMS. The Company recorded these payments as a liability until all performance obligations have been met, as the payments were made on behalf of patients before services were provided. MAAPP funds received are required to be applied to future Medicare billings commencing in April 2021 with all such remaining amounts required to be repaid by September 2022. In connection with the Alliance Acquisition, the Company assumed an obligation totaling $3.3 million related to MAAPP funds received by Alliance. As of March 31, 2022 and December 31, 2021, the Company had a total remaining balance of $1.1 million and $2.4 million, respectively, of MAAPP funds to be applied to future Medicare claims.

The CARES Act also provided for the deferred payment of the employer portion of Social Security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of March 31, 2022 and December 31, 2021, $4.3 million related to these deferred payments are included in other accrued liabilities in the condensed consolidated balance sheets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form

10-Q

and our audited consolidated financial statements and related notes included in our Annual Report on Form

10-K

for the year ended December 31, 2021. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and in Item 1A “Risk Factors” and elsewhere in our Annual Report on Form

10-K

for the year ended December 31, 2021.

Overview

On September 1, 2021, we acquired all of the issued and outstanding common stock of Thaihot Investment Company US Limited, which owns 100% of the common stock of Alliance HealthCare Services, Inc. (“Alliance”), through our wholly owned indirect subsidiary Akumin Corp. (the “Alliance Acquisition”). Alliance is a leading national provider of radiology and oncology solutions to hospitals, health systems and physician groups. With the acquisition of Alliance, we provide fixed-site outpatient diagnostic imaging services through a network of approximately 200 owned and/or operated imaging locations; and outpatient radiology and oncology services and solutions to approximately 1,000 hospitals and health systems across 48 states. Our imaging procedures include magnetic resonance imaging (“MRI”), computerized tomography (“CT”), positron emission tomography (“PET” and “PET/CT”), ultrasound, diagnostic radiology

(X-ray),

mammography and other related procedures. Our cancer care services include a full suite of radiation therapy and related offerings.

We are significantly diversified across business lines, geographies, modality offerings and reimbursement sources. The diversity of our business provides a number of advantages, including having no material revenue concentration with any health system or hospital customer and no material concentration with any commercial payor.

We currently operate in two reportable business segments: radiology and oncology. The following table summarizes our revenues by segment as a percentage of total revenue:


	Three Months Ended March 31,
	2022			2021
Radiology		83	%		100	%
Oncology		17	%		—

		100	%		100	%

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The following table summarizes the components of our revenues by payor category:


	Three Months Ended March 31,
(in thousands)	2022		2021
Patient fee payors:
Commercial	$	69,101	$	50,799
Medicare		21,172		8,184
Medicaid		3,102		1,831
Other patient revenue		3,274		2,652

		96,649		63,466
Hospitals and healthcare providers		87,459		—
Other revenue		2,155		497

	$	186,263	$	63,963

Summary of Factors Affecting Our Performance

Pricing

Continued expansion of health maintenance organizations, preferred provider organizations and other managed care organizations have influence over the pricing of our services because these organizations can exert great control over patients’ access to our services and reimbursement rates for accessing those services.

Competition

The market for outpatient diagnostic imaging and oncology services is highly competitive. We compete principally on the basis of our reputation, our ability to provide multiple modalities at many of our centers, the location of our centers and the quality of our outpatient diagnostic imaging and oncology services. We compete locally with groups of individual healthcare providers, established hospitals, clinics and other independent organizations that own and operate imaging and radiation therapy equipment.

We also face competition from other outpatient diagnostic imaging companies and oncology service providers in acquiring outpatient diagnostic imaging and oncology centers, which makes it more difficult to find attractive products on acceptable terms. Accordingly, we may not be able to acquire rights to additional outpatient diagnostic imaging and oncology centers on acceptable terms.

Our multi-modality imaging offering provides a

one-stop-shop

for patients and referring physicians and diversifies our revenue sources. Our scalable and integrated operating platform is expected to create value from future acquisitions, cost efficiencies and organic growth.

Seasonality

We experience seasonality in the revenues and margins generated for our services. First and fourth quarter revenues are typically lower than those from the second and third quarters. First quarter revenue is affected primarily by fewer calendar days and inclement weather, typically resulting in fewer patients being scanned or treated during the period. Fourth quarter revenues are affected by holiday and client and patient vacation schedules, resulting in fewer scans or treatments during the period. The variability in margins is higher than the variability in revenues due to the fixed nature of our costs. We also experience fluctuations in our revenues and margins due to acquisition activity and general economic conditions, including recession or economic slowdown.

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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.

Acquisitions and New Facilities

The timing of acquisitions and the opening of new fixed-site facilities impacts our revenue and the comparability of our results from period to period. The following table shows the number of our radiology diagnostic imaging sites and oncology radiation therapy sites:


	March 31,		December 31,
	2022		2021
Radiology sites		201		199
Oncology sites		33		34

		234		233

Recent Developments

COVID-19

Commencing during the first quarter of 2020 and continuing through the present, 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, while there are signs of improvement, we are uncertain 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 and radiation therapy centers are healthcare facilities and are generally considered an essential service with the expectation that they continue to operate during the pandemic.

We 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. Our cost containment measures included the temporary closure of certain of our imaging centers to consolidate volume to nearby centers and reduced operating hours at the remainder of our imaging centers, with the highest number of centers closed in

mid-April

2020. At that same time, we furloughed or laid off a portion of our workforce, reduced work hours for our hourly personnel and reduced salaries of employees, as well as negotiated deferral of certain costs due to landlords and other vendors.

In light of the improving business environment, we gradually increased our workforce during 2021. 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, we might

re-institute

cost containment measures similar to those described above in order to preserve our liquidity.

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Results of Operations

The following table presents our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021.


	Three Months Ended March 31,
(in thousands)	2022			2021
Revenues	$	186,263		$	63,963
Operating expenses:
Cost of operations, excluding depreciation and amortization		157,479			55,142
Depreciation and amortization		24,731			4,490
Stock-based compensation		1,061			427
Other operating losses (gains), net		(54	)		90

Total operating expenses		183,217			60,149

Income from operations		3,046			3,814
Other expense (income):
Interest expense		28,681			8,368
Acquisition-related costs		382			1,279
Settlement and related recoveries		(137	)		(24	)
Other non-operating gains, net		(11	)		(3,366	)

Total other expense, net		28,915			6,257

Loss before income taxes		(25,869	)		(2,443	)
Income tax expense		563			65

Net loss		(26,432	)		(2,508	)
Less: Net income attributable to noncontrolling interests		4,379			369

Net loss attributable to common shareholders	$	(30,811	)	$	(2,877	)

Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.35	)	$	(0.04	)

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Revenues

The following table summarizes our revenues by segment:


	Three Months Ended March 31,
(in thousands)	2022		2021
Radiology	$	155,340	$	63,963
Oncology		30,923		—

	$	186,263	$	63,963

Revenues for the three months ended March 31, 2022 were $186.3 million and increased by $122.3 million, or 191%, from the three months ended March 31, 2021. This increase includes $113.9 million of revenues contributed by Alliance during the three months ended March 31, 2022. The remaining increase in revenues during the three months ended March 31, 2022 included a $3.5 million revenue contribution from other acquisitions completed in 2021.

The following table summarizes statistical information regarding our radiology scan volumes and oncology patient starts:


	Three Months Ended March 31,
(in thousands)	2022		2021		Change		% Change
MRI scans		214		87		127		146	%
PET/CT scans		32		2		30		1,500	%
Other modalities		294		259		35		14	%

Total		540		348		192		55	%

Total Oncology patient starts		3		—		3		nmf

Cost of Operations, excluding Depreciation and Amortization

Cost of operations, excluding depreciation and amortization, for the three months ended March 31, 2022 was $157.5 million and increased by $102.3 million, or 186%, from the three months ended March 31, 2021. This increase includes $91.5 million of costs incurred by Alliance during the three months ended March 31, 2022. The following table summarizes the components of our cost of operations, excluding depreciation and amortization:


	Three Months Ended March 31,
(in thousands)	2022		2021
Employee compensation	$	77,365	$	23,118
Third-party services and professional fees		29,177		6,859
Rent and utilities		12,477		7,684
Reading fees		11,498		9,984
Administrative		11,624		4,356
Medical supplies and other		15,338		3,141

	$	157,479	$	55,142

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Employee Compensation

Employee compensation for the three months ended March 31, 2022 was $77.4 million and increased by $54.2 million, or 235%, from the three months ended March 31, 2021. This increase includes $48.9 million of costs incurred by Alliance during the three months ended March 31, 2022. The remaining increase was primarily driven by other acquisitions completed during 2021 and easing of the cost containment measures taken in 2020 in response to the

COVID-19

pandemic. See “Recent Developments –

COVID-19”

above.

Third-Party Services and Professional Fees

Third-party services and professional fees for the three months ended March 31, 2022 were $29.2 million and increased by $22.3 million, or 325%, from the three months ended March 31, 2021. This increase includes $19.1 million of costs incurred by Alliance during the three months ended March 31, 2022. The remaining increase in these fees was primarily due to other acquisitions completed during 2021 and higher professional fees.

Rent and Utilities

Rent and utilities for the three months ended March 31, 2022 were $12.5 million and increased by $4.8 million, or 62%, from the three months ended March 31, 2021. The increase was driven primarily by rent and utilities incurred by Alliance during the three months ended March 31, 2022. Rent and utilities are largely a fixed cost.

Reading Fees

Reading fees for the three months ended March 31, 2022 were $11.5 million and increased by $1.5 million, or 15%, from the three months ended March 31, 2021. Our reading fees are primarily based on the volume of procedures performed. The increase in reading fees was driven by other acquisitions completed during 2021 and an increase in same-store volumes.

Administrative Expenses

Administrative expenses for the three months ended March 31, 2022 were $11.6 million and increased by $7.3 million, or 167%, from the three months ended March 31, 2021. This increase includes $6.0 million of costs incurred by Alliance during the three months ended March 31, 2022. The remaining increase was driven primarily by higher insurance costs.

Medical Supplies and Other Expenses

Medical supplies and other expenses for the three months ended March 31, 2022 were $15.3 million and increased by $12.2 million, or 388%, from the three months ended March 31, 2021. The increase was driven primarily by medical supplies and other expenses incurred by Alliance during the three months ended March 31, 2022.

Depreciation and Amortization

Depreciation and amortization for the three months ended March 31, 2022 was $24.7 million and increased by $20.2 million, or 451%, from the three months ended March 31, 2021. This increase is primarily due to $19.9 million of depreciation and amortization for Alliance during the three months ended March 31, 2022.

Other Expense (Income)

Interest expense for the three months ended March 31, 2022 was $28.7 million and increased by $20.3 million, or 243%, from the three months ended March 31, 2021. This increase is primarily due to the interest associated with the 2028 Senior Notes and Subordinated Notes that were issued during 2021 in connection with the acquisition of Alliance.

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Acquisition-related costs for the three months ended March 31, 2022 were $0.4 million compared to $1.3 million for the three months ended March 31, 2021. This decrease is primarily due to reduced acquisition-related activities.

Other

non-operating

gains for the three months ended March 31, 2022 were $0.0 million compared to $3.4 million for the three months ended March 31, 2021. The other

non-operating

gains in 2021 consist primarily of a $3.4 million gain on the conversion of a debt investment to an equity investment.

Income Tax Expense

Income tax expense for the three months ended March 31, 2022 and 2021 was $0.6 million and $0.0 million, respectively. The effective tax rate for the periods differs from the Canadian statutory rate of 26.5% primarily due to earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory tax rate, as well as the impact of valuation allowances applied against losses in jurisdictions for which no tax benefit or expense is recognized.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three months ended March 31, 2022 was $4.4 million and increased by $4.0 million from the three months ended March 31, 2021. This increase is due to amounts attributable to Alliance during the three months ended March 31, 2022.

Non-GAAP

Financial Measures

We use various measures of financial performance based on financial statements prepared in accordance with GAAP. We believe, in addition to GAAP measures, certain

non-GAAP

measures are useful for investors for a variety of reasons. Such

non-GAAP

measures include earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA. Our management regularly communicates EBITDA and Adjusted EBITDA and their interpretation of such results to our board of directors. We also compare actual periodic Adjusted EBITDA against internal targets as a key factor in determining cash incentive compensation for executives and other employees, largely because we view Adjusted EBITDA results as indicative of how our radiology and oncology businesses are performing and being managed.

We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation, acquisition-related costs, losses (gains) on the disposal of property and equipment, settlement and related costs (recoveries), financial instruments revaluation and related losses (gains), loss on extinguishment of debt, severance and related costs, restructuring charges, asset impairments, other losses (gains), deferred rent expense and

one-time

adjustments. EBITDA and Adjusted EBITDA are

non-GAAP

financial measures used as analytical indicators by us and the healthcare industry to assess business performance and are measures of leverage capacity and ability to service debt. EBITDA and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. EBITDA and Adjusted EBITDA are not financial measures determined in accordance with GAAP and are therefore susceptible to varying methods of calculation and may not be comparable to other similarly titled measures of other companies.

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The following table presents a reconciliation of our net loss, the most directly comparable GAAP financial measure, to total EBITDA and Adjusted EBITDA:


	Three Months Ended March 31,
(in thousands)	2022			2021
Net loss	$	(26,432	)	$	(2,508	)
Interest expense		28,681			8,368
Income tax expense		563			65
Depreciation and amortization		24,731			4,490

EBITDA		27,543			10,415
Adjustments:
Stock-based compensation		1,061			427
Acquisition-related costs		382			1,279
Loss on disposal of property and equipment, net		202			90
Settlement and related recoveries		(137	)		(24	)
Gain on conversion of debt to equity investment		—			(3,360	)
Severance, restructuring and other charges		2,453			—
Other losses (gains), net		182			(69	)
Deferred rent expense		332			445

Adjusted EBITDA	$	32,018		$	9,203

The following table summarizes our Adjusted EBITDA by segment:


	Three Months Ended March 31,
(in thousands)	2022			2021
Adjusted EBITDA:
Radiology	$	28,589		$	10,843
Oncology		10,033			—
Corporate		(6,604	)		(1,640	)

	$	32,018		$	9,203

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash generated from operations, public and private sales of debt and equity securities, and bank borrowings. The following table presents a summary of our consolidated cash flows and the ending balance of our cash and cash equivalents:


	Three Months Ended March 31,
(in thousands)	2022			2021
Cash and cash equivalents at beginning of period	$	48,419		$	44,396
Net cash provided by operating activities		9,318			7,749
Net cash used in investing activities		(9,875	)		(5,761	)
Net cash provided by (used in) financing activities		(7,620	)		76,341

Cash and cash equivalents at end of period	$	40,242		$	122,725

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Cash Flows from Operating Activities

Cash provided by operating activities was $9.3 million for the three months ended March 31, 2022 and consisted of a net loss of $26.4 million adjusted for certain

non-cash

items and changes in certain operating assets and liabilities. The primary

non-cash

charges included in the net loss are $24.7 million of depreciation and amortization and $12.1 million of

non-cash

interest expense. Changes in operating assets and liabilities, net of acquisitions, used $3.1 million of operating cash driven by a $4.9 million increase in accounts receivable.

Cash Flows from Investing Activities

During the three months ended March 31, 2022, cash used in investing activities was $9.9 million, an increase of $4.1 million from the comparable period in 2021. Purchases of property and equipment during the three months ended March 31, 2022 were $9.9 million, an increase of $8.7 million from the comparable period in 2021. Cash used in investing activities during the three months ended March 31, 2021 also included a $4.6 million equity investment in an unconsolidated company.

Cash Flows from Financing Activities

During the three months ended March 31, 2022, cash used in financing activities was $7.6 million compared to cash provided by financing activities of $76.3 million during the three months ended March 31, 2021. Cash used in financing activities during the three months ended March 31, 2022 included principal payments on the revolving loan of $10.0 million, distributions paid to noncontrolling interests of $6.7 million, and principal payments on long-term debt and finance leases of $6.4 million, partially offset by proceeds from the revolving loan of $10.0 million and proceeds from long-term debt of $5.5 million. The cash provided by financing activities during the three months ended March 31, 2021 was composed primarily of proceeds from long-term debt of $78.8 million, partially offset by the payment of debt issuance costs of $1.2 million and principal payments on long-term debt and finance leases of $0.8 million.

Liquidity Outlook

Cash and cash equivalents were $40.2 million as of March 31, 2022. In addition, we have a revolving credit facility under which we may borrow up to $55.0 million for working capital and other general corporate purposes. As of March 31, 2022, there were no borrowings outstanding under the revolving credit facility. We believe that our existing cash, cash equivalents and expected future cash flow from operations will provide sufficient funds to finance our operations for at least the next twelve months. However it is possible that we may need to supplement our existing sources of liquidity to finance our activities beyond the next twelve months and there can be no assurance that sources of liquidity will be available to us at that time.

We also have access to an additional $349.6 million of debt financing through August 2024, provided certain conditions are met, to finance mutually agreed upon organic growth and future acquisition opportunities.

For additional information regarding our revolving credit facility and the additional borrowing available for future acquisitions, see Note 8 to the consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, 2021.

For a description of contractual obligations, such as debt, finance leases and operating leases, see Note 8, Note 9 and Note 10 to the condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form

10-Q.

Also see Note 8, Note 9 and Note 10 to the consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, 2021.

Critical Accounting Policies and Estimates

There were no significant changes in our critical accounting policies and estimates during the three-month period ended March 31, 2022 compared to those previously disclosed in “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form

10-K

for the year ended December 31, 2021.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company as defined by

Rule 12b-2

of the Exchange Act and is not required to provide the information required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under

Rules 13a-15(e)

and 15d-15(e)

of the Exchange Act, as of March 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2022.

Identification of Material Weaknesses for the Quarter Ended June 30, 2021

Accounts Receivable

Historically, management used a provision matrix to determine estimated implicit price concessions based on actual experience with consideration of forward-looking information including changes to economic conditions that would have an impact on our customers. Such implicit price concessions were considered when calculating net revenue and subsequently adjusted as necessary based on the estimate. During the quarter ended June 30, 2021, in conjunction with performing

our quarter-end review

of accounts receivable, review of historical collection rates using our enhanced reporting and analytics tools, and inquiries from our external auditors, management identified issues in the recording of write-offs and cash collections on acquired accounts receivable balances impacting current and prior periods. In addition, during the review, management noted estimates of historical implicit price concessions and expected collection rates were not reflective of the actual cash collections experience. Using additional historical data that was available together with enhanced reporting and analytics tools, management was able to more accurately estimate its historical implicit price concessions, which impacts the net realizable value of the accounts receivable. This analysis resulted in a reduction in accounts receivable with an offset to net revenue, which was material to prior periods and required the consolidated financial statements to be restated.

Through the use of such improved analytical tools and the interpretation of the information produced from such tools, management was able to confirm

its period-end process

and related review control could be enhanced to provide greater accuracy in estimating the implicit price concessions for accounts receivable.

The material weakness was caused because the

period-end

process design, including review controls, did not effectively consider historical collection information to record write-offs and other adjustments to accounts receivable in order to accurately assess and reflect the effect of implicit price concessions in estimating net realizable value of accounts receivable. Starting in

mid-2018

and continuing through 2019, 2020, and into 2021, we made investments in our revenue cycle platform and data analytics tools. Among other benefits, these investments were intended to better integrate legacy revenue cycle information of acquired businesses into our revenue cycle platform. Subsequent to December 31, 2020, these investments allowed management to perform a more comprehensive analysis of historical collection data on a consolidated basis. After applying this more comprehensive analysis to the quarter ended June 30, 2021, management adopted an enhanced estimation methodology to assess net realizable value of accounts receivable. Applying this new methodology required a material change to historical implicit price concessions recorded as of January 1, 2019, December 31, 2019, December 31, 2020 and March 31, 2021. Under ASC 250,

Accounting Changes and Error Corrections

(“ASC 250”), this change was considered an error and thus a restatement of the financial statements for the periods ended March 31, 2021, December 31, 2020 and December 31, 2019 was required.

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Capitalization Adjustments

The Capitalization Adjustments primarily relate to capitalization of components replaced when equipment is repaired. Management’s rationale for capitalizing these components was most of our equipment is relatively old, and the components replaced were extending the useful life of the aged equipment. Management consistently applied this policy to capitalize such items. Based on a thorough review of the components replaced and considering the authoritative and non-authoritative GAAP literature, management determined certain components previously capitalized prior to March 31, 2021 did not extend the life of the assets and should have been expensed to repair and maintenance rather than capitalized.

The material weakness was caused by review control design, which did not sufficiently ensure whether the nature of capital additions adhered to our capitalization policy. Determinations were made in the judgment of management that certain expenditures extended the useful life of capital assets and therefore should be capitalized. However, considering authoritative and non-authoritative GAAP guidance available and conducting a detailed analysis of the nature of the expenditures, management determined these expenditures should have been recorded as repair and maintenance expenses as opposed to capital expenditures.

Applying revised judgment toward application of our capitalization policy required a material change to previously capitalized medical equipment components as of January 1, 2019, December 31, 2019, December 31, 2020 and March 31, 2021. Under ASC 250, this change was considered an error and thus a restatement of the financial statements for the periods ended March 31, 2021, December 31, 2020 and December 31, 2019 was required.

Identification of Material Weakness for the Quarter Ended September 30, 2021

Income Tax Provision

Management concluded a material weakness in internal control over financial reporting existed relating to our quarterly income tax provision process. Specifically, we did not provide adequate review of the impact on deferred tax assets and deferred tax asset provision within the quarterly consolidated income tax provision as a result of a discrete transaction. While the control deficiency did not result in a misstatement of our previously issued consolidated financial statements, the control deficiency could have resulted in a misstatement of the income tax related accounts or disclosures that would have resulted in a material misstatement of our quarterly or annual consolidated financial statements that would not have been prevented or detected on a timely basis.

Identification of Material Weakness for the Quarter Ended December 31, 2021

Accounting Estimates and the Use of Specialists

Management concluded a material weakness in internal control over financial reporting existed relating to the oversight and review of the work performed by third-party specialists, the application of certain accounting principles and the coordination between specialists. Specialists were used in the preparation of (i) our purchase price allocation pursuant to ASC 805,

Business Combinations

, (ii) the adoption of ASC 842,

Leases

, in connection with the Alliance Acquisition, and (iii) the valuation of warrants issued in connection with a debt financing arrangement. The control deficiency could have resulted in a misstatement of certain accounting estimates or disclosures that would have resulted in a material misstatement of our annual consolidated financial statements that would not have been prevented or detected on a timely basis.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

Management is committed to the remediation efforts to address the material weaknesses, as well as continuously enhancing our internal controls.

Management has made financial reporting control changes to address the material weaknesses relating to the (i) estimates for implicit price concessions, (ii) process for identifying whether component parts replaced in its equipment should be classified as capital or as a repair and maintenance expense, (iii) process for reviewing the quarterly tax provision, and (iv) process for evaluating the qualifications of third-party specialists, defining the scope of work to be performed, and reviewing all estimates prepared by specialists.

Management enhanced its methodology that quantifies and considers the effects of implicit price concessions on the recognition of accounts receivable and collection history on a consolidated basis which will allow for timely recording of the impact to net revenue and accounts receivable due to changes to implicit price concessions if necessary. Management has also put in place controls to ensure its procedures to evaluate the appropriate accounting for component parts that are replaced when equipment is repaired. Management has taken steps to enhance the review of the quarterly tax provision to include a process for reviewing information underlying discrete transactions in the quarterly income tax provision. In addition, management has taken steps to enhance its evaluation of the qualifications of third-party specialists and defining the scope of work to be performed, as well as enhance the review process for all estimates prepared by specialists, including a detailed review of all work performed by specialists, by team members with the appropriate level of experience and knowledge and review the specialists work for compliance with accounting standards.

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To further remediate the material weaknesses identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed

and re-emphasized

the importance of internal control, control consciousness and a strong control environment. We also expect to continue to review, optimize, and enhance our financial reporting controls and procedures. These material weaknesses will not be considered remediated until the applicable remediated control operates for a sufficient period of time and management has concluded that this control is operating effectively.

No assurance can be provided at this time that the actions and remediation efforts we have taken or will implement will effectively remediate the material weaknesses described above or prevent the incidence of other significant deficiencies or material weaknesses in our internal controls over financial reporting in the future. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.

If these remedial measures described above are insufficient to address the material weaknesses described above, or are not implemented timely, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future and could have the effects described in the “Risk Factors” section included in Item 1A of our Annual Report on

Form 10-K

for the year ended December 31, 2021.

Changes in Internal Control over Financial Reporting

There were no other changes in our internal control over financial reporting that occurred during the three-month period ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for the remediation efforts described above.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment, contract disputes, employment and other commercial or regulatory matters. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. We believe that the outcome of our current litigation will not have a material adverse impact on our business, financial condition and results of operations. However, we could be subsequently named as a defendant in other lawsuits that could adversely affect us.

Item 1A. Risk Factors

There have been no material changes with respect to the risk factors discussed in our Annual Report on Form

10-K

for the year ended December 31, 2021 dated March 16, 2022 and filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On April 13, 2022, Rhonda Longmore-Grund, the Company’s former President and Co-Chief Executive Officer, entered into a Confidential Separation Agreement and General Release (“Separation Agreement”) with the Company and Alliance Healthcare Services, Inc., which became effective on April 20, 2022. Pursuant to the terms of the Separation Agreement, the Company agreed to pay Ms. Longmore-Grund severance pay equal to $1,095,0178.75, which was 18 months of her then-current annual base salary of $730,012.50, and an enhanced bonus of $930,765.95, which is one-and-one-half times of Ms. Longmore-Grund’s target bonus for her service to the Company in 2021 payable in bi-weekly instalments over an 18 month period.

The Separation Agreement is filed herewith as Exhibit 10.1, and is incorporated by reference herein.

Item 6. Exhibits


Exhibit Number		Description of Exhibit

10.1		Separation Agreement and General Release by and between Alliance HealthCare Services, Inc., Akumin Inc. and Rhonda Longmore-Grund, dated as of April 15, 2022

31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)

31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

32.1		Certification of the Chief Executive Officer and the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


AKUMIN INC.

By:		/s/ Riadh Zine
		Riadh Zine Chairman, Chief Executive Officer and Director

Date: May 10, 2022