The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the 45
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sections titled "Note Regarding Forward-Looking Statements" for a discussion of forward-looking statements as well as in Part I, Item 1A, "Risk Factors" for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Unless otherwise specified, the terms "we", "our", "us" and the "Company" refer to
Agiliti, Inc.and, where appropriate, its consolidated subsidiaries.
We believe we are one of the leading experts in the management, maintenance and mobilization of mission-critical, regulated, reusable medical devices. We offer healthcare providers a comprehensive suite of medical equipment management and service solutions that help reduce capital and operating expenses, optimize medical equipment utilization, reduce waste, enhance staff productivity and bolster patient safety.
We commenced operations in 1939, originally incorporated in
and reincorporated in
In our more than 80 years of experience ensuring healthcare providers have high-quality, expertly maintained equipment to serve their patients, we've built an at-scale, strong nationwide operating footprint. This service and logistics infrastructure positions us to reach customers across the entire healthcare continuum-from individual facilities to the largest and most complex healthcare systems. Likewise, our ability to rapidly mobilize, track, repair and redeploy equipment during times of peak need or emergent events has made us a service provider of choice for city, state and federal governments to manage emergency equipment stockpiles.
Trends and Uncertainties Affecting our Business
Our expected results may not be achieved and actual results may differ
materially from our expectations. This may be a result of various trends and
uncertainties, including, but not limited to:
? the status of the economy, including supply chain delays affecting our medical
equipment manufacturers and the labor shortage?
? the status of capital markets, including prevailing interest rates?
? changes in financing terms?
? fluctuating census and patient acuity;
promulgation of new safety laws and regulations, or changes in or
? re-interpretations of existing safety laws and regulations with respect to the
medical equipment our customers use;
? acquisitions, both the successful integration of recent acquisitions and
completion of future attractive acquisitions;
? re-negotiations of contracts critical to our revenue;
? changes in federal, state and local legislation, including healthcare and tax
? the duration, spread and severity of the COVID-19 outbreak.
We regularly monitor the economic and other factors listed above. We develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends.
Impact of COVID-19 on our Business
Health and Safety
From the earliest signs of the outbreak, we have taken proactive action to
protect the health and safety of our employees, customers, partners and
suppliers. We enacted safety measures in all of our sites, including
implementing social distancing protocols, requiring working from home for those
employees that do not need to be physically present to perform their work,
suspending travel, implementing temperature checks at the entrances to our
facilities, extensively and
46 Table of Contents frequently disinfecting our workspaces and providing masks to those employees who must be physically present. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders and business shutdowns. Measures providing for business shutdowns generally exclude certain essential services, and those essential services commonly include critical infrastructure and the businesses that support that critical infrastructure. While all of our facilities currently remain operational, these measures have impacted and may further impact our workforce and operations, as well as those of our customers, vendors and suppliers. In connection with the COVID-19 pandemic, we have experienced limited absenteeism from those employees who are required to be on-site to perform their jobs, and we do not currently expect that our operations will be adversely affected by significant absenteeism.
Although there is uncertainty related to the impact of the recent COVID-19, including new variants, on our future results, we believe our business model, our current cash reserves and available borrowings under our Revolving Credit Facility leave us well-positioned to manage our business through this crisis. We believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months and the foreseeable future. We continue to monitor the rapidly evolving situation and guidance from federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows
in the future. Principles of Consolidation The consolidated financial statements present the consolidated financial information for
Agilitiand its subsidiaries and the consolidated financial information for Agiliti Health, Inc.for the period of January 1 through January 3, 2019. Agilitiis the successor of Agiliti Health, Inc.for financial reporting purposes. In addition, in accordance with guidance issued by the Financial Accounting Standards Board, we have accounted for our equity investments in entities in which we are the primary beneficiary under the full consolidation method. All intercompany transactions and balances have been eliminated through consolidation. As the primary beneficiary, we consolidate the limited liability companies referred to in Note 13, Principles of Consolidation to our audited consolidated financial statements for the year ended December 31, 2021, as we effectively receive the majority of the benefits from such entities and we provide equipment lease guarantees for such entities.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make decisions that impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.
Some of our critical accounting policies require us to make difficult,
subjective or complex judgments or estimates. An accounting estimate is
considered to be critical if it meets both of the following criteria: (i) the
47 Table of Contents assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Our most critical accounting policies and estimates include the following:
? revenue recognition;
? fair value measurements in business combinations; and
? valuation of long-lived assets, including goodwill and definite-lived
intangible assets. Revenue Recognition
We recognize revenue when we satisfy performance obligations by transferring
promised goods or services to customers in an amount that reflects the
consideration we expect to receive in exchange for those goods or services.
Customer arrangements typically have multiple performance obligations to provide equipment solutions, clinical engineering and/or on-site equipment managed services on a per use and/or over time basis. Consideration paid by the customer for each performance obligation is billed within the month the service is performed, and contractual prices are established within our customer arrangements that are representative of the stand-alone selling price. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue. Our performance obligations that are satisfied at a point in time are recognized when the service is performed or equipment is delivered to the customer. For certain performance obligations satisfied over time, we use a straight-line method to recognize revenue ratably over the contract period, as this coincides with our stand-ready performance obligation under the contract. Business Combinations We account for the acquisition of a business in accordance with the accounting standards codification guidance for business combinations, whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition.
Goodwillrepresents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination. Assigning estimated fair values to the assets acquired and liabilities assumed requires the use of significant estimates, judgments, inputs and assumptions regarding the fair value of the assets and liabilities. Such significant estimates, judgments, inputs and assumptions may include, but would not be limited to, selection of an appropriate valuation model, applying an appropriate discount rate, assumptions related to projected financial information and estimates of customer attrition.
Recoverability and Valuation of Long-Lived Assets Including Goodwill and
Indefinite Lived Intangible Assets
For long-lived assets and definite lived intangible assets, impairment is evaluated when a triggering event is indicated. If there is an indication of impairment, an evaluation of undiscounted cash flow versus carrying value is conducted. If necessary, an impairment is measured based on the estimated fair value of the long-lived or amortizable asset in comparison to its carrying value. This evaluation is conducted at the lowest level of identifiable cash flows. Our amortizable intangible assets consist of customer relationships and non-compete agreements. For property and equipment, primarily movable medical equipment, we continuously monitor individual makes and models for potential triggering events such as product recalls or technological obsolescence. For goodwill we review for impairment annually at the reporting unit level and upon the occurrence of certain events that might indicate the asset may be impaired. A qualitative review is conducted to determine whether it is more likely than not that the fair value is less than its carrying amount. If it is determined that it is more likely than not that the carrying value is greater than the fair value of the asset, a quantitative impairment test is performed. We then review goodwill for impairment by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We operate under one reporting unit 48
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and do not aggregate any components into our one reporting unit. There are no known trends or uncertainties that we reasonably expect will have an unfavorable impact on revenue or income from operations. We have not performed a quantitative impairment test since
January 4, 2019, the date of the Business Combination, in which the balance sheet was fair valued.
EBITDA is defined as earnings attributable to
Agiliti, Inc.before interest expense, income taxes, depreciation and amortization. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is defined as EBITDA excluding non-cash share-based compensation expense, management fees and other non-recurring gains, expenses or losses, transaction costs, remeasurement of tax receivable agreement and loss on extinguishment of debt. In addition to using EBITDA and Adjusted EBITDA internally as measures of operational performance, we disclose them externally to assist analysts, investors and lenders in their comparisons of operational performance, valuation and debt capacity across companies with differing capital, tax and legal structures. We believe the investment community frequently uses EBITDA and Adjusted EBITDA in the evaluation of similarly situated companies. Adjusted EBITDA is also used by the Company as a factor to determine the total amount of incentive compensation to be awarded to executive officers and other employees. EBITDA and Adjusted EBITDA, however, are not measures of financial performance under GAAP and should not be considered as alternatives to, or more meaningful than, net income as measures of operating performance or to cash flows from operating, investing or financing activities or as measures of liquidity. Since EBITDA and Adjusted EBITDA are not measures determined in accordance with GAAP and are thus susceptible to varying interpretations and calculations, EBITDA and Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. EBITDA and Adjusted EBITDA do not represent amounts of funds that are available for management's discretionary use. EBITDA and Adjusted EBITDA presented below may not be the same as EBITDA and Adjusted EBITDA calculations as defined in the First Lien Credit Facilities. 49 Table of Contents Results of Operations
The following discussion addresses:
? Our financial condition as of
? the results of operations for the years ended
In accordance with Item 303 of Regulation S-K, the Company has excluded the
discussion of 2019 results in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, as this discussion can be found
? in our Registration Statement on Form S-1, filed with the
333-253947, under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”.Results of Operations for the year ended
The following table presents our results of operations for the periods indicated: Year Ended December 31, Change (in thousands) 2021 2020 $ % (Successor) (Successor) Consolidated Statement of % of total % of total Operations Data: revenue revenue Revenue
$ 1,038,690100.0 % $ 773,312100.0 % $ 265,37834.3 % Cost of revenue 614,073 59.1 486,965 63.0 127,108 26.1 Gross margin 424,617 40.9 286,347 37.0 138,270 48.3 Selling, general and administrative 320,387 30.8 250,289 32.4 70,098 28.0 Operating income 104,230 10.1 36,058 4.6 68,172 189.1 Loss on the extinguishment of debt 10,116 1.0 - - 10,116 - Interest expense 53,514 5.2 61,530 8.0 (8,016) (13.0) Income (loss) before income taxes and noncontrolling interest 40,600 3.9 (25,472) (3.4) 76,188 * Income tax expense (benefit) 16,433 1.6 (3,234) (0.4) 19,667 * Consolidated net income (loss) $ 24,1672.3 (22,238)
$ 56,521* * not meaningful Total Revenue The following table presents revenue by service solution for the years ended December 31, 2021and 2020: Year Ended December 31, Change (in thousands) 2021 2020 $ % (Successor) (Successor) Disaggregated Revenue: % of total % of total revenue revenue Equipment Solutions $ 352,09433.9 % $ 296,26738.3 % $ 55,82718.8 % Clinical Engineering 384,147 37.0 256,874 33.2 127,273 49.5 Onsite Managed Services 302,449 29.1 220,171 28.5 82,278 37.4 Total revenue $ 1,038,690100.0 $ 773,312100.0 $ 265,37834.3 Total revenue for the year ended December 31, 2021was $1,038.7 million, compared with $773.3 millionfor the year ended December 31, 2020, an increase of $265.4 millionor 34.3%. Equipment Solutions revenue increased 18.8% primarily driven by the Sizewise acquisition completed on October 1, 2021which generated 42.0 million in revenue and the increased demand for surgical equipment procedures. Although difficult to determine, we estimate that the
overall 50 Table of Contents favorable impact from COVID-19 within Equipment Solutions was
$30 millionto $40 millionfor the year ended December 31, 2021, and $30 millionto $40 millionfor the year ended December 31, 2020. Clinical Engineering revenue increased 49.5% due to continued strong growth as a result of the Northfieldacquisition completed on March 19, 2021and supplemental clinical engineering work related to the government contract entered into in the third quarter of 2020. OnsiteManaged Services revenue increased 37.4% with the majority of growth coming the government contract related to the comprehensive maintenance and management services of medical ventilator equipment.
Cost of Revenue
Total cost of revenue for the year ended
December 31, 2021was $614.1 millioncompared to $487.0 millionfor the year ended December 31, 2020, an increase of $127.1 millionor 26.1 %. On a percentage of revenue basis, cost of revenue decreased from 63.0% of revenue in 2020 to 59.1% in 2021. The decrease as a percentage of revenue was driven primarily from revenue growth as we were able to leverage our fixed cost infrastructure resulting in our expenses growing at a lower rate than revenue growth.
Total gross margin for the year ended
December 31, 2021was $424.6 million, or 40.9% of total revenue compared to $286.3 million, or 37.0% of total revenue for the year ended December 31, 2020, an increase of $138.3 millionor 48.3%. The increase in gross margin as a percentage of revenue was primarily impacted by favorable leverage from volume growth.
Selling, General and Administrative
Selling, general, and administrative expenses for the year ended
December 31, 2021increased by $70.1 million, or 28.0%, to $320.4 millionas compared to the same period of 2020. The increase was primarily due to the increases in costs and amortization expense related to the Northfieldacquisition, the Sizewise acquisition, the buyout fee related to the termination of an advisory services agreement (the "Advisory Services Agreement") with Agiliti Holdco, Inc., Agiliti Health, Inc.and THL Managers VIII, LLC(the "Advisor") of $7.0 millionand an increase in payroll related costs associated with the growth of our business. Selling, general and administrative expense as a percentage of total revenue was 30.8% and 32.4 % for the years ended December 31, 2021and 2020, respectively.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the year ended
December 31, 2021consisted of the write-off of the unamortized deferred financing cost and debt discount of $7.4 millionand an additional 1% redemption price or $2.4 millionrelated to the repayment of our Second Lien Term Loan in April 2021with proceeds from the IPO and the write-off of the unamortized deferred financing cost of $0.3 millionrelated to the amendment of our Revolving Credit Facility.
Interest expense decreased
repayment of our Second Lien Term Loan with proceeds from the IPO.
Income taxes were an expense of
$16.4 millionand a benefit of $3.2 millionfor the years ended December 31, 2021and 2020, respectively. The income tax expense for year ended December 31, 2021is primarily due to the tax-effect of pre-tax income from operations plus deductions for share-based compensation, non-deductible transaction costs, nondeductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m), a tax rate change and the remeasurement of the tax receivable agreement. The tax benefit for the year ended December 31, 2020was primarily due to the tax-effect of pre-tax loss from operations for the period, amended state income tax filings and the remeasurement of the tax receivable agreement. 51
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Consolidated Net Income (Loss)
Consolidated net income was
$24.2for year ended December 31, 2021. Consolidated net loss was $22.2 millionfor the year ended December 31, 2020. The increase in net income was impacted primarily by the increase in revenue.
Adjusted EBITDA was
A reconciliation of net income (loss) attributable to
Agiliti, Inc.to Adjusted EBITDA is included below: Year Ended December 31, (in thousands) 2021 2020 (Successor) (Successor) Net income (loss) attributable to Agiliti, Inc.and Subsidiaries $ 24,006$
Interest expense 53,514
Income tax expense (benefit) 16,433
Depreciation and amortization 187,963
Non-cash share-based compensation expense 13,960
Management and other expenses (1) 7,926
Transaction costs (2) 12,222
Tax receivable agreement remeasurement 4,542
Loss on extinguishment of debt (3) 10,116
- Adjusted EBITDA
$ 330,682 $ 234,201Other Financial Data:
Net cash provided by operating activities
Net cash used in investing activities (734,134)
Net cash provided by financing activities 391,637
Management and other expenses represent (a) management fees and buyout
(1) termination fee under the Advisory Services Agreement, which was terminated
in connection with the initial public offering and (b) employee related non-recurring expenses
Transaction costs represent costs associated with potential and completed
(2) mergers and acquisitions and are primarily related to the
Sizewise acquisitions for the year ended
Loss on extinguishment of debt consists of the write-off of the unamortized
deferred financing costs and debt discount and an additional 1% redemption
(3) price related to the repayment of our Second Lien Term Loan and the write-off
of the unamortized deferred financing cost related to the amendment of our
Revolving Credit Facility. 52 Table of Contents
Liquidity and Capital Resources
Our principal sources of liquidity are expected to be cash flows from operating activities and borrowings under our Revolving Credit Facility, which provides for loans in an amount of up to
$250 million. Our principal uses of liquidity will be to fund capital expenditures related to purchases of medical equipment, provide working capital, meet debt service requirements and finance our strategic plans. We believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months and the foreseeable future. If new financing is necessary, there can be no assurance that any such financing would be available on commercially acceptable terms, or at all. To date, we have not experienced difficulty accessing the credit market; however, future volatility in the credit market may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the credit market could be limited at a time when we would like, or need to do so, which could have an adverse impact on our ability to refinance debt and/or react to changing economic and business conditions. Net cash provided by operating activities was $210.3 millionand $137.9 millionfor the years ended December 31, 2021and 2020, respectively. Net cash provided by operating activities during 2021 compared to 2020 was favorably impacted by our improved financial performance. Partially offsetting the increase in net cash provided by operating activities was the use of cash to pay accrued compensation related to the strong 2020 operating results, payments of over $15 millionon the tax receivable agreement and payments related to the deferred payroll tax provided for by part of the CARES Act. Our improved financial performance in 2021 was driven by the 34.3% increase in revenue. Net cash used in investing activities was $734.1 millionand $151.7 millionfor the years ended December 31, 2021and 2020, respectively. The increase in net cash used in investing activities during 2021 was primarily due to the Northfield Acquisition completed in March 2021and the Sizewise acquisition completed in October 2021. Net cash provided by financing activities was $391.6 millionand 220.3 million, the years ended December 31, 2021and 2020, respectively. The increase in net cash provided by financing activities during 2021 was primarily due to proceeds from issuance of common stock from the IPO. Restricted stock units and performance restricted stock units are not taxable to the employee until they have settled and underlying shares have been delivered. In connection with the IPO, settlement of vested restricted stock unit and performance restricted stock unit awards granted prior to 2021 were deferred until one year following our IPO as permitted under the 2018 Plan and in accordance with the terms of the grant agreements. As a result, shares underlying these vested restricted stock unit and performance restricted stock unit awards will be delivered on April 23, 2022and will become taxable to the employees on that date. Upon settlement, the Company will reduce the number of shares that the employee is entitled to receive to cover the estimated income taxes and other payroll taxes. The Company will then pay the outstanding tax liability. The amount of the tax liability is dependent upon the share price at the date of settlement and, although difficult to quantify, is currently estimated to be between $15 millionand $20 million. This liability will be paid in the second quarter of 2022.
First Lien Credit Facilities
January 4, 2019, in connection with and substantially concurrent with the closing of the business combination, Agiliti Health, Inc.entered into a credit agreement (the "First Lien Credit Facilities") with JPMorgan Chase Bank, N.A. as administrative agent, collateral agent, and letter of credit issuer, Agiliti Holdco, Inc., certain subsidiaries of Agiliti Health, Inc.acting as guarantors (the "Guarantors"), and the lenders from time to time party thereto. The First Lien Credit Facilities originally provided for a seven-year senior secured delayed draw term loan facility in an aggregate principal amount of $660 million(the "First Lien Term Loan") and a five-year senior secured revolving credit facility in an aggregate principal amount of $150 million(the "Revolving Loan"). In February 2020, we increased 53
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our principal First Lien Term Loan facility by
$125 millionand the revolving loan facility by $40 million. In October 2021and April 2021, we further increased our principal First Lien Term Loan facility by $150 millionand $200 million, respectively. All terms to the First Lien Term Loan remained the same, except these additional loans are subject to an interest rate floor of 0.75%. The First Lien Term Loan amortizes in equal quarterly installments, commencing on June 30, 2019, in an aggregate annual amount equal to 1.00% of the original principal amount of such term loan, with the balance due and payable at maturity unless prepaid prior thereto. Borrowings under the First Lien Credit Facilities bear interest, at Agiliti Health, Inc.'soption, at a rate per annum equal to an applicable margin (the "Applicable Margin") over either (a) a base rate determined by reference to the highest of (1) the prime lending rate published in the Wall Street Journal, (2) the federal funds effective rate plus 1/2 of 1% and (3) the LIBOR rate for a one-month interest period, plus 1.00%, or (b) a LIBOR rate determined by reference to the LIBOR rate as set forth by the ICE Benchmark Administrationfor the interest period relevant to such borrowing, in each case, subject to interest rate floors. The First Lien Credit Facilities contain a number of negative covenants that, among other things, restrict, subject to certain exceptions, the ability of Agiliti Health, Inc.and the guarantors thereunder to incur additional indebtedness and guarantee indebtedness; create or incur liens; engage in mergers or consolidations; sell, transfer or otherwise dispose of assets; pay dividends and distributions or repurchase capital stock; prepay, redeem or repurchase certain indebtedness; make investments, loans and advances; enter into agreements which limit the ability of Agiliti Health, Inc.and the guarantors thereunder to incur liens on assets; and enter into amendments to certain junior lien and subordinated indebtedness in a manner materially adverse to the lenders. Solely with respect to the Revolving Loan, commencing with the fiscal quarter ending June 30, 2019, the Company is required to maintain a leverage ratio not to exceed 7:1 when the aggregate principal amount of outstanding Revolving Loans and drawn Letters of Credit, on the last day of the most recent fiscal quarter, exceeds 35% of the total revolving credit commitments. On April 27, 2021, the Company entered into Amendment No. 4 (the "Amendment") to the First Lien Credit Agreement. Pursuant to the Amendment, (i) the existing Revolving Loan was terminated and a new revolving credit facility was incurred under the First Lien Credit Agreement in an aggregate principle amount of $250.0 million(the "New Revolving Credit Facility"); (ii) the interest rate margin for borrowings under the New Revolving Credit Facility was set at LIBOR plus 2.75%, with stepdowns to (A) LIBOR plus 2.50% if the first lien leverage ratio (as calculated thereunder) is less than or equal to 3.75:1.00 and (B) LIBOR plus 2.25% if the first lien leverage ratio is less than or equal to 3.25:1.00; (iii) the commitment fee on the average daily undrawn portion of the New Revolving Credit Facility was reduced to 0.3750% per annum if the first lien leverage ratio is greater than 3.25:1.00 and 0.250% if the first lien leverage ratio is less than or equal to 3.25:1.00 and (iv) borrowings under the New Revolving Credit Facility mature the earlier of (x) six months prior to the then-existing final maturity date of the related term loans and (y) January 4, 2026.
In connection with the Amendment above, the Company incurred loss on
extinguishment of debt of
deferred financing cost on the revolving credit facility.
October 1, 2021, in connection with the closing of Sizewise Rentals, LLC("Sizewise"), we entered into Amendment No. 5 to the First Lien CreditAgreement. This amendment provides for a $150.0 millionincremental term loan facility, the proceeds of which were used, together with cash on hand, to finance the Sizewise acquisition. This incremental term loan facility has terms identical to those applicable to the Initial Term Loans and the February 2020Amendment (each as defined in the First Lien Credit Agreement), including as to pricing and interest, tenor, rights of payment and prepayment and right of security.
Except as described above, the Amendment has substantially the same terms as the
First Lien Credit Agreement, and amendments thereto, including customary
covenants and events of default.
54 Table of Contents Second Lien Credit Facilities
The Second Lien Term Loan provided for an eight-year term loan facility in an aggregate principal amount of
$240 million(the "Second Lien Term Loan"). The proceeds of the Second Lien Term Loan were drawn on November 15, 2019and used to return capital to shareholders. Borrowings under the Second Lien Term Loan bore interest, at Agiliti Health, Inc.'soption, at a rate per annum equal to an applicable margin over either (a) a base rate determined by reference to the highest of (1) the prime lending rate published in the Wall Street Journal, (2) the federal funds effective rate plus 1/2 of 1% and (3) the LIBOR rate for a one-month interest period, plus 1.00%, or (b) a LIBOR rate determined by reference to the LIBOR rate as set forth by the ICE Benchmark Administrationfor the interest period relevant to such borrowing, in each case, subject to interest rate floors. The interest rate on the Second Lien Term Loan was LIBOR rate plus 7.75% at the end of the first quarter. We used the proceeds from the IPO to repay $240.0 millionin aggregate principal amount of our Second Lien Term Loan, $80.0 millionof our First Lien Term Loan and $10.0 millionof our Revolving Loan facility. In connection with the repayment of our Second Lien Term Loan in April 2021, we incurred a loss on extinguishment of debt of $9.8 millionwhich consisted of the write-off of unamortized deferred financing costs and debt discount of $7.4 millionand an additional 1% redemption price or $2.4 million
Interest Rates and Fees
Borrowings under the First Lien Credit Agreement bear interest at a rate per annum, at the borrower's option, equal to an applicable margin, plus (a) a base rate determined by reference to the highest of (i) the prime lending rate published in
The Wall Street Journal, (ii) the federal funds rate in effect on such day plus 1/2 of 1.00% and (iii) the LIBOR rate for a one-month interest period on such day plus 1.00% or (b) a LIBOR rate determined by reference to the LIBOR rate as set forth by the ICE Benchmark Administrationfor the interest period relevant to such borrowing subject to a LIBOR floor of 0.00%.
The applicable margin for borrowings under the First Lien Credit Agreement is:
(a) (1) prior to
(2) on or after
greater than 3.75 to 1.00),
(i) 2.00% for alternate base rate borrowings and
(ii) 3.00% for Eurodollar borrowings and
(b) on or after
than or equal to 3.75 to 1.00), subject
to step downs to
(i) 1.75% for alternate base rate borrowings and
(ii) 2.75% for Eurodollar borrowings.
Under the First Lien Credit Agreement, the borrower is also required to pay a
commitment fee on the average daily undrawn portion of the Revolving Credit
(i) 0.50% per annum if the first lien leverage ratio is greater than
(ii) 0.375% per annum if the first lien leverage ratio is less than or equal to
4.00:1.00 but greater than
(iii) 0.250% if the first lien leverage ratio is less than or equal to
3.50:1.00, and a letter of credit
participation fee equal to the applicable margin for Eurodollar revolving loans
on the actual daily
amount of the letter of credit exposure
Interest Rate Swap
May 2020, we entered into an interest rate swap agreement for a total notional amount of $500.0 million, which has the effect of converting a portion of our First Lien Term Loan to fixed interest rates. The effective date for the interest rate swap agreement was June 2020and the expiration date is June
2023. 55 Table of Contents The interest rate swap agreement qualifies for cash flow hedge accounting under ASC Topic 815, "Derivatives and Hedging." Both at inception and on an on-going basis, we must perform an effectiveness test. The fair value of the interest rate swap agreement at
December 31, 2021was $2.1 million, of which $0.4 millionis included in other current assets and $1.7 millionis included in other long-term assets on our consolidated balance sheet. The change in fair value was recorded as a component of accumulated other comprehensive loss on our consolidated balance sheet, net of tax, since the instrument was determined to be an effective hedge at December 31, 2021. We have not recorded any amounts due to ineffectiveness for any periods presented.
As a result of our interest rate swap agreement, we expect the effective
interest rate on
to be 0.3396% and 0.3290%, respectively, plus the Applicable Margin through
The following table is a summary, as of
December 31, 2021, of our future contractual obligations: Payments due by period 2027 and (in thousands) Total 2022 2023 - 2024 2025 - 2026 beyond Other financial data:
Long-term debt principal obligations
$ 1,183,071 $ 9,398 $ 18,796 $ 1,154,877$ - Interest on notes 141,528 35,695 70,580 35,253 - Principal and interest on finance leases 28,789 8,746 10,401 5,112 4,530 Principal and interest on operating leases 89,898 24,399
38,959 24,883 1,657 Pension obligations (1) 650 650 - - - Tax receivable obligations 39,880 29,187 10,693 - -
Unrecognized tax positions (2) 10,111 - - - - Total contractual obligations
$ 1,493,927 $ 108,075 $ 149,429 $ 1,220,125 $ 6,187Other commercial commitments: Stand by letter of credit $ 8,005$ - $ - $ - $ -
While our net pension liability at
to changing actuarial and market conditions.
(2) We cannot reasonably determine the exact timing of payments related to our
unrecognized tax positions.
Based on the level of operating performance in 2021, we believe our cash from operations and additional borrowings under our Revolving Credit Facility will meet our liquidity needs for the foreseeable future, exclusive of any borrowings that we may make to finance potential acquisitions. However, if during that period or thereafter we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, our business could be adversely affected.
Our levels of borrowing are further restricted by the financial covenants set
forth in our Revolving Credit Facility.
Our expansion and acquisition strategy may require substantial capital.
Sufficient funding for future acquisitions may not be available under our
Revolving Credit Facility, and we may not be able to raise any necessary
additional funds through bank financing or the issuance of equity or debt
securities on terms acceptable to us, if at all.
Recent Accounting Pronouncements
Refer to Note 2 – “Summary of Significant Accounting Policies,” of our
consolidated financial statements contained in this report for a description of
recently issued accounting pronouncements that are applicable to our business.
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