10-Q 1 agti-20220331x10q.htm 10-Q
http://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2021-01-31#LongTermDebtAndCapitalLeaseObligationsCurrenthttp://fasb.org/us-gaap/2021-01-31#LongTermDebtAndCapitalLeaseObligationsCurrenthttp://fasb.org/us-gaap/2021-01-31#LongTermDebtAndCapitalLeaseObligationshttp://fasb.org/us-gaap/2021-01-31#LongTermDebtAndCapitalLeaseObligationsAGILITI, INC. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2022

or

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                    to                  

Commission File Number: 001-40361

AGILITI, INC.

(Exact name of registrant as specified in its charter)

Delaware

83-1608463

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

11095 Viking Drive

Eden Prairie, Minnesota 55344

(Address of principal executive offices, including zip code)

(952) 893-3200

(Registrant’s telephone number, including area code)

6625 West 78th Street, Suite 300

Minneapolis, MN 55439

(Former address of principal executive offices)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.0001

AGTI

The New York 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, 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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 Exchange Act). Yes    No 

Number of shares of common stock outstanding as of April 29, 2022:   132,798,787

Agiliti, Inc. and Subsidiaries

Table of Contents

Page

PART I - FINANCIAL INFORMATION

1

ITEM 1.

Condensed Consolidated Financial Statements (unaudited)

1

Condensed Consolidated Balance Sheets —March 31, 2022 and December 31, 2021

1

Condensed Consolidated Statements of Operations—Three months ended March 31, 2022 and 2021

2

Condensed Consolidated Statements of Comprehensive Income —Three months ended March 31, 2022 and 2021

3

Condensed Consolidated Statements of Equity — Three months ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2022 and 2021

5

Notes to Condensed Consolidated Financial Statements

6

ITEM 2.

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

20

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

26

ITEM 4.

Controls and Procedures

27

PART II - OTHER INFORMATION

27

ITEM 1.

Legal Proceedings

27

ITEM 1A.

Risk Factors

27

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

ITEM 5.

Other Information

27

ITEM 6.

Exhibits

28

Signatures

29

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements — Unaudited

Agiliti, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)

    

March 31,

    

December 31,

2022

2021

Assets

Current assets:

Cash and cash equivalents

$

52,103

$

74,325

Accounts receivable, less allowance for credit losses of $3,006 at March 31, 2022 and $2,902 at December 31, 2021

213,547

209,308

Inventories

 

55,954

 

55,307

Prepaid expenses

 

14,614

 

18,549

Other current assets

 

6,453

 

395

Total current assets

 

342,671

 

357,884

Property and equipment, net

 

256,667

 

258,370

Goodwill

 

1,213,121

 

1,213,121

Operating lease right-of-use assets

85,960

80,676

Other intangibles, net

 

551,996

 

573,159

Other

 

36,846

 

32,537

Total assets

$

2,487,261

$

2,515,747

Liabilities and Equity

Current liabilities:

Current portion of long-term debt

$

17,693

$

17,534

Current portion of operating lease liability

22,883

22,826

Current portion of obligation under tax receivable agreement

29,397

29,187

Accounts payable

 

57,454

 

53,851

Accrued compensation

 

36,396

 

47,951

Accrued interest

 

3,269

 

3,473

Deferred revenue

6,918

5,808

Other accrued expenses

 

29,539

 

27,900

Total current liabilities

 

203,549

 

208,530

Long-term debt, less current portion

 

1,103,785

 

1,174,968

Obligation under tax receivable agreement, pension and other long-term liabilities

 

31,196

 

29,629

Operating lease liability, less current portion

73,142

63,241

Deferred income taxes, net

 

149,571

 

143,307

Commitments and contingencies (Note 11)

Equity:

Common stock, $0.0001 par value; 350,000,000 shares authorized; 131,476,924 and 130,950,061 shares issued and outstanding at March 31, 2022 and December 31, 2021

 

13

 

13

Additional paid-in capital

 

943,517

 

938,888

Accumulated deficit

 

(24,594)

 

(44,486)

Accumulated other comprehensive income

 

6,966

 

1,537

Total Agiliti, Inc. and Subsidiaries equity

 

925,902

 

895,952

Noncontrolling interest

 

116

 

120

Total equity

 

926,018

 

896,072

Total liabilities and equity

$

2,487,261

$

2,515,747

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

1

Agiliti, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except share and per share information)

(unaudited)

Three Months Ended

March 31,

    

2022

    

2021

Revenue

$

294,444

$

235,245

Cost of revenue

 

170,817

 

133,922

Gross margin

 

123,627

 

101,323

Selling, general and administrative expense

 

86,138

 

69,224

Operating income

 

37,489

 

32,099

Interest expense

 

10,664

 

18,021

Income before income taxes and noncontrolling interest

 

26,825

 

14,078

Income tax expense

 

6,905

 

4,495

Consolidated net income

 

19,920

 

9,583

Net income attributable to noncontrolling interest

 

28

 

30

Net income attributable to Agiliti, Inc. and Subsidiaries

$

19,892

$

9,553

Basic income per share

$

0.15

$

0.10

Diluted income per share

$

0.14

$

0.09

Weighted-average common shares outstanding:

Basic

131,148,108

99,103,933

Diluted

139,426,334

106,090,703

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

2

Agiliti, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

Three Months Ended

March 31,

    

2022

    

2021

Consolidated net income

$

19,920

$

9,583

Other comprehensive income:

Gain on minimum pension liability, net of tax of $0 and $19

55

Gain on cash flow hedge, net of tax of $1,866 and $271

5,429

796

Total other comprehensive income

 

5,429

 

851

Comprehensive income

 

25,349

 

10,434

Comprehensive income attributable to noncontrolling interest

 

28

 

30

Comprehensive income attributable to Agiliti, Inc. and Subsidiaries

$

25,321

$

10,404

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

Agiliti, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(in thousands)

(unaudited)

    

    

    

    

    

    

    

Accumulated

    

Total

    

    

    

    

Additional

Other

Agiliti, Inc.

Total

Common

Paid-in

Accumulated

Comprehensive

and

Noncontrolling

Equity

Stock

Capital

Deficit

Income (Loss)

Subsidiaries

Interests

(Deficit)

Balance at December 31, 2021

$

13

$

938,888

$

(44,486)

$

1,537

$

895,952

$

120

$

896,072

Net income

 

 

 

19,892

 

 

19,892

 

28

 

19,920

Other comprehensive income

 

 

 

 

5,429

 

5,429

 

 

5,429

Share-based compensation expense

4,425

 

 

4,425

 

 

4,425

Stock options exercised

978

 

 

978

 

 

978

Shares forfeited for taxes

(792)

(792)

(792)

Dividend forfeited, net of payable

18

 

 

18

 

 

18

Cash distributions to noncontrolling interests

 

 

 

 

 

 

(32)

 

(32)

Balance at March 31, 2022

$

13

$

943,517

$

(24,594)

$

6,966

$

925,902

$

116

$

926,018

Balance at December 31, 2020

$

10

$

513,902

$

(68,492)

$

(3,619)

$

441,801

$

144

$

441,945

Net income

 

 

 

9,553

 

 

9,553

 

30

 

9,583

Other comprehensive income

 

 

 

 

851

 

851

 

 

851

Proceeds from issuance of common stock

11,300

 

 

11,300

 

 

11,300

Share-based compensation expense

2,412

 

 

2,412

 

 

2,412

Dividend forfeited, net of payable

12

 

 

12

 

 

12

Cash distributions to noncontrolling interests

 

 

 

 

 

 

(50)

 

(50)

Balance at March 31, 2021

$

10

$

527,626

$

(58,939)

$

(2,768)

$

465,929

$

124

$

466,053

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

Agiliti, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended

March 31,

    

2022

    

2021

Cash flows from operating activities:

Consolidated net income

$

19,920

$

9,583

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation

 

22,498

 

26,217

Amortization

 

23,358

 

18,399

Remeasurement of tax receivable agreement

 

4,148

Provision for credit (gains) losses

 

(27)

 

18

Provision for inventory obsolescence

 

325

 

1,532

Non-cash share-based compensation expense

 

4,637

 

2,412

Gain on sales and disposals of equipment

 

(593)

 

(647)

Deferred income taxes

 

4,398

 

3,932

Changes in operating assets and liabilities:

Accounts receivable

 

(6,212)

 

2,898

Inventories

 

(972)

 

3,641

Other operating assets

 

1,132

 

226

Accounts payable

 

5,351

 

1,361

Other operating liabilities

 

(6,691)

 

(10,811)

Net cash provided by operating activities

 

67,124

 

62,909

Cash flows from investing activities:

Medical equipment purchases

 

(10,005)

 

(4,415)

Property and office equipment purchases

 

(5,215)

 

(3,915)

Proceeds from disposition of property and equipment

 

644

 

1,003

Acquisitions, net of cash acquired

 

(450,198)

Net cash used in investing activities

 

(14,576)

 

(457,525)

Cash flows from financing activities:

Proceeds under revolver

 

10,000

Proceeds under term loan

 

198,052

Payments under term loan

(71,474)

 

(2,840)

Payments of principal under finance lease liability

 

(2,223)

 

(2,051)

Payments under tax receivable agreement

 

(748)

Distributions to noncontrolling interests

 

(32)

 

(50)

Proceeds from exercise of stock options

978

 

Dividend and equity distribution payment

(906)

 

(924)

Shares forfeited for taxes

(792)

 

Payments of contingent consideration

(321)

 

Net cash provided by (used in) financing activities

 

(74,770)

 

201,439

Net change in cash and cash equivalents

 

(22,222)

 

(193,177)

Cash and cash equivalents at the beginning of period

 

74,325

 

206,505

Cash and cash equivalents at the end of period

$

52,103

$

13,328

Supplemental cash flow information:

Interest paid

$

9,523

$

19,746

Income taxes (refund) paid

 

604

 

(715)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5

Agiliti, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

Description of Business

Agiliti, Inc. and its consolidated subsidiaries (Federal Street Acquisition Corp (“FSAC”), Agiliti Holdco, Inc. and Agiliti Health, Inc. and subsidiaries (“we”, “our”, “us”, the “Company” or “Agiliti”)) is a nationwide provider of healthcare technology management and service solutions to the United States healthcare industry. Agiliti, Inc. owns 100% of FSAC. FSAC owns 100% of Agiliti Holdco, Inc. Agiliti Holdco, Inc. owns 100% of Agiliti Health, Inc. Agiliti Health, Inc. owns 100% of Agiliti Surgical, Inc., Agiliti Imaging, Inc., Agiliti Surgical Equipment Repair, Inc. (formerly known as Northfield Medical, Inc.) and Sizewise Rentals, LLC. Agiliti Health, Inc. and its subsidiaries are the only entities with operations. All other entities have no material assets, liabilities, cash flows or operations other than their investment and ownership of Agiliti Health, Inc. and subsidiaries.

Initial Public Offering

On April 22, 2021, our registration statement on Form S-1 (File No. 333-253947) related to our initial public offering (“IPO”) was declared effective by the SEC, and our common stock began trading on the New York Stock Exchange (“NYSE”) on April 23, 2021. Our IPO closed on April 27, 2021.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared by the Company without audit. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto in the Company’s Annual report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022 (“2021 Form 10-K Report”).

The interim condensed consolidated financial statements presented herein as of March 31, 2022, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income, equity and cash flows for the periods presented. These adjustments are all of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year.

We are required to make estimates and assumptions about future events in preparing condensed consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the amounts of assets, liabilities, revenue and expenses at the date of the unaudited condensed consolidated financial statements. While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events are made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited condensed consolidated financial statements.

A description of our significant accounting policies is included in the audited consolidated financial statements. There have been no material changes to these policies for the quarter ended March 31, 2022.

6

2.Recent Accounting Pronouncements

Standards Adopted

No recent accounting pronouncements have been issued or adopted since those discussed in the 2021 Form 10-K Report that are of material significance, or have potential material significance, to the Company.

Standards Not Yet Adopted

In October 2021, the FASB issued ASU No. 2021-08 Business Combinations (Topic 805)-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 improves the accounting for acquired revenue contracts with customers in a business combination. The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted. We will continue to evaluate ASU 2021-08, but do not expect the adoption will have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU may be applied through December 31, 2022. We will continue to evaluate the phase out of LIBOR but do not expect the adoption will have a material impact on our consolidated financial statements.

3.Revenue Recognition

Customer arrangements typically have multiple performance obligations to provide equipment solutions, clinical engineering and/or onsite equipment managed services on a per use and/or over time basis. Contractual prices are established within our customer arrangements that are representative of stand-alone selling prices. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The Company’s 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 performance obligations satisfied over time, the Company uses a straight-line method to recognize revenue ratably over the contract period, as this coincides with the Company’s performance under the contract.

In the following table, revenue is disaggregated by service solution:

Three Months Ended

March 31,

(in thousands)

    

2022

    

2021

Equipment Solutions

$

121,855

$

82,471

Clinical Engineering

102,799

75,106

Onsite Managed Services

69,790

77,668

Total revenue

$

294,444

$

235,245

The Company capitalizes contract costs incurred in obtaining new contracts. The contract asset included in other long-term assets in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 was $16.8 and $15.9 million, respectively. Capitalized costs are amortized over the expected life of the related contracts, which is estimated to be five years.

The Company had a balance of $6.9 and $5.8 million of deferred revenue as of March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022, $1.0 million of revenue was recognized that was included in deferred revenue at the beginning of the period.

7

4.Acquisitions

On October 1, 2021, we completed a stock purchase agreement to purchase all of the outstanding capital stock of Sizewise Rentals, LLC (“Sizewise”), a privately held manufacturer and distributor of specialty patient handling equipment, for a total consideration of approximately $234.8 million (“Sizewise Acquisition”). The results of Sizewise’s operations have been included in the consolidated financial statements since October 1, 2021.

The following summarizes the fair values of assets acquired and liabilities assumed at the date of the Sizewise Acquisition within our consolidated balance sheet as of December 31, 2021:

(in thousands)

    

    

Cash

$

9,977

Accounts receivable

31,005

Inventories

27,911

Other current assets

2,968

Property and equipment

59,042

Goodwill

87,867

Operating lease right-of-use assets

16,754

Other intangibles

67,700

Other long-term assets

10,368

Accounts payable

(3,362)

Accrued compensation

(12,576)

Other accrued expenses

(4,525)

Operating lease liability

(16,953)

Other long-term liabilities

(9,924)

Deferred income taxes

(31,470)

Total purchase price

$

234,782

On March 19, 2021, we completed a stock purchase agreement to purchase all of the outstanding capital stock of Northfield Medical, Inc. (“Northfield”), a company specializing in the service and repair of medical equipment and instruments for a total consideration of approximately $472.3 million (“Northfield Acquisition”). The consideration consisted of $461.0 million of cash paid and $11.3 million in issuance of 752,328 shares of common stock. The results of Northfield’s operations have been included in the consolidated financial statements since March 19, 2021. During the year ended December 31, 2021, adjustments affecting the fair values of assets acquired and liabilities assumed decreased accounts receivable $0.2 million, increased goodwill $1.3 million, increased accounts payable $0.1 million, and increased deferred income taxes $1.0 million. All adjustments net to zero.

8

The following summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition within our consolidated balance sheet as of December 31, 2021:

(in thousands)

    

    

Cash

$

10,767

Accounts receivable

16,786

Inventories

5,810

Other current assets

502

Property and equipment

11,713

Goodwill

306,678

Operating lease right-of-use assets

4,815

Other intangibles

183,700

Accounts payable

(7,412)

Accrued compensation

(7,948)

Other accrued expenses

(9,620)

Finance lease liability

(2,340)

Operating lease liability

(5,025)

Other long-term liabilities

(837)

Deferred income taxes

(35,324)

Total purchase price

$

472,265

The following unaudited pro forma consolidated results of operations assume the Sizewise and Northfield acquisitions had occurred on January 1, 2021. The unaudited pro forma consolidated financial information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisitions had actually closed on that date, nor the results that may be obtained in the future:

Three Months Ended

March 31,

(unaudited, in thousands)

    

2022

    

2021

Revenue

$

294,444

$

301,530

Net income attributable to Agiliti, Inc. and Subsidiaries

 

19,892

12,422

Included in the determination of pro forma net income for the three months ended March 31, 2021 are pro forma charges for various purchase accounting adjustments. These pro forma adjustments included depreciation and amortization of assets acquired and interest expense on additional debt to finance the acquisition. Income taxes are provided at the estimated statutory rate. Revenue and net income for the three months ended March 31, 2022 are as reported.

9

5.Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are summarized in the following tables by type of inputs applicable to the fair value measurements:

Fair Value at March 31, 2022

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Deferred compensation assets

$

2,416

$

$

$

2,416

Interest rate swap

9,389

9,389

Total Assets

$

2,416

$

9,389

$

$

11,805

Liabilities:

Obligation under tax receivable agreement

40,090

40,090

Deferred compensation liabilities

2,416

2,416

Total Liabilities

$

2,416

$

$

40,090

$

42,506

Fair Value at December 31, 2021

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Deferred compensation assets

$

2,452

$

$

$

2,452

Interest rate swap

2,093

2,093

Total Assets

$

2,452

$

2,093

$

$

4,545

Liabilities:

Contingent consideration

$

$

$

500

$

500

Obligation under tax receivable agreement

39,880

39,880

Deferred compensation liabilities

2,452

2,452

Total Liabilities

$

2,452

$

$

40,380

$

42,832

A description of the inputs used in the valuation of assets and liabilities is summarized as follows:

Level 1 — Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of non-exchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

The deferred compensation assets are held in mutual funds. The fair value of the deferred compensation assets and liabilities is based on the quoted market prices for the mutual funds and thus represents a Level 1 fair value measurement.

On January 4, 2019, we entered into a tax receivable agreement (“TRA”) with our former owners. The fair value of the obligation under the TRA was estimated using company specific assumptions that are not observable in the market and thus represents a Level 3 fair value measurement. Management’s estimate of the valuation of the obligation under the TRA is based on a Monte Carlo model which involves the use of projected cash flows of the Company, a discount rate, and historical deferred tax assets subject to the agreement. There were no remeasurement adjustments or payments made under the TRA during the three months ended March 31, 2022. We made a remeasurement adjustment of $4.1 million and payment of $0.7 million during the three months ended March 31, 2021.

10

In May 2020, we entered into an interest rate swap agreement to manage our interest rate exposure. For additional information on the interest swap agreement, see Note 8, Long-Term Debt. The carrying value of interest rate swap contracts is at fair value, which is determined based on current interest rate and forward interest rates as of the balance sheet date and is classified within Level 2.

In January 2022, the contingent consideration liability was reduced to zero due to a $0.5 million earn-out payment made to the previous owners of a surgical laser equipment solutions company, in which we acquired assets on December 11, 2020, based on achievement of certain revenue results.

Fair Value of Other Financial Instruments

The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable and accrued liabilities approximates fair value due to their short maturities. The fair value of our outstanding First Lien Term Loan (as defined in Note 8, Long-Term Debt) as of March 31, 2022 and December 31, 2021, is based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:

March 31, 2022

December 31, 2021

    

Carrying

    

Fair

    

Carrying

    

Fair

(in thousands)

Value

Value

Value

Value

First Lien Term Loan (1)

$

1,097,073

$

1,103,260

$

1,167,649

$

1,174,871

(1)The carrying value of the First Lien Term Loan is net of unamortized deferred financing costs of $9.8 and $10.4 million and unamortized debt discount of $4.7 and $5.0 million as of March 31, 2022 and December 31, 2021, respectively.

6.Selected Financial Statement Information

Property and Equipment

Our Property and Equipment is grouped into Medical Equipment and Property and Office Equipment. Depreciation of medical equipment is provided on the straight-line method over the equipment’s estimated useful life, generally four to seven years. The cost and accumulated depreciation of medical equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in cost of revenue in the period the asset is retired or sold. Property and office equipment includes property, leasehold improvements and office equipment. Depreciation and amortization of property and office equipment is provided on the straight-line method over the lesser of the remaining useful life or lease term for leasehold improvements and three to ten years for office equipment. The cost and accumulated depreciation or amortization of property and equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in selling, general and administrative expense in the period the asset is retired or sold.

March 31,

December 31,

(in thousands)

    

2022

    

2021

Medical equipment

$

366,730

$

359,284

Less: Accumulated depreciation

 

(222,116)

 

(209,516)

Medical equipment, net

 

144,614

 

149,768

Leasehold improvements

 

43,898

 

39,026

Office equipment and vehicles

 

141,812

 

135,643

 

185,710

 

174,669

Less: Accumulated depreciation

(73,657)

(66,067)

Property and office equipment, net

 

112,053

 

108,602

Total property and equipment, net

$

256,667

$

258,370

11

Depreciation expense recognized during the three months ended March 31, 2022 and 2021 was $22.5 million and $26.2 million, respectively.

There were no impairment charges on property and equipment during the three months ended March 31, 2022 and 2021.

Goodwill and Other Intangible Assets

Our goodwill as of March 31, 2022 and December 31, 2021 consists of the following:

(in thousands)

Balance at December 31, 2021

$

1,213,121

Acquisitions

Balance at March 31, 2022

$

1,213,121

There were no impairment losses recorded on goodwill through March 31, 2022.

Our other intangible assets as of March 31, 2022 and December 31, 2021 consist of the following:

March 31, 2022

    

    

    

Accumulated

    

(in thousands)

Gross

Amortization

Net

Finite-life intangibles

Customer relationship

$

756,889

$

(214,885)

$

542,004

Non-compete agreements

5,505

(4,452)

1,053

Trade names

7,806

(1,052)

6,754

Developed technology

2,300

(115)

2,185

Total other intangible assets

$

772,500

$

(220,504)

$

551,996

December 31, 2021

    

    

    

Accumulated

    

(in thousands)

Gross

Amortization

Net

Finite-life intangibles

Customer relationship

$

756,889

$

(194,312)

$

562,577

Non-compete agreements

14,613

(13,222)

1,391

Trade names

9,179

(2,230)

6,949

Developed technology

2,300

(58)

2,242

Total other intangible assets

$

782,981

$

(209,822)

$

573,159

Our other intangible assets are amortized over their estimated economic lives of three to fifteen years. The straight-line method of amortization generally reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. However, for certain of our customer relationships, we use the sum-of-the-years-digits amortization method to more appropriately allocate the cost to earnings in proportion to the estimated amount of economic benefit obtained.

Total amortization expense related to intangible assets was $21.2 and $16.5 million for the three months ended March 31, 2022 and 2021, respectively. There were no impairment charges during the three months ended March 31, 2022 and 2021 with respect to other intangible assets.

12

The estimated future amortization expense for identifiable intangible assets during the remainder of 2022 and the next five years is as follows:

(in thousands)

    

    

Remainder of 2022

$

69,328

2023

 

75,846

2024

 

69,462

2025

 

63,138

2026

56,766

2027

 

50,301

Supplementary Cash Flow Information

Supplementary cash flow information is as follows:

Three Months Ended

March 31,

(in thousands)

2022

    

2021

Non-cash activities:

Property and equipment purchases included in accounts payable (at end of period)

$

1,037

$

4,336

Finance lease assets and liability additions

 

1,655

 

1,131

Operating lease right-of-use assets and operating lease liability additions

15,189

 

664

Issuance of common stock related to acquisition

 

11,300

7.Share-Based Compensation

The 2018 Omnibus Incentive Plan (“2018 Plan”) provides for the issuance of 16.7 million nonqualified stock options, restricted stock units and performance restricted stock units to any of the Company’s executives, other key employees and certain non-employee directors. The stock options allow for the purchase of shares of common stock of the Company at prices equal to the stock’s fair market value at the date of grant. Options granted had a ten-year contractual term and vest over one to four years. The restricted stock units vest over one to four years. The performance restricted stock units vest over three years upon achievement of established performance targets as defined in the respective award agreements.

The shares issued to a grantee upon the exercise of such grantee’s options will be subject to certain restrictions on transferability as provided in the 2018 Plan. Grantees are subject to non-competition, non-solicitation and confidentiality requirements as set forth in their respective stock option grant agreements. Forfeited options, restricted stock units and performance restricted stock units are available for future issue.

We determine the fair value of stock options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as an expense on a straight-line basis over the options’ expected vesting periods.

In connection with our IPO, we granted certain of our employees, including our named executive officers, restricted stock units, performance restricted stock units, and stock options under the 2018 Plan with respect to approximately 1.6 million shares of the Company’s common stock.

In connection with the IPO, we adopted an Employee Stock Purchase Plan (“ESPP”). A total of 2.0 million shares of our common stock are reserved for issuance under the ESPP. Employees are permitted to purchase the Company’s common stock at 85% of market value at the end of the six-month offering period ending on April 30 and October 31 each year. The Company recognizes share-based compensation expense for the discount received by participating employees. No shares were issued under the ESPP as of March 31, 2022. The Company recognized $0.2 million share-based compensation expense for the discount received by participating employees for the three months ended March 31, 2022.

Remaining authorized options, restricted stock units and performance restricted stock units available for future issuance were 6.6 million shares at March 31, 2022.

13

8.Long-Term Debt

Long-term debt consists of the following:

    

March 31,

December 31,

(in thousands)

2022

    

2021

First Lien Term Loan

$

1,111,597

$

1,183,071

Finance lease liability

 

26,046

 

26,621

 

1,137,643

 

1,209,692

Less: unamortized deferred financing costs and debt discount

(16,165)

(17,190)

1,121,478

1,192,502

Less: Current portion of long-term debt

 

(17,693)

 

(17,534)

Total long-term debt

$

1,103,785

$

1,174,968

First Lien Credit Facilities. On January 4, 2019, in connection with and substantially concurrent with the closing of the business combination, the Company entered into a credit agreement (the “First Lien Credit Agreement”) 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 Agreement 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”), together (“First Lien Credit Facilities”). In February 2020, we increased our principal First Lien Term Loan facility by $125 million and the revolving loan facility by $40 million. In October 2020 and March 2021, we further increased our principal First Lien Term Loan facility by $150 million and $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.’s option, 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 Administration for 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 step downs 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

14

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 $0.3 million related to the write-off of unamortized deferred financing cost on the revolving credit facility.

In October 2021, in connection with the closing of Sizewise Rentals, LLC (“Sizewise”), we entered into Amendment No. 5 to the First Lien Credit Agreement. This amendment provides for a $150 million incremental 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 2020 Amendment (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.

Interest Rate Swap. In 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 2020 and the expiration date is June 2023.

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 March 31, 2022 was $9.4 million, of which $6.2 million is included in other current assets and $3.2 million is included in other long-term assets on our condensed consolidated balance sheet. The change in fair value was recorded as a component of accumulated other comprehensive loss on our condensed consolidated balance sheet, net of tax, since the instrument was determined to be an effective hedge at March 31, 2022. 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 $350.0 million and $150.0 million of our First Lien Term Loan to be 0.3396% and 0.3290%, respectively, plus the Applicable Margin through June 2023.

We were in compliance with all financial debt covenants for all periods presented.

15

9.Leases

We lease facilities under operating lease agreements, which include both monthly and longer-term arrangements. Our finance leases consist primarily of leased vehicles.

The lease assets and liabilities are as follows:

March 31,

December 31,

(in thousands)

2022

    

2021

Lease Assets

Classification