Agiliti, Inc. (AGTI) Q2 2021 Earnings Call Transcript

Agiliti, Inc. (AGTI)
Q2 2021 Earnings Call
Aug 12, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Agiliti's second-quarter 2021 earnings conference call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Kate Kaiser, vice president of corporate communications and investor relations at Agiliti. Thank you.

You may begin.

Kate Kaiser -- Vice President of Corporate Communications and Investor Relations

Thank you, operator, and hello, everyone. Thank you for joining us on today's call as we provide an overview of Agiliti's results for the quarter ending June 30, 2021. Before we begin, I'll remind you that during today's call, we'll be making statements that are forward-looking, and consequently, are subject to risks and uncertainties. Certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements.

Specific risk factors are detailed in our press release and our most recent SEC filings, which can be found in the Investors section of our corporate website at agilitihealth.com. We will also be referring to certain measures that are not calculated and presented in accordance with generally accepted accounting principles during this call. You can find a reconciliation of those measures to the nearest comparable GAAP measures and a description of why we use these measures in our press release and in the slide presentation we will use to facilitate today's discussion. If you'd like to download a copy of the presentation, please visit our website at agilitinhealth.com., select the Investors section at the top of the screen and then Events and Presentations.

Finally, select the presentation titled Agiliti Q2 2021 earnings slides. With that, I'll turn the call over to our CEO Tom Leonard for his remarks on our second quarter.

Tom Leonard -- Chief Executive Officer

Thanks, Kate, and good afternoon. Thank you for taking time to join us as we review our results from the second quarter of 2021. Joining me to discuss our performance is our CFO Jim Pekarek; and our President Tom Boehning, who leads our commercial operations. I'm pleased to share that our results for Q2 and for 2021 to date are slightly ahead of our initial expectations.

Turning directly to the highlights. Total revenue for the quarter was $251 million, representing a 35% increase from Q2 of 2020. Adjusted EBITDA was $78 million, also a 35% increase compared to Q2 of last year. And our adjusted earnings per share for the second quarter was $0.23, compared to an adjusted EPS of $0.14 for the prior-year period, and representing an increase of 64%.

In line with these results, we have raised our guidance for full-year 2021 to reflect expected revenue in the range of $965 million to $980 million and adjusted EBITDA in the range of $280 million to $290 million. Jim will provide more detail on our financial outlook and the principal drivers behind our Q2 performance, but first, let me take a moment to highlight the stable and durable nature of our business in the context of the recent performance of our three service lines. For the course of Q2 and has been previewed during our Q1 earnings call, we saw a return to pre-COVID demand for our rental services, favorably offset by a return to more normalized demand for our Clinical Engineering and Onsite Managed Services. Clinical Engineering Services revenue in Q2 totaled $101 million, representing a 51% increase year over year.

As a reminder, Clinical Engineering is our business in medical device repair and maintenance. Historically, it's our fastest growing business, and it's in the largest market segments that we participate in. Agiliti deploys trained technicians to repair and maintain virtually all of the medical equipment you'd expect to find in a hospital. We perform this work both at our customers' facilities, as well as in our local service network, a model which is unique to Agiliti.

Onsite Managed Services revenue was $77 million for Q2, representing 74% growth year over year. For our Onsite solution, our teams work in hospital facilities. They work shoulder to shoulder with clinicians, helping to manage and mobilize our customers' medical devices. We ensure clinicians never have to hunt for the devices they need to care for their patients for, the devices they need are patient ready and delivered right to the bedside.

We deliver the service through a dedicated on-site team that performs these duties and proprietary software platform, which we integrate into our customers' hospital information systems and use to manage our team's workflow and to optimize our customers' medical device utilization. In Q2, our Equipment Solutions revenue totaled $72 million, representing a decline of 2% for the quarter, driven by the expected normalization of customer demand for equipment rental back to pre-COVID levels. As a reminder, Equipment Solutions is the cornerstone of our comprehensive medical device management solution. We provide our customers with access to medical devices to meet peak census needs or to provide access to a high-cost, low-utilization device, which it wouldn't otherwise make sense for our customers to own.

We enjoy by far the largest medical device fleet in the country, owning more than 0.25 million capital medical devices and related accessories. Importantly, we focus on device categories where we can wrap a differentiated service around access to device. For example, surgical lasers, where we provide a laser technician to support the surgeon in the use of the device during a procedure or with our specialty beds in Clinical Engineering, where our on-staff clinical team provides training and hands-on support in the setup, use and maintenance of these devices. Last year, we saw outsized demand for these services as providers augmented their owned equipment with Agiliti's medical device fleet to handle the surge in patient volumes at the onset of the pandemic.

And as we previewed last quarter, in Q2, we saw a return to pre-pandemic levels of customer utilization of our rental device fleet. The year-over-year growth we experienced during Q2 within Clinical Engineering and Onsite Managed Services reflects in part the expected rebalance I mentioned on our last earnings call. As customers transition back to pre-pandemic operations, we have the opportunity to take a longer-term view of the medical device management needs. The growth in these two service lines also came in part from our contracts with the Department of Health and Human Services for management of the strategic national stockpile of medical devices.

As we previously shared, last July, Agiliti entered into a new contract with the Department of Health and Human Services to manage the federal government's emergency medical device stockpile. This one-year initial contract awarded under the CARES Act in direct response to COVID-19 was an expansion of the Federal government's preexisting medical device stockpile, which Agiliti had already been managing. We are currently operating under a 60-day extension to that initial contract while the government prepares for a new formal process and contract award. This contract extension runs through September 27, 2021.

We currently expect HHS to award a new contract prior to the end of September, which would also align with the starts of the government's new fiscal year. The timing of the process and subsequent award of a new contract is entirely under the control of the federal government and may occur earlier or later than our current expectation, and of course, Agiliti fully intends to compete for this new contract award. Our financial guidance for 2021 continues to include the assumption that Agiliti is successful in securing a renewal of this government contract. Based on our long and successful history serving the federal government, state and local agencies, as well as our domestic military healthcare infrastructure, we believe Agiliti is uniquely capable of supporting the needs of these government agencies.

Please understand that we operate under a strict nondisclosure agreement with HHS regarding the details of this sensitive contract. As such, the information we can discuss today is limited to what the federal government discloses publicly and what we have provided here in our prepared remarks. Let me now turn the call to Tom Boehning to offer his perspective on the performance of our business during the second quarter.

Tom Boehning -- President

Thanks, Tom, and hello, everyone. It's my pleasure to be joining you again today to offer a few brief highlights on our business. You will recall that during our Q1 earnings call, we shared that we were seeing hospitals and health systems refocus on planned longer-term investments as the industry began to emerge from the pandemic. We benefit from this long-term focus and a heightened awareness across the industry of the need to better manage critical medical device assets.

This same trend continued throughout Q2. In just the last several weeks, we started to see the impact of the Delta variant of COVID-19 in a number of geographic markets around the country. In these regions, demand for access to our medical device fleet, infusion pumps, ventilators, monitoring equipment, specialty beds and surfaces, as well as other critical care devices has increased. We've begun to mobilize our teams and equipment to proactively respond to areas of greatest need.

At this time, the aggregate demand of our medical device fleet remains relatively close to pre-COVID baseline levels and well below 2020's elevated utilization. We remain ready to support the needs of our nation's health system however the next few months may unfold. Now turning to the integration of Northfield Medical. In March, we closed the acquisition of this business, combining the second- and third-largest independent service providers to expand our capabilities in surgical instrument repair and complete our nationwide footprint.

We're now making significant progress in our planned integration, having fully merged our sales teams, and they are already collaborating on opportunities in the field. We're now deep into operational, IT and back office integration. Surgical instrument repair is a logical extension of our broader Clinical Engineering offering, and a number of our customers are already benefiting from the integrated service solution. I'm excited to share future updates on our progress.

As a reminder, this acquisition also illustrates our strategic approach to M&A, which is to overlap and extend. This means that we look to build on our existing capabilities and drive additional profitable volume through our at-scale national service infrastructure while always staying close to what we do best. While historically, the growth of our business has been primarily organic, we have completed more than a half a dozen transactions over the last several years. We look to be disciplined acquirers, routinely evaluating opportunistic tuck-in M&A to enhance our solutions and augment our strong organic growth profile.

As we look forward to the balance of the year, the focus of our teams is on successful renewal of the HHS contract, responding to the needs of our customers as they manage through the impact of the Delta variant, completing the integration of Northfield and maintaining our momentum in the field. I'll now turn this over to Jim to provide detail on our Q2 financial performance.

Jim Pekarek -- Chief Financial Officer

Thank you, Tom. I'll start with an overview of our Q2 2021 financials at a high level and then offer some reflection on our 2021 financial outlook. For the second quarter, total company revenue totaled $251 million, representing a 35% increase over the prior year. Adjusted EBITDA totaled $78 million, also a 35% increase over Q2 of 2020.

This performance resulted in adjusted EBITDA margins of 31% for Q2 of 2021, as well as for last year. Our strong operating performance drove an adjusted earnings per share of $0.23, up from $0.14 in Q2 of last year. Taking a closer look at our revenue for the second quarter of 2021. We delivered strong Q2 revenue growth across both Clinical Engineering and Onsite Managed Services, as well as an expected slight decline in Equipment Solutions revenue.

Equipment Solutions revenue totaled $72 million, down 2% year over year. We estimated that in Q2 of last year, the favorable impact from COVID was in the range of $8 million to $10 million. In Q2 2021, we estimate that the net favorable revenue impact from COVID was less than $3 million. As I shared on our last call, we anticipated that in Q2 of this year, we would lap last year's initial surge of COVID-driven demand.

That has occurred generally as planned. This reversion to pre-COVID levels aligns with our financial plan for 2021 and is fully considered within the full-year guidance we have provided for total company revenue. Moving to Clinical Engineering. Q2 revenue was $101 million, representing year-over-year growth of 51% for the quarter.

The growth in the quarter came from signing and onboarding new business over the last year, including work directed by the federal government under our existing contract. In addition, we reported revenue from the newly acquired Northfield Medical business during the quarter. Finally, our Onsite Managed Services revenue totaled $77 million, representing year-over-year growth of 74% for the quarter. A majority of the growth in Q2 came from our expanded contract with the federal government for medical device stockpile management services.

Gross margin for Q2 totaled $99 million, an increase of $32 million or 47%, and our gross margin rate was 40%, up over 300 basis points from the prior year. This improvement in margin rate was driven primarily by strong total revenue growth. As all lines of business share a common infrastructure, volume growth in any service line has a favorable impact on the utilization of our fixed cost infrastructure. SG&A costs for Q2 totaled $81 million, an increase of $28 million or 54%.

This increase was primarily due to the buyout fee related to the termination of the THL advisory service agreement of $7 million, increases in costs and amortization expense tied to the Northfield acquisition and an increase in payroll-related costs associated with the growth of our business overall. Adjusted EBITDA for Q2 totaled $78 million, representing an increase of $20 million versus the prior year. Our strong revenue growth and improved gross margins in the quarter combined to deliver a solid Q2 financial performance, resulting in adjusted EBITDA margins of 31%. In our appendix to our slide deck, we also provide a reconciliation of our EBITDA to our adjusted EBITDA, consistent with our past reporting.

We want to call your attention to two sizable adjustments in the quarter: First, as part of the IPO, we incurred a $7 million expense related to a buyout of the THL advisory service agreement in place with our current majority private equity shareholders. In addition, as part of the IPO, we incurred a $10 million loss on the extinguishment of our second-lien debt obligation. As I shared on our last earnings call, the retirement of this debt has resulted in a meaningful decline in our overall borrowing costs. Finally, our adjusted earnings per share for Q2 totaled $0.23 per share, representing an increase of $0.09 per share versus the prior year and representing 64% year-over-year growth.

This growth was a direct result of strong overall business performance, partially offset by the increase in the weighted average fully diluted shares outstanding for the quarter of 27 million shares related to the shares issued during our recent IPO. Moving to our balance sheet and our new capital structure. We closed Q2 with net debt of $940 million, which includes $1.04 billion in debt, less $104 million of cash on hand on our balance sheet. Our cash flow from operations for the first half of the year was over $100 million, driven by strong operating results, lower interest costs resulting from the paydown of our second lien debt facility as part of our IPO, as well as the favorable timing of our accounts receivable collections.

Strong cash flow generation and adjusted EBITDA growth resulted in a reduction of our leverage ratio to 3.2 times at the end of Q2. Looking forward, we expect to maintain our longer-term leverage in the low to mid three times range. We also anticipate using our strong balance sheet and cash flow generation to fund opportunistic tuck-in M&A aligned with our strategy to augment our organic growth profile and drive additional profitable volume through our at-scale operating infrastructure. Agiliti maintains a position of significant liquidity with $346 million available as of June 2021.

This includes our newly expanded $250 million revolving credit facility, as well as cash on hand. Recall that since completing the IPO and reducing our outstanding debt, we shared that our corporate rating increased from B to B+ with a positive outlook from S&P and from B2 to B1 with a stable outlook from Moody's. Over time, we expect this should further reduce our cost to access the capital markets as required to augment our growth with targeted M&A. Finally, I'll provide some additional color on our 2021 financial outlook.

As a reminder, we provide guidance for key performance metrics on a full-year basis. I'll start with a quantitative summary and share our significant assumptions. Based on current performance and expectations for the full year, we are raising guidance for two of our three financial metrics. Specifically, we have increased our revenue guidance to a range of $965 million to $980 million, representing full-year revenue growth of 25% to 27%.

And we have increased our adjusted EBITDA guidance to a range of $280 million to $290 million, representing full-year growth of approximately 20% to 24%. We are maintaining our net cash capex guidance in the range of $65 million to $70 million. Capex is a percentage of revenue, a relevant measure of a decreasing capital intensity of our business, is expected to be in the range of 6% to 7%. Reflecting on the balance of the year, we are planning under the assumption that COVID-19, including the Delta variant, will not have a material impact on utilization of our medical device fleet for the balance of the year.

Recall that favorable net COVID impact on our financial result was approximately $30 million to $40 million in 2020 revenue, occurring primarily between Q2 and Q4, and approximately $10 million to $12 million in revenue in Q1 of 2021. The strong growth implied by our full-year guidance takes into consideration that the prior-year comps will be more challenging for the next three quarters until we have fully lapped the COVID tailwind. We also expect to continue signing and implementing new contracts for all of our solutions throughout the year in the ordinary course of our business as customers are able to turn their attention back to the strategic and financial initiatives where our solutions play an important role. And as Tom shared upfront, our 2021 financial guidance includes the assumption that we will successfully renew the agreement with the Department of Health and Human Services.

These assumptions are embodied within our full-year guidance, as is evident in our consistent and positive 2020 financial performance. Changes in the outlook with respect to COVID-19 may slightly alter our mix of revenue for the balance of the year, but we would not expect it to significantly impact our consolidated results from our expectations. Finally, our implied full-year EBITDA margins, which can be calculated from our revised 2021 guidance, are expected to be in the range of 28% to 30%. This guidance reflects our expectation that the business will return to our pre-COVID margin profile.

Primary drivers that will impact margins for the balance of the year include the normalization of rental device volume for the balance of 2021, our internal assumptions on a renewal of the HHS contract and the impact of our recently completed acquisition of Northfield Medical, which historically has had lower initial EBITDA margins compared to Agiliti's historical average. With that, I'll now turn the call over to our operator to provide instructions for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Amit Hazan with Goldman Sachs. Please proceed.

Amit Hazan -- Goldman Sachs -- Analyst

Well, thanks, and good afternoon, folks. Thanks for taking my questions. The first question, just for clarification, is just around organic growth. If you can just give us the Northfield contribution in the quarter, and then also what you're expecting for the year, that would be helpful.

Tom Leonard -- Chief Executive Officer

Yup. Thanks for the question, Amit. In terms of this year with the second quarter, we're not specifically calling that out. And the reason for that is, as Tom B mentioned in his comments, right after the acquisition, we moved to integration, so we're going through the integration and have done that through Q2.

One thing that you might find helpful, though, in our 10-Q, what we did disclose in our footnotes was in Q2 of 2020 the pro forma impact for our overall financial results reflected about $23.5 million of historical revenue for Northfield. So that should be able to help you guide the comps.

Amit Hazan -- Goldman Sachs -- Analyst

OK. We can touch on that offline, too. And then just moving to with the second question to the government contract situation. With the 10-Q you just filed, it says that 18% of your first-half revenue is coming from HHS contract.

Just want to clarify that that would be a little -- pretty high, a little bit. I don't imagine that that can be nice and linear across the quarter. So maybe a little bit of help and color on that, and what is embedded in your guidance for the rest of the year related to that number would be really helpful, too. Thanks.

Tom Leonard -- Chief Executive Officer

Yeah. No worries, Amit. Keep in mind that that 18% number reflects multiple contracts, not just the contract that we referenced in the script. Also important to keep in mind that in the prior year, we also had certain contracts.

It just didn't reach to the level of over 10%, i.e., required disclosure. So it wouldn't be fair for you to assume that that 18% reflected just the HHS contract that we referenced in the script.

Tom Boehning -- President

And then maybe to your question, the makeup of that, as Jim said, there is preexisting revenue from other contracts, in addition to the HHS contract. And as we've shared previously with regard to the HHS contract, simply, we have to think about it as two parts: one part effectively being fixed fee around the management, the maintenance, the readiness of these devices; and the other parts being variable, being time and materials-based, really related to such activities as the government may direct us to do in managing, deploying, recovering, supporting those devices. And to your question about what's embedded for the remainder of the year, as we've shared, again, previously, our expectations for the balance of the year are that these renews -- that we're successful in securing renewal and that it renews at a level consistent with our expectations for what would be required to manage and maintain this on an ongoing basis.

Amit Hazan -- Goldman Sachs -- Analyst

OK. I'll jump back in the queue. Thank you.

Operator

Our next question is from Matthew Borsch with BMO Capital Markets. Please proceed.

Matthew Borsch -- BMO Capital Markets -- Analyst

Hi. Thank you. Maybe you just a question about -- any regional geographic variation you're seeing in volumes and in the pace of normalization? I'm just wondering, if the -- can you call out any differences there? And is there anything that you think you're seeing at this stage that might relate to the surge of the delta variant, again, and perhaps that's geographically diverse in impact?

Tom Leonard -- Chief Executive Officer

Yes, a great question, Matt, insightful question. I think if you wanted to reflect on where we might we're seeing more activity, I would refer you to a good source of truth, which would be the CDC and where they're seeing infections rise. What we shared in our scripts, though, is prepared last year 2020, we're really seeing a utilization of demand for our rental equipment really back closer to pre-COVID levels, not at the elevated levels that we saw last year. So still very close to our expectations of the utilization of our fleet at historical levels.

So that's in aggregate across the country for our entire fleet.

Matthew Borsch -- BMO Capital Markets -- Analyst

Would you say, though -- I mean, we still obviously have COVID continuing to some degree, and that creates some demand. And some of the hospitals seem to be seeing above-normal volumes at least probably temporary. But I'm wondering if what you're seeing in terms of the flow of demand for your services would be consistent with that or things really just reaching kind of pre-COVID baseline?

Tom Leonard -- Chief Executive Officer

Yeah. Again, I might have been unclear in my answer. We see regional spikes in demand for our equipment much as you see regional spikes in COVID around the country. In terms, though, of its aggregate impact on the demand for rental equipment, we are closer to, again, pre-COVID normalized levels than last year's outsized levels of utilization, but we're -- really across the entire country, there was excess demand for the fleet.

We don't expect COVID to be a driver. We don't expect COVID to be a material driver in our financials, as Jim shared, when we walked through the assumptions for the full year.

Matthew Borsch -- BMO Capital Markets -- Analyst

Yes. OK. Thank you.

Operator

Our next question is from Ralph Giacobbe with Citigroup. Please proceed.

Ralph Giacobbe -- Citi -- Analyst

Thanks. Good afternoon. I guess I wanted to go to the margin commentary and discussion. Jim, I think you said, and the guidance certainly implies the 28% to 30% for the full year, but first half is coming in at closer to 34%.

I know in the first quarter, you guys had said don't run rate this margin because of the COVID contribution, but you did 31% margin this quarter without the COVID contribution. So again, guidance in the back half looks like it implies about 25% margin, which is a couple of hundred basis points lower than even the second half of 2019. So just hoping you could flesh out the margin expectation and contraction and funding guidance, if that's really all just Northfield or if there's anything else we need to consider. Thanks.

Jim Pekarek -- Chief Financial Officer

Yeah. No worries, Ralph, I appreciate the question. Yeah, just to reiterate the script in terms of what I shared. First, think about the balance of the year is returned to pre-pandemic volumes for our rental services.

And as we shared in Q1, that impact was topline $10 million to $12 million and less than $3 million in Q2. And we've also shared that just directionally that that has high flow through. Number two, what we've assumed for our guidance is the renewal of our DS&S government contract at certain internal rates. And then lastly, and to your good point, is the Northfield acquisition, which has been historically at a significantly lower EBITDA margins than what our overall business has been at.

It's those three elements, Ralph, that I would direct you to as we think about the balance of the year and our full-year guidance.

Ralph Giacobbe -- Citi -- Analyst

OK. All right. Fair enough. And then I just -- for my follow-up, I just wanted to clarify on the government contract, the 60-day extension, was there an RFP process prior to July 27? And this is sort of a redo? Or this is just a push out of the RFP process, maybe to align it with fiscal year? And then with the new contract, is there anything you can give us in terms of relative length of time? And just your recent comment, it sounds like maybe your expectation perhaps is a little bit lower margin contribution, if I caught that right.

Thanks.

Tom Leonard -- Chief Executive Officer

Sure, sure. There has not been an RFP yet. The government initially did an RFI, which is fairly standard practice. In an RFI, the government describes its initial thoughts on scope on -- for future contracts and invites industry to comment and then takes that information and process to determine whatever they want to influence what will eventually be an RFP.

And then a contract award would follow that. Effectively the government ran out of time on the calendar before they were look at to an RFP process. And so while they're preparing to put together a formal process, they've extended our existing agreement for 60 days. So there has not been a for a new contract award on this yet.

And then it's simply the clock on the calendar running out. As we do expect -- we've been guiding to expect now that the process will take place and expect to see an award earnout to the end of the current fiscal year or sometime before the end of September. In terms of the margin profile, probably haven't provided anything specific with regard to the margin profile nor are we in a position to. We haven't seen an RFP, so we don't know exactly what the scope will be.

Our guidance includes our expectations with regard to what a future renewal will look like. Why do we think it looks different? The current contractors awarded under the CARES Act are supposed to expand -- stand up this expanded stockpile and to deploy it and take such other actions as the department might direct us to do. We would expect the follow-on, longer-term contracts to be primarily focused around the ongoing management and maintenance of this stockpile, so we would expect it to be of a smaller and different size. Again, all of those of our expectations with regard to the future contracts are embedded within the guidance that we've provided.

Ralph Giacobbe -- Citi -- Analyst

OK. That's helpful. Appreciate the detail.

Operator

[Operator instructions] Our next question is from Kevin Fischbeck with Bank of America. Please proceed.

Courtney Fondufe -- Bank of America Merrill Lynch -- Analyst

Hi, guys. This is actually Courtney Fondufe on for Kevin. Thanks for taking the question. So I guess one thing first I just wanted to clarify, Jim, did you say that the quarter saw a lift from the extension -- the 60-day extension of the stockpile contract? I don't know if I misheard that, so I just wanted to clarify that first.

Jim Pekarek -- Chief Financial Officer

No, I did not.

Courtney Fondufe -- Bank of America Merrill Lynch -- Analyst

OK. Great. Thanks. So I just -- I wanted to ask, how is the deal pipeline looking now? Are you still skewing toward surgical instrument-type assets? Or are you kind of looking for small tuck-ins across all segments? And I guess just what kind of multiples are you seeing for these assets?

Tom Leonard -- Chief Executive Officer

Thanks for the question. We are looking -- our ear to the ground starts first with the needs of our customers. And when we think about the places that we are looking, we try and intend to stay close to the services that we know best, steps around the management and maintenance of our customers' regulated medical devices. It's around the repair and maintenance of those devices, and it's around our ability to augment them with rental for either to needs or that access to high cost utilization devices that wouldn't make sense for our customers to own, ideally devices where we can rapid differentiate into service.

So if we think about where we might find M&A targets would really be across that continuum -- multiples, just like they do in the public markets, multiples very much reflect the underlying nature of the business, how fast it's growing, its scale, its scarcity, how well run it is. This margin profile looks like -- we tend to be disciplined acquirers given that we end up walking away often for far more than we choose to proceed with. That's been our history. We'd expect that to be our viewpoint going forward as well.

Courtney Fondufe -- Bank of America Merrill Lynch -- Analyst

OK, great. And then if I could just clarify. So on the guidance, was the raise more or less just driven by the Q2 strength, and I guess, more visibility into the trends you guys are seeing?

Tom Leonard -- Chief Executive Officer

I would say that the grade was based on our results in Q2, what we have in terms of visibility for the balance of the year and again, our internal assumptions on the renewal of the HHS contract.

Courtney Fondufe -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, guys.

Operator

Our next question is from Drew Ranieri with Morgan Stanley. Please proceed.

Drew Ranieri -- Morgan Stanley -- Analyst

Hi, Tom and Jim. Thanks for taking the question. Just a quick one on Northfield for me. I understand that EBITDA margins for that business are under the corporate fleet for right now, but can you maybe just talk through the integration process a little more fully? Is there anything structurally that inhibits you from getting that to the corporate or even above for EBITDA? Just kind of wanting to get a little bit more of a road map there.

Tom Leonard -- Chief Executive Officer

So let me start with -- the great news about this company is that we enjoy a margin profile really without peer in the areas that we serve. And that margin profile is built on the back of our unique in-market infrastructure that all of our solutions share. A byproduct of that is when we look at acquisitions, and by definition, they're going to have an inferior margin, and that is true of Northfield, will generally be true of most anything that we would target, our goal, as we look to find things that fit within the commercial architecture, as well as fit within that end-market footprint that we enjoy is to be able to not just pick up those businesses and own them, but to drive topline growth and to drive margin expansion on the bottom line as we, over time, are able to successfully integrate them into that infrastructure. So I don't know that it's practical to say that we could get to a point that is greater than our historical average.

Again, it is best-in-class, but our goal remains, as we acquire these, to integrate them into our commercial infrastructure and integrate them into our nationwide service footprint, and over time, bring them in line with our historical average.

Operator

Our next question is from Matthew Mishan with KeyBanc. Please proceed.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Hi, guys. Thanks for taking my questions. First one is, just your initial thoughts -- I think draft guidance came out in late June on kind of remanufacturing versus maintaining medical devices, and I think that would have some impact on your business. Do you think that's a long-term net positive for you in terms of winning business because of the complexity? Or is it is a negative potential given the cost?

Tom Leonard -- Chief Executive Officer

I do want to be clear, we manage and maintain devices. We do not remanufacture, which has special rules associated with it. It's a special regulatory category, and we are not a remanufacturer. Rather, we repair and simply return devices back to the original OEMs back.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

OK. And then on Northfield, I think you called out -- you said that the pro forma was $22 million from 2020, in 2Q '20. Wouldn't that be a much lower number in 2Q '20 than -- given they're more tied toward the surgical side of the hospitals that were shut down, so the number should be a little bit higher in '21?

Jim Pekarek -- Chief Financial Officer

That is a fair comment, Matthew, for sure.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Thank you.

Jim Pekarek -- Chief Financial Officer

You got it.

Operator

Our next question is from Anthony Petrone with Jefferies. Please proceed.

Frank Pinal -- Jefferies -- Analyst

Hey, guys. Sorry about that. It's Frank Pinal on for Anthony. First, congrats on another nice quarter.

Just two quick ones for me. The first one, on the government contract, how do you -- do you have any expectations on the contract being more competitive now with this proposal being pushed out, maybe more visibility on it? And then the second question, just a little bookkeeping on the cadence of revenues, how should we think about that, absolute growth going into 3Q and 4Q off of 2Q into the rest of the year here?

Tom Boehning -- President

Let me take the first part, and I'll let Jim handle the second part. With regard to the HHS contract, it is a sizable contract. No doubt will attract other bidders. I'll remind you of our history with the strategic national stockpile of medical devices.

Over the course of more than six years that I've been here, we had managed to consolidate the previous stockpiles from under the OEMs where they were originally managed and put them within, again, our unique infrastructure, not just facilities for storing them, but also our logistics infrastructure, the ability to deploy and in the field, maintain those devices. It is a peerless infrastructure. Over the previous six years that I've been here, we've managed to consolidate the predecessors to the current expanded stockpile, and then it was -- we could have known it was going to be expanded. Certainly, it came as no surprise to us that it was directly awarded to us.

So I have no doubt that other bidders will show up and put their best foot forward. A decision of this type, it's not the lowest bid decision, but rather that criteria are generally along the lines of the government's comfort and confidence in your ability to meet the requirements, your general overall contracting history with the federal government and the last criteria being price. Given our very successful history with the stockpile, and more broadly, given our unique capabilities, while we can't guarantee anything, we feel very confident in our competitive position as we go into an RFP, and eventually, award.

Jim Pekarek -- Chief Financial Officer

Yup. And Frank, just in terms of the balance of the year in terms of revenue, we don't point to, obviously, guidance in the quarters. What I would share with you, though, is as we move into Q3 and Q4, we're going to be comparing to the prior year, Q3 and Q4, where we had the strong impact from COVID. Keep that in mind as you think about the balance of the year, specifically within Equipment Solutions.

I hope that helps a bit.

Frank Pinal -- Jefferies -- Analyst

Perfect. Thanks, guys. Appreciate it.

Jim Pekarek -- Chief Financial Officer

You got it, Frank.

Operator

And our final question is from Ralph Giacobbe with Citi. Please proceed.

Ralph Giacobbe -- Citi -- Analyst

Great. Thanks for taking the follow-up. Just one more for me. There were headlines maybe a month or two ago on Biden's executive order on right to repair.

Just wondering if that has any implications for you, or maybe what next steps are for that to have more teeth and potential timing. And if this is even something significant or a focus or relevant for you guys. Thanks.

Tom Leonard -- Chief Executive Officer

Got it. Thanks. So that actually is relevant to our business and is relevant to our customers as well who very often repair their own devices. And effectively, the goal was to ensure, for the benefit of customers, that they retained the rights to either repair directly themselves or to find a third party like Agiliti to repair, and they couldn't be locked in, in an uncompetitive way to only being able to be serviced by the OEM.

We think that is at least neutral to favorable for us in our position, is not factored directly in our guidance today. I don't know that it ever will be, but it's certainly a broad tailwind that is in favor of exactly the line of business that we're in as an independent service organization providing these types of repair services for healthcare providers across the country.

Ralph Giacobbe -- Citi -- Analyst

OK. That's helpful. Thank you.

Operator

We have reached the end of our question-and-answer session, and I would like to turn the conference back over to Tom Leonard for closing comments.

Tom Leonard -- Chief Executive Officer

Great. And so thank you for the questions. Thank you for your time today. In closing, I do want to reiterate, our results from Q2, our outlook on the rest of the year reflect our confidence in Agiliti's essential role in supporting this nation's healthcare infrastructure and our team's ability to consistently execute on our strategy.

We look forward to updating you on our progress, and we thank you for your continued interest in Agiliti. With that, I'll close today's call.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Kate Kaiser -- Vice President of Corporate Communications and Investor Relations

Tom Leonard -- Chief Executive Officer

Tom Boehning -- President

Jim Pekarek -- Chief Financial Officer

Amit Hazan -- Goldman Sachs -- Analyst

Matthew Borsch -- BMO Capital Markets -- Analyst

Ralph Giacobbe -- Citi -- Analyst

Courtney Fondufe -- Bank of America Merrill Lynch -- Analyst

Drew Ranieri -- Morgan Stanley -- Analyst

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Frank Pinal -- Jefferies -- Analyst

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