What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 250 added, 226 removed, 335 unchanged (59% of the section changed)

7 unchanged sentences

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology.

Statements in this quarterly report concerning our ability to successfully acquire and integrate new operations, to grow our contract management business, our financial guidance, our future cost saving efforts, our ability to increase business from new equipment or operations and our ability to finance our operations and repay our outstanding indebtedness, are forward-looking statements.

Forward-looking statements in this current report include, among others, statements we make regarding

• our ability to successfully integrate new operations, to our business and the anticipated benefits to be derived from our investments, acquisitions, and joint ventures;

• anticipated trends in our revenues, operating expenses and liquidity and cash flows, including our financial guidance and anticipated effects of cost-savings efforts;

• the ongoing impact of the COVID-19 pandemic on our business, suppliers, payors, customers, referral sources, partners, patients and employees, including (i) government’s unprecedented action regarding existing and potential restrictions and/or obligations related to citizen and business activity to contain the virus;

10 unchanged sentences

Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements.

Factors that might cause such differences include, but are not limited to, the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and quarterly report on form 10Q for the quarter ended March 31, 2020, or supplemented by the information in Part II– Item 1A below.

Factors that might cause such differences include, but are not limited to, the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and quarterly report on form 10Q for the quarters ended March 31, and June 30, 2020, or supplemented by the information in Part II– Item 1A below.

You should consider the inherent limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements.

2 unchanged sentences

We are a leading national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States based on number of locations and annual imaging revenue.

At June 30, 2020 , we operated directly or indirectly through joint ventures with hospitals, 332 centers located in California, Delaware, Florida, Maryland, New Jersey, and New York.

At September 30, 2020, we operated, directly or indirectly through joint ventures with hospitals, 334 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York.

Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, often reducing the cost and amount of care for patients.

4 unchanged sentences

Our current AI focus is to develop solutions in machine learning to assist radiologists and other clinicians in interpreting images and improving patient care, initially in the field of mammography.

The discussion below of our results centers on our performance in the second quarter ending June 30, 2020.

As discussed in our Form 8-K filed on April 3, 2020, the overall impact of the coronavirus pandemic on RadNet’s business could be material to our operating results, cash flows and financial position.

The magnitude of the impact will ultimately depend on the duration and extent of the COVID-19 pandemic and the impact of governmental actions and patient behavior in response to the pandemic, which remains ongoing.

As as result of the pandemic we began experiencing reduced procedure volumes in mid March which intensified through the early part of the second quarter.

As economic activity has begun to ramp-up, our procedure volumes have returned to approximately 90% of our pre-COVID-19 pace, from a low of 28% pre-COVID-19 volumes experienced in April 2020.

Our experience has shown that lost imaging slots in one quarter are not made up within that period or in subsequent quarters.

We continue to adapt our operations in response to the pandemic where needed and were successful in implementing such measures as concentration of patient traffic to larger imaging centers, negotiating payment terms with vendors and landlords, adjusting staff levels and telecommuting.

We derive substantially all of our revenue, directly or indirectly, from fees charged for the diagnostic imaging services performed at our facilities.

The following table shows our facilities in operation and revenues for the six months ended June 30, 2020 and June 30, 2019 :

Six Months Ended June 30,

The following table shows our facilities in operation and revenues for the nine months ended September 30, 2020 and September 30, 2019:

Nine Months Ended September 30,

Facilities in operation 334 340

3 unchanged sentences

In addition, our experience with capitation arrangements over the last several years has provided us with the expertise to manage utilization and pricing effectively, resulting in a predictable stream of revenue.

We typically experience some seasonality to our revenue stream.

During the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year.

It is common for inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures.

Second, in recent years, we have observed greater participation in high deductible health plans by patients.

As these high deductibles reset in January for most of these patients, we have observed that patients utilize medical services less during the first quarter, when securing medical care will result in significant out-of-pocket expenditures.

The Company’s total net revenues during the three and six months ended June 30, 2020 and 2019 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

The Company’s total service revenue during the three and nine months ended September 30, 2020 and 2019 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Commercial insurance $ 160,524 $ 163,152 $ 412,415 $ 475,064

Medicare 62,704 61,599 154,847 175,825

Medicaid 7,098 7,128 18,072 21,564

Workers' compensation/personal injury 7,183 10,865 25,705 32,950

2 unchanged sentences

Teleradiology and Software revenue 2,349 4,412 8,319 12,861

Net service fee revenue

Other 5,869 6,875 15,617 20,878

Service fee revenue 256,730 261,908 660,760 762,751

Revenue under capitation arrangements 35,046 30,784 103,145 90,587

Total net revenue

Investment, Acquisition, and Joint Venture Activity

Total service revenue $ 291,776 $ 292,692 $ 763,905 $ 853,338

We typically experience some seasonality to our revenue stream.

During the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year.

It is common for inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures.

Second, in recent years, we have observed greater participation in high deductible health plans by patients.

Recent Developments

The discussion below of our results centers on our performance in the third quarter ending September 30, 2020.

As discussed in our Form 8-K filed on April 3, 2020, the overall impact of the coronavirus pandemic on RadNet’s business has had and could continue to have a material impact on our operating results, cash flows and financial position.

As as result of the pandemic we began experiencing reduced procedure volumes in mid-March which intensified through the early part of the second quarter of 2020.

As economic activity has begun to ramp-up, our procedure volumes have returned to our pre-COVID-19 pace, from a low of 28% pre-COVID-19 volumes experienced in April 2020.

Our experience has shown that lost imaging slots in one quarter are not made up within that period or in subsequent quarters.

We continue to adapt our operations in response to the pandemic where needed and implemented several cost-saving measures such as concentrating patient traffic to larger imaging centers, negotiating payment terms with vendors and landlords, adjusting staff levels and telecommuting.

Equity Investments, Acquisitions and Dispositions, and Joint Venture Activity

We have developed our medical imaging business through a combination of organic growth, equity investments, acquisitions and joint venture formations.

1 unchanged sentence

Equity Investments

As of June 30, 2020 , we have three equity investments for which a fair value is not readily determinable and therefore the total amounts invested are recognized at cost as follows:

Medic Vision:

As of September 30, 2020, we have three equity investments for which a fair value is not readily determinable and therefore the total amounts invested are recognized at cost as follows

Medic Vision Imaging Solutions Ltd., based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans.

4 unchanged sentences

In accordance with accounting guidance , as we exercise no significant influence over Medic Vision’s operations, the investment is recorded at its cost of $1.2 million, given that the fair value is not readily determinable.

No impairment in our investment was identified as of June 30, 2020 .

Turner Imaging:

No observable price changes or impairment in our investment was identified as of September 30, 2020.

Turner Imaging Systems, based in Utah, develops and markets portable X-ray imaging systems that provide a user the ability to acquire X-ray images wherever and whenever they are needed.

1 unchanged sentence

On January 1, 2019 we funded a convertible promissory note in the amount of $0.1 million that converted to additional 80,000 shares December 21, 2019.

No impairment in our investment was identified as of June 30, 2020 .

WhiteRabbit.ai Inc:

No observable price changes or impairment in our investment was identified as of September 30, 2020.

WhiteRabbit.ai Inc., based in California, is currently developing an artificial intelligence suite which aims to improve the speed and accuracy of cancer detection in radiology and improve patient care.

On November 5, 2019 we acquired an equity interest in the company for $1.0 million and also loaned the company $2.5 million in support of its operations, the principal of which is due November 2022.

On November 5, 2019 we acquired an equity interest in the company for $1.0 million and also loaned the company $2.5 million, the principal of which is due November 2022.

To leverage their artificial intelligence expertise, we entered into a software subscription service contract to assist our radiology work flow and advanced them $4.0 million for future software subscription fees that is recorded as a prepaid expense in Prepaid and Other Current assets in our consolidated balance sheets.

No impairment in our investment or the loan receivable was identified as of June 30, 2020 .

No observable price changes or impairment in our investment or the loan receivable was identified as of September 30, 2020.

Facility acquisitions

On August 31, 2020 we completed our acquisition of certain assets of AZ-Tech Radiology & Open MRI, LLC, consisting of eight multi-modality imaging centers located in the Phoenix, Arizona area for purchase consideration of $5.5 million.

We made a preliminary fair value determination of the acquired assets and assumed liabilities and approximately $2.5 million in property and equipment, $7.6 million in right-of-use assets, $0.1 million in other assets, $7.6 million in operating lease liabilities, and $2.9 million in goodwill were recorded.

On June 1, 2020, we completed our acquisition of all the equity interests of DeepHealth Inc., ("DeepHealth") an artificial intelligence and machine learning company in an all stock purchase.

4 unchanged sentences

The fair value of the contingent consideration was estimated at the date of acquisition based on our share price and estimated probability of the achievement of the respective milestones.

We preliminarily recorded $0.1 million in current assets, $3.5 million in deferred tax liabilities, $14.8 million in intangible assets, primarily in-process research and development ("IPR&D'), and $23.4 million in goodwill.

The goodwill is primarily attributable to expected post-acquisition synergies from integrating Deep Health’s assembled workforce and IPR&D technologies.

We preliminarily recorded $0.1 million in current assets, $3.5 million in deferred tax liabilities, $14.8 million in intangible assets, primarily in-process research and

development ("IPR&D'), and $23.4 million in goodwill.

The goodwill is primarily attributable to expected post-acquisition synergies from integrating DeepHealth’s assembled workforce and IPR&D technologies.

The fair values of the identifiable intangible assets related to IPR&D were determined by the income method and the assets will not be amortized until completion.

On March 2, 2020 our consolidated subsidiary New Jersey Imaging Networks ("NJIN") completed the acquisition of certain assets of MRI at Woodbridge, LLC consisting of a single multi-modality imaging center located in Avenel, New Jersey for consideration of $2.6 million.

NJIN made a fair value determination of the acquired assets and assumed liabilities and

approximately $0.5 million in property and equipment, $1.1 million in right-of-use assets, $0.3 million in intangible assets, $1.1 million in operating lease liabilities, $0.1 million in finance lease liabilities, and $1.8 million in goodwill were recorded.

NJIN made a fair value determination of the acquired assets and assumed liabilities and approximately $0.5 million in property and equipment, $1.1 million in right-of-use assets, $0.3 million in intangible assets, $1.1 million in operating lease liabilities, $0.1 million in finance lease liabilities, and $1.8 million in goodwill were recorded.

On January 2, 2020 we completed our acquisition of certain assets of Olney Open MRI, LLC, consisting of a single multi-modality imaging center located in Columbia, Maryland for consideration of $1.8 million.

4 unchanged sentences

With this transaction, we have exited the teleradiology business.

Joint venture investment and financial information

The following table is a summary of our investment in joint ventures during the six months ended June 30, 2020 (in thousands):

Joint venture investment contribution

During the month of August 2020, we made additional cash contributions to our Santa Monica Imaging Group, LLC partnership in the amount of $1.6 million in support of its expanded operations.

We maintain our 35% economic interest in the partnership.

Joint Venture Activity

The following table is a summary of our investment in joint ventures during the nine months ended September 30, 2020 (in thousands):

Balance as of December 31, 2019 $ 34,470

Equity in earnings in these joint ventures 5,176

Balance as of June 30, 2020

We charged management service fees from the centers underlying these joint ventures of approximately $3.3 million and $1.8 million for the three months ended June 30, 2020 and 2019 , respectively.

and $5.9 million and $3.9 million for the six months ended June 30, 2020 and 2019 , respectively.

Balance as of September 30, 2020 $ 35,571

We charged management service fees from the centers underlying these joint ventures of approximately $2.7 million and $1.8 million for the three months ended September 30, 2020 and 2019, respectively.

and $8.6 million and $7.8 million for the nine months ended September 30, 2020 and 2019, respectively.

We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures.

The following table is a summary of key balance sheet data for these joint ventures as of June 30, 2020 and December 31, 2019 and income statement data for the six months ended June 30, 2020 and 2019 (in thousands):

The following table is a summary of key balance sheet data for these joint ventures as of September 30, 2020 and December 31, 2019 and income statement data for the nine months ended September 30, 2020 and 2019 (in thousands):

Balance Sheet Data:

September 30,

2020 December 31,

Current assets $ 26,618 $ 27,427

7 unchanged sentences

Total book value of other joint venture partner interests $ 34,835 $ 32,374

Income statement data for the six months ended June 30, 2020

Income statement data for the nine months ended September 30, 2020 2019

Net revenue $ 78,988 $ 80,115

Net income $ 13,651 $ 13,718

Critical Accounting Policies

The Securities and Exchange Commission defines critical accounting estimates as those that are both most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

In Note 2 to our consolidated financial statements in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2019 , we discuss our significant accounting policies, including those that

do not require management to make difficult, subjective or complex judgments or estimates.

In Note 2 to our consolidated financial statements in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2019, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates.

The most significant areas involving management’s judgments and estimates are described below.

13 unchanged sentences

Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans.

Provider Relief Fund

In the second quarter of 2020, we received approximately $25.5 million in funding from The Provider Relief Fund , that offered government assistance to eligible providers throughout the healthcare system in support of certain expenses or lost revenue attributable to the coronavirus pandemic.

Provider Relief Fund (COVID-19 Stimulus Funding)

The Provider Relief Fund offers government assistance to eligible providers throughout the healthcare system in support of certain expenses or lost revenue attributable to the coronavirus pandemic.

In the third quarter of 2020, we received approximately $0.2 million in funding and for nine months ended September 30, 2020 we have received funding of $25.7 million.

Generally, the department of Health and Human Services ("HHS") does not intend to recoup funds as long as a provider's lost revenue and increased expenses exceed the amount of provider relief funding one has received.

1 unchanged sentence

Failure to comply with the terms and conditions may be grounds for recoupment.

During the quarter ended September 30, 2020, we continued to evaluate our operating results and gave consideration to the updated reporting guidelines issued in September by the U.S.

Department of Health and Human Services that significantly changed the measurement of Provider Relief Fund distributions providers are able to retain.

Based on our assessment recognition of the revenue previously recognized remained appropriate.

Accounts Receivable

10 unchanged sentences

Deferred Revenue

DEFERRED REVENUE - Deferred revenue represents liability for payments received for performance obligations which have yet to be satisfied and is offen associated with sales of our eRad subsidiary.

In April of 2020, we received approximately $39.4 million in advanced Medicare payments from the Centers for Medicare and Medicaid Services ("CMS") as part of the expanded Accelerated and Advance Payment Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

3 unchanged sentences

Property and equipment are stated at cost, less accumulated depreciation and amortization.

Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years.

Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range

from 3 to 15 years.

Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years.

1 unchanged sentence

Business Combination

In January 2017, the FASB issued ASU No.

We evaluate all purchases under the framework in ASU No.

2017-01 (“ASU 2017-01”), Clarifying the Definition of a Business.

The update provides a framework for evaluating whether a transaction should be accounted for as an acquisition and/or disposal of a business versus assets.

In order for a purchase to be considered an acquisition of a business, and receive business combination accounting treatment, the set of transferred assets and activities must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.

If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the set of transferred assets and activities is not a business.

We first evaluate all purchases under this framework.

Once the purchase has been determined to be the acquisition of a business, we are required to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.

4 unchanged sentences

Goodwill and Indefinite Lived Intangibles

Goodwill at June 30, 2020 totaled $467.8 million .

Indefinite Lived Intangible Assets at June 30, 2020 were $11.3 million and are associated with the value of certain trade name intangibles.

Goodwill at September 30, 2020 totaled $470.7 million.

Indefinite Lived Intangible Assets at September 30, 2020 were $11.3 million and are associated with the value of certain trade name intangibles.

Goodwill and trade name intangibles are recorded as a result of business combinations.

2 unchanged sentences

In addition to the annual impairment test, we regularly assess if an event has occurred which would require interim impairment testing.

We considered the current and expected future economic and market conditions surrounding the novel strain of coronavirus ("COVID-19") pandemic and did not identify an indication of goodwill impairment being more likely than not through June 30, 2020 .

Long-Lived Assets

3 unchanged sentences

The amount of the impairment charge is calculated as the excess of the asset’s carrying value over its fair value, which generally represents the discounted future cash flows from that asset or in the case of assets we expect to sell, at fair value less costs to sell.

No indicators of impairment were identified with respect to our long-lived assets as of June 30, 2020 .

No indicators of impairment were identified with respect to our long-lived assets as of September 30, 2020.

Depreciation and Amortization of Long-Lived Assets

11 unchanged sentences

For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted.

For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term.

ROU assets are tested for impairment if circumstances suggest that the carrying amount may not be recoverable.

For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term.

are tested for impairment if circumstances suggest that the carrying amount may not be recoverable.

Our ROU assets consist of facility and equipment assets on operating leases.

6 unchanged sentences

The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017.

We have reserved 14,000,000 shares of common stock for issuance under the Restated Plan .

We can issue options, stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan.

Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations.

Stock options and warrants generally vest over three to five years and expire five to ten years from date of grant.

We have reserved 14,000,000 shares of common stock for issuance under the Restated Plan which can be issued in the form of options, stock awards, stock appreciation rights, and cash awards.

Stock options generally vest over three to five years and expire five to ten years from date of grant.

We determine the compensation expense for each stock option award using the Black Scholes, or similar valuation model.

Those models require that our management make certain estimates concerning risk free interest rates and volatility in the trading price of our common stock.

The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods.

11 unchanged sentences

However, the outcome of these matters is inherently uncertain.

Therefore, if one or more of these matters were resolved against us for amounts in excess of

management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.

Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.

Recent Accounting Standards

1 unchanged sentence

Results of Operations

The following table sets forth, for the three and six months ended June 30, 2020 and 2019 , the percentage that certain items in the statements of operations bears to total revenue, inclusive of revenue under capitation contracts.

The following table sets forth, for the three and nine months ended September 30, 2020 and 2019, the percentage that certain items in the statements of operations bears to total service revenue, inclusive of revenue under capitation contracts.

AND SUBSIDIARIES

2 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Service fee revenue 88.0 % 89.5 % 86.5 % 89.4 %

Revenue under capitation arrangements 12.0 % 10.5 % 13.5 % 10.6 %

Total revenue

Total service revenue 100.0 % 100.0 % 100.0 % 100.0 %

Provider relief funding 0.1 % — % 3.4 % — %

2 unchanged sentences

Depreciation and amortization 7.3 % 7.0 % 8.4 % 7.1 %

(Gain) loss on sale and disposal of equipment and other

Loss on sale and disposal of equipment and other 0.1 % 0.3 % 0.1 % 0.2 %

Severance costs 0.2 % — % 0.2 % 0.1 %

Total operating expenses 92.1 % 94.2 % 101.4 % 94.6 %

INCOME (LOSS) FROM OPERATIONS

INCOME FROM OPERATIONS 8.0 % 5.8 % 1.9 % 5.4 %

OTHER INCOME AND EXPENSES

4 unchanged sentences

Total other expenses 3.2 % 3.4 % 4.3 % 3.7 %

(LOSS) INCOME BEFORE INCOME TAXES

Benefit from (provision for) income taxes

NET (LOSS) INCOME

INCOME (LOSS) BEFORE INCOME TAXES 4.8 % 2.4 % (2.3) % 1.7 %

(Provision for) benefit from income taxes (1.3) % (0.6) % 0.7 % (0.4) %

NET INCOME (LOSS) 3.5 % 1.7 % -1.7 % 1.3 %

Net income attributable to noncontrolling interests 1.4 % 0.6 % 1.1 % 0.7 %

NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC.

NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC.

COMMON STOCKHOLDERS 2.1 % 1.1 % (2.6) % 0.5 %

We have developed our medical imaging business through a combination of organic growth, equity investments, acquisitions and joint venture formations.

We have segregated some of our information to demonstrate which is attributable to

centers that were in operation through the entirety of the comparison period, and which is attributable to those that were acquired or disposed of during the period.

The discussion below shows a breakdown and analysis of revenue and expenses for the three and six months ended June 30, 2020 and 2019 for our operations at a total company and same center level.

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

We have segregated some of our information to demonstrate which is attributable to centers that were in operation through the entirety of the comparison period, and which is attributable to those that were acquired or disposed of during the period.

The discussion below shows a breakdown and analysis of revenue and expenses for the three and nine months ended September 30, 2020 and 2019 for our operations at a total company and same center level.

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Total Revenue inclusive of Provider Relief funding for 2020

Three Months Ended June 30,

$ Increase/(Decrease)

In Thousands Three Months Ended September 30,

Revenue 2020 2019 $ Increase/(Decrease) % Change

Total Revenue $291,997 $292,692 $(695) (0.2)%

Same Center Revenue $288,919 $288,700 $219 0.1%

Our nationwide operations were affected by the COVID-19 pandemic starting mid March 2020 which continued into the second quarter and resulted in an approximate 43% decrease in same center procedural volumes compared to the same period last year.

Inclusive in the reported 2020 revenue is $25.5 million received in Provider Relief funding, which, per the official designation of the program, was used to offset lost revenues.

This comparison excludes revenue contributions from centers that were acquired or divested subsequent to April 1, 2019 .

For the three months ended June 30, 2020 , net service fee revenue from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $2.0 million .

For the three months ended June 30, 2019 , net service fee revenue from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $4.8 million .

Our nationwide operations were affected by the COVID-19 pandemic starting mid March 2020 and has resulted in an approximate 5% decrease in same center procedural volumes compared to the same period last year.

Same Center Revenue however remained flat due to a 14% rise in revenue under capitation arrangements stemming from a combination of rate increases, plan membership growth and higher copays.

This comparison excludes revenue contributions from centers that were acquired or divested subsequent to July 1, 2019.

For the three months ended September 30, 2020, net service fee revenue from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $3.1 million.

For the three months ended September 30, 2019, net service fee revenue from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $4.0 million.

Operating Expenses

Total operating expenses for the three months ended June 30, 2020 decreased approximately $51.3 million , or 19.2% , from $267.1 million for the three months ended June 30, 2019 to $215.9 million for the three months ended June 30, 2020 .

The following table sets forth our cost of operations and total operating expenses for the three months ended June 30, 2020 and 2019 (in thousands):

Total operating expenses for the three months ended September 30, 2020 decreased approximately $7.2 million, or 2.6%, from $275.8 million for the three months ended September 30, 2019 to $268.6 million for the three months ended September 30, 2020.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 149,970 $ 160,757

3 unchanged sentences

Other operating expenses *

55,225 53,082

Cost of operations 246,463 254,383

5 unchanged sentences

Salaries and professional reading fees, excluding stock-based compensation and severance

Three Months Ended June 30,

Salaries and Professional Fees

$ Increase/(Decrease)

In Thousands Three Months Ended September 30,

Salaries and Professional Fees 2020 2019 $ Increase/(Decrease) % Change

Total Salaries $149,970 $160,757 $(10,787) (6.7)%

Same Center Salaries $146,698 $158,270 $(11,572) (7.3)%

The decrease in salaries expense was a result of staff furloughs and salary reductions initiated in response to the COVID-19 crisis.

To support our current operations, certain of our subsidiaries have accepted approximately $4.0 million in loans from the Paycheck Protection Program (PPP).

We have used the funds to pay program approved payroll expenses to both maintain and rehire furloughed employees.

This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2019 .

For the three months ended June 30, 2020 , salaries and professional reading fees from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $1.4 million .

For the three months ended June 30, 2019 , salaries and professional reading fees from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was approximately $2.9 million .

The decrease in salaries expense was a result of staff furloughs and salary reductions initiated in response to the COVID-19 pandemic.

During this time, we have reengineered our workflow to improve efficiency and make workforce adjustments as necessary resulting in reductions to payroll overall.

This comparison excludes expenses from centers that were acquired or divested subsequent to July 1, 2019.

For the three months ended September 30, 2020, salaries and professional reading fees from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $3.3 million.

For the three months ended September 30, 2019, salaries and professional reading fees from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was approximately $2.5 million.

Stock-based compensation

Stock-based compensation increased $0.4 million , or 39.4% to approximately $1.5 million for the three months ended June 30, 2020 compared to $1.0 million for three months ended June 30, 2019 .

This increase was driven by the higher fair value of RSA’s awarded and vested in the first quarter of 2020 as compared to RSA’s awarded and vested in the prior year’s first quarter.

Stock-based compensation increased $0.7 million, or 49.7% to approximately $2.1 million for the three months ended September 30, 2020 compared to $1.4 million for three months ended September 30, 2019.

This increase was driven by the higher fair value of RSA’s awarded and vested in the third quarter of 2020 as compared to RSA’s awarded and vested in the prior year’s third quarter.

Building and equipment rental

Three Months Ended June 30,

Building & Equipment Rental

$ Increase/(Decrease)

This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2019 .

For the three months ended June 30, 2020 , building and equipment rental expenses from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $0.9 million .

For the three months ended June 30, 2019 , building and equipment rental expenses from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was approximately $0.8 million .

In Thousands Three Months Ended September 30,

Building & Equipment Rental 2020 2019 $ Increase/(Decrease) % Change

Total $26,703 $26,850 $(147) (0.6)%

Same Center $25,839 $25,968 $(129) (0.5)%

This comparison excludes expenses from centers that were acquired or divested subsequent to July 1, 2019.

For the three months ended September 30, 2020, building and equipment rental expenses from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $0.9 million.

For the three months ended September 30, 2019, building and equipment rental expenses from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was approximately $0.9 million.

Medical supplies

Three Months Ended June 30,

Medical Supplies Expense

$ Increase/(Decrease)

The reduced medical supplies expense correlated to lower procedure volumes and enabled medical supplies obtained in anticipation of pre-COVID-19 levels in the first quarter to be used throughout the second quarter.

This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2019 .

For the three months ended June 30, 2020 , medical supplies expenses from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $0.1 million .

For the three months ended June 30, 2019 , medical supplies expense from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $0.2 million .

Other operating expenses

Three Months Ended June 30,

In Thousands Three Months Ended September 30,

Medical Supplies Expense 2020 2019 $ Increase/(Decrease) % Change

Total $12,498 $12,313 $185 1.5%

Same Center $12,374 $12,143 $231 1.9%

Medical supplies expense remained essentially flat compared to the same period in the prior year, with the nominal increase related to securing personal protective equipment for center staff.

This comparison excludes expenses from centers that were acquired or divested subsequent to July 1, 2019.

For the three months ended September 30, 2020, medical supplies expenses from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $0.1 million.

For the three months ended September 30, 2019, medical supplies expense from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $0.2 million.

Other operating expenses

$ Increase/(Decrease)

Other operating expenses decrease was related in part to contract re-negotiations offering improved rates from vendors across a range of services such as equipment repairs and maintenance, janitorial and billing.

This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2019 .

For the three months ended June 30, 2020 , other operating expense from centers that were acquired or divested subsequent April 1, 2019 and excluded from the above comparison was $0.5 million .

For the three months ended June 30, 2019 , other operating expense from centers that were acquired or divested subsequent to April 1, 2019 was $0.9 million .

In Thousands Three Months Ended September 30,

Other Operating Expenses 2020 2019 $ Increase/(Decrease) % Change

Total $55,225 $53,082 $2,142 4.0%

Same Center $54,053 $52,165 $1,888 3.6%

The rise in other operating expenses resulted from seasonal utilities usage and outside services, offset by reductions in insurance charges and other expenses.

This comparison excludes expenses from centers that were acquired or divested subsequent to July 1, 2019.

For the three months ended September 30, 2020, other operating expense from centers that were acquired or divested subsequent July 1, 2019 and excluded from the above comparison was $1.2 million.

For the three months ended September 30, 2019, other operating expense from centers that were acquired or divested subsequent to July 1, 2019 was $0.9 million.

Depreciation and amortization

Three Months Ended June 30,

Depreciation & Amortization

$ Increase/(Decrease)

The increase in same center depreciation and amortization is primarily due to additional equipment and leasehold improvements placed in service in the second quarter in 2020 over the second quarter in 2019.

This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2019 .

For the three months ended June 30, 2020 , depreciation expense from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $0.6 million .

For the three months ended June 30, 2019 , depreciation and amortization from centers that were acquired or divested subsequent to April 1, 2019 and excluded from the above comparison was $0.5 million .

(Gain) loss on sale and disposal of equipment and other

We recorded a gain on the disposal of equipment and other items of approximately $0.6 million for the three months ended June 30, 2020 and a loss of approximately $0.1 million for the three months ended June 30, 2019 .

In Thousands Three Months Ended September 30,

Depreciation & Amortization 2020 2019 $ Increase/(Decrease) % Change

Total $21,247 $20,490 $758 3.7%

Same Center $20,505 $19,912 $593 3.0%

The increase in same center depreciation and amortization is primarily due to additional equipment and leasehold improvements placed in service in the third quarter in 2020 over the third quarter in 2019.

This comparison excludes expenses from centers that were acquired or divested subsequent to July 1, 2019.

For the three months ended September 30, 2020, depreciation expense from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $0.7 million.

For the three months ended September 30, 2019, depreciation and amortization from centers that were acquired or divested subsequent to July 1, 2019 and excluded from the above comparison was $0.6 million.

Loss on sale and disposal of equipment and other

We recorded losses on the disposal of equipment and other items of approximately $0.3 million for the three months ended September 30, 2020 and approximately $0.9 million for the three months ended September 30, 2019.

Non-cash change in fair value of interest rate hedge

We recorded expense of $3.8 million for the ineffective portion of our 2019 Swaps for the three months ended June 30, 2020 .

We recorded expense of $0.7 million for the ineffective portion of our 2019 Swaps for the three months ended September 30, 2020.

Other (income) expenses

We recorded other income of approximately $0.1 million for the three months ended June 30, 2020 and other expenses of approximately $1.3 million for the three months ended June 30, 2019 related to refinancing of our term loan debt and legal contingency charges.

We recorded other income of approximately $0.1 million for the three months ended September 30, 2020 and other expenses of approximately $0.0 million for the three months ended September 30, 2019 related to refinancing of our term loan debt and legal contingency charges.

Severance Costs

We incurred severance expenses of $0.9 million for the three months ended June 30, 2020 and $0.4 million for the three months ended June 30, 2019 .

Interest expense

Three Months Ended June 30,

We incurred severance expenses of $0.6 million for the three months ended September 30, 2020 and $0.1 million for the three months ended September 30, 2019.

Interest expense

$ Increase/(Decrease)

In Thousands Three Months Ended September 30,

Interest Expense 2020 2019 $ Increase/(Decrease) % Change

Total Interest Expense $11,061 $11,895

Interest related to derivatives* $1,603 $(288)

Interest payable on debt obligations** $9,458 $12,183 $(2,725) (22.4) %

Interest related to amortization*** $1,103 $1,081

Adjusted Interest Expense $8,355 $11,102 $(2,747) (24.7) %

*Includes combined non cash amortization of deferred loan costs, discount on issuance of debt and accumulated other comprehensive loss.

Excluding the non cash interest amounts for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 , interest expense decreased $2.4 million , or 21.5% .

* Includes interest on 2016 caps and 2019 swaps not related to debt obligations.

** Includes interest related to on our term loans, revolving credit line, notes, finance leases, and other

***Includes combined noncash amortization of deferred loan costs and discount on issuance of debt.

Excluding interest expense for derivatives and amortization for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, interest expense decreased $2.7 million, or 24.7%.

The reduction in interest expense corresponds to lowered variable LIBOR and Prime interest rates paid on our term loan and revolving debt in reaction to market conditions surrounding COVID-19.

1 unchanged sentence

Equity in earnings from unconsolidated joint ventures

For the three months ended June 30, 2020 we recognized equity in earnings from unconsolidated joint ventures in the amount of $0.9 million and for three months ended June 30, 2019 we recognized equity in earnings from unconsolidated joint ventures of $2.2 million , an decrease of $1.3 million or (57.9)% related to the market conditions stemming from the COVID-19 pandemic.

Income tax benefit

We recorded an income tax benefit of $4.5 million , or an effective tax rate of 33.3% , for the three months ended June 30, 2020 compared to an income tax provision of $3.0 million , or an effective tax rate of 28.1% for the three months ended June 30, 2019 .

The income tax rates for the three and six months ended June 30, 2020 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships;

For the three months ended September 30, 2020 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.3 million and for three months ended September 30, 2019 we recognized equity in earnings from unconsolidated joint ventures of $2.0 million, an increase of $0.3 million or 16.4% and was related to improved procedure volumes specifically at our joint venture sites located within hospital campuses.

Income tax provision

We recorded an income tax provision of $3.8 million, or an effective tax rate of 27.2%, for the three months ended September 30, 2020 compared to an income tax provision of $1.8 million, or an effective tax rate of 26.3% for the three months ended September 30, 2019.

The income tax rates for the three and nine months ended September 30, 2020 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships;

(ii) effects of state income taxes;

and (iii) excess tax benefits attributable to share-based compensation.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Total Revenue inclusive of Provider Relief funding for 2020

Six Months Ended June 30, 2020

$ Increase/(Decrease)

In Thousands Nine Months Ended September 30, 2020

Revenue 2020 2019 $ Increase/(Decrease) % Change

Total Revenue $789,601 $853,338 $(63,737) (7.5)%

Same Center Revenue $750,358 $817,492 $(67,134) (8.2)%

Our procedure volumes were affected by the COVID-19 pandemic, a downward effect that continued into the second quarter and resulted in an approximate 23% decrease in same center procedural volumes year over year.

Inclusive in the reported 2020 revenue is $25.5 million received in Provider Relief funding, which, per the official designation of the program, was used to offset lost revenues.

Our procedure volumes were affected by the COVID-19 pandemic, which has precipitated an approximate 17% decrease in same center procedural volumes year over year.

Mitigating the income decline is $25.7 million received in Provider Relief funding, which, per the official designation of the program, was used to offset lost revenues.

This comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2019.

For the six months ended June 30, 2020 , net service fee revenue from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $27.2 million .

For the six months ended June 30, 2019 , net service fee revenue from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $24.4 million .

For the nine months ended September 30, 2020, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $39.2 million.

For the nine months ended September 30, 2019, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $35.8 million.

Operating Expenses

Total operating expenses for the six months ended June 30, 2020 decreased approximately $25.2 million , or 4.7% , from $531.4 million for the six months ended June 30, 2020 to $506.2 million for the three months ended June 30, 2020 .

The following table sets forth our cost of operations and total operating expenses for the three months ended June 30, 2020 and 2019 (in thousands):

Six Months Ended June 30, 2020

Total operating expenses for the nine months ended September 30, 2020 decreased approximately $32.4 million, or 4.0%, from $807.2 million for the nine months ended September 30, 2020 to $774.8 million for the nine months ended September 30, 2019.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30, 2020

Salaries and professional reading fees, excluding stock-based compensation $ 429,292 $ 471,792

3 unchanged sentences

Other operating expenses *

154,700 152,512

Cost of operations 708,096 743,998

5 unchanged sentences

Salaries and professional reading fees, excluding stock-based compensation and severance

Six Months Ended June 30, 2020

Salaries and Professional Fees

$ Increase/(Decrease)

In Thousands Nine Months Ended September 30, 2020

Salaries and Professional Fees 2020 2019 $ Increase/(Decrease) % Change

Total Salaries $429,292 $471,792 $(42,501) (9.0)%

1 unchanged sentence

The decrease in salaries expense was a result of staff furloughs and salary reductions initiated in response to the COVID-19 crisis.

To support our current operations, certain of our subsidiaries have accepted approximately $4.0 million in loans from the Paycheck Protection Program (PPP).

We have used the funds to pay program approved payroll expenses to both maintain and rehire furloughed employees.

As noted in our quarterly explanation above, our review of operational workflows has provided greater efficiencies and resulted in payroll reductions.

Additionally certain of our subsidiaries have accepted approximately $4.0 million in loans from the Paycheck Protection Program (PPP) and the funds were used to pay program approved payroll expenses to both maintain and rehire furloughed employees.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2019.

For the six months ended June 30, 2020 , salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $13.8 million .

For the six months ended June 30, 2019 , salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was approximately $13.7 million .

For the nine months ended September 30, 2020, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $20.3 million.

For the nine months ended September 30, 2019, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was approximately $20.1 million.

Stock-based compensation

Stock-based compensation increased $2.5 million , or 44.7% to approximately $8.1 million for the six months ended June 30, 2020 compared to $5.6 million for six months ended June 30, 2019 .

This increase was driven by the higher fair value of RSA’s awarded and vested in the first half of 2020 as compared to RSA’s awarded and vested in the prior year’s first half.

Stock-based compensation increased $3.2 million, or 45.7% to approximately $10.1 million for the nine months ended September 30, 2020 compared to $7.0 million for nine months ended September 30, 2019.

This increase was driven by the higher fair value of RSA’s awarded and vested in the nine months of 2020 as compared to RSA’s awarded and vested in the prior year’s same period.

Building and equipment rental

Six Months Ended June 30, 2020

Building & Equipment Rental

$ Increase/(Decrease)

In Thousands Nine Months Ended September 30, 2020

Building & Equipment Rental 2020 2019 $ Increase/(Decrease) % Change

Total $80,148 $79,017 $1,131 1.4%

Same Center $74,705 $74,485 $219 0.3%

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2019.

For the six months ended June 30, 2020 , building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $4.3 million .

For the six months ended June 30, 2019 , building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was approximately $3.5 million .

For the nine months ended September 30, 2020, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $5.4 million.

For the nine months ended September 30, 2019, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was approximately $4.5 million.

Medical supplies

Six Months Ended June 30, 2020

Medical Supplies Expense

$ Increase/(Decrease)

In Thousands Nine Months Ended September 30, 2020

Medical Supplies Expense 2020 2019 $ Increase/(Decrease) % Change

Total $33,812 $33,713 $99 0.3%

Same Center $31,155 $30,971 $184 0.6%

Year over year medical supplies expense remained relatively flat due to varying factors.

In the first quarter, we noted a 21% same store increase stemming from securing personal protective equipment and procurement of specialized imaging agents.

While in the second quarter, a 25% same store expense reduction was correlated to lower procedural volumes.

The first quarter noted a 21% same store increase stemming from securing personal protective equipment and procurement of specialized imaging agents, while in the second quarter, a 25% same store expense reduction was correlated to lower procedural volumes.

In the third quarter we consumed medical supplies ordered in prior periods to meet patient demands.

The cumulative effect of these factors has resulted in the year over year stability of medical supplies expense.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2019.

For the six months ended June 30, 2020 , medical supplies expenses from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $2.1 million .

For the six months ended June 30, 2019 , medical supplies expense from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $1.7 million .

Other operating expenses

Six Months Ended June 30, 2020

For the nine months ended September 30, 2020, medical supplies expenses from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $2.7 million.

For the nine months ended September 30, 2019, medical supplies expense from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $2.7 million.

Other operating expenses

$ Increase/(Decrease)

In Thousands Nine Months Ended September 30, 2020

Other Operating Expenses 2020 2019 $ Increase/(Decrease) % Change

Total $154,700 $152,512 $2,188 1.4%

Same Center $148,358 $146,397 $1,962 1.3%

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2019.

For the six months ended June 30, 2020 , other operating expense from centers that were acquired or divested subsequent January 1, 2019 and excluded from the above comparison was $4.1 million .

For the six months ended June 30, 2019 , other operating expense from centers that were acquired or divested subsequent to January 1, 2019 was $4.3 million .

For the nine months ended September 30, 2020, other operating expense from centers that were acquired or divested subsequent January 1, 2019 and excluded from the above comparison was $6.3 million.

For the nine months ended September 30, 2019, other operating expense from centers that were acquired or divested subsequent to January 1, 2019 was $6.1 million.

Depreciation and amortization

Six Months Ended June 30, 2020

Depreciation & Amortization

$ Increase/(Decrease)

The increase in same center depreciation and amortization is primarily due to additional equipment and leasehold improvements placed in service in the first half of 2020 over the first half 2019.

In Thousands Nine Months Ended September 30, 2020

Depreciation & Amortization 2020 2019 $ Increase/(Decrease) % Change

Total $64,536 $60,193 $4,343 7.2%

Same Center $60,923 $57,086 $3,837 6.7%

The increase in same center depreciation and amortization is primarily due to additional equipment and leasehold improvements placed in service in the nine months of 2020 over the same period in 2019.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2019.

For the six months ended June 30, 2020 , depreciation expense from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $2.7 million .

For the six months ended June 30, 2019 , depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $2.0 million .

(Gain) loss on sale and disposal of equipment and other

We recorded losses on the disposal of equipment and other items of approximately $0.2 million for the six months ended June 30, 2020 and approximately $1.1 million for the six months ended June 30, 2019 .

For the nine months ended September 30, 2020, depreciation expense from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $3.6 million.

For the nine months ended September 30, 2019, depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2019 and excluded from the above comparison was $3.1 million.

Loss on sale and disposal of equipment and other

We recorded losses on the disposal of equipment and other items of approximately $0.5 million for the nine months ended September 30, 2020 and approximately $2.0 million for the nine months ended September 30, 2019.

Non-cash change in fair value of interest rate hedge

We recorded expense of $3.8 million for the ineffective portion of our 2019 Swaps for the six months ended June 30, 2020 .

We recorded expense of $4.5 million for the ineffective portion of our 2019 Swaps for the nine months ended September 30, 2020.

Other (income) expenses

We recorded other income of approximately $0.1 million for the six months ended June 30, 2020 and other expenses of approximately $1.3 million for the six months ended June 30, 2019 related to refinancing of our term loan debt and legal contingency charges.

We recorded other income of approximately $0.2 million for the nine months ended September 30, 2020 and other expenses of approximately $1.3 million for the nine months ended September 30, 2019 related to refinancing of our term loan debt and legal contingency charges.

Severance Costs

We incurred severance expenses of $1.1 million for the six months ended June 30, 2020 and $1.0 million for the six months ended June 30, 2019 .

Interest expense

Six Months Ended June 30, 2020

We incurred severance expenses of $1.6 million for the nine months ended September 30, 2020 and $1.1 million for the nine months ended September 30, 2019.

Interest expense

$ Increase/(Decrease)

In Thousands Nine Months Ended September 30, 2020

Interest Expense 2020 2019 $ Increase/(Decrease) % Change

Total Interest Expense $33,443 $36,589

Interest related to derivatives* $3,152 $(1,182)

Interest payable on debt obligations** $30,291 $37,771 $(7,480) (19.8) %

Interest related to amortization*** $3,266 $3,103

Adjusted Interest Expense $27,025 $34,668 $(7,643) (22.0) %

*Includes combined non cash amortization of deferred loan costs, discount on issuance of debt and accumulated other comprehensive loss.

Excluding the non cash interest amounts for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , interest expense decreased $3.3 million , or 14.8% .

* Includes interest on 2016 caps and 2019 swaps not related to debt obligations.

** Includes interest related to our term loans, revolving credit line, notes, finance leases, and other

***Includes combined noncash amortization of deferred loan costs and discount on issuance of debt.

Excluding interest expense for derivatives and amortization for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, interest expense decreased $7.6 million, or 22.0%.

The reduction in interest expense corresponds to lowered variable LIBOR and Prime interest rates paid on our term loan and revolving debt in reaction to market conditions surrounding COVID-19.

1 unchanged sentence

Equity in earnings from unconsolidated joint ventures

For the six months ended June 30, 2020 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.9 million and for six months ended June 30, 2019 we recognized equity in earnings from unconsolidated joint ventures of $4.1 million , an decrease of $1.2 million or 29.6% , related to the market conditions stemming from COVID-19.

For the nine months ended September 30, 2020 we recognized equity in earnings from unconsolidated joint ventures in the amount of $5.2 million and for nine months ended September 30, 2019 we recognized equity in earnings from unconsolidated joint ventures of $6.1 million, an decrease of $0.9 million or 14.8%, related to market conditions stemming from the COVID-19 pandemic.

Income tax benefit

We recorded an income tax benefit of $8.9 million , or an effective tax rate of 27.8% , for the six months ended June 30, 2020 compared to an income tax provision of $1.7 million , or an effective tax rate of 23.5% for the six months ended June 30, 2019 .

The income tax rates for the three and six months ended June 30, 2020 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships;

We recorded an income tax benefit of $5.0 million, or an effective tax rate of 28.3%, for the nine months ended September 30, 2020 compared to an income tax provision of $3.6 million , or an effective tax rate of 24.8% for the nine months ended September 30, 2019.

The income tax rates for the three and nine months ended September 30, 2020 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships;

(ii) effects of state income taxes;

9 unchanged sentences

Our net income reflected below includes the effect of the $25 million in other revenue received under the Provider Relief Fund.

We have treated the PPP loans as

debt, and accordingly will be liable for an interest charge related to those loans which will be included in interest expense, although the loans may ultimately be forgiven.

We have treated the PPP loans as debt, and accordingly will be liable for an interest charge related to those loans which will be included in interest expense, although the loans may ultimately be forgiven.

Adjusted EBITDA is a non-GAAP financial measure used as an analytical indicator by us and the healthcare industry to assess business performance, and is a measure of leverage capacity and ability to service debt.

Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.

other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.

As Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation, this metric, as presented, may not be comparable to other similarly titled measures of other companies.

2 unchanged sentences

The following is a reconciliation of GAAP net income (loss) attributable to RadNet, Inc.

common stockholders to Adjusted EBITDA for the three and six months ended June 30, 2020 and 2019, respectively.

Three Months Ended June 30,

Six Months Ended June 30,

Net loss attributable to RadNet, Inc.

common stockholders to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) attributable to RadNet, Inc.

common stockholders $ 6,156 $ 3,195 $ (20,797) $ 4,360

Benefit from income taxes

Provision for (benefit from) income taxes 3,825 1,816 (5,029) 3,557

Interest expense 11,061 11,895 33,443 36,589

5 unchanged sentences

Other expenses (139) 2 (247) 1,271

Legal settlements — 1,248 — 1,248

Adjusted EBITDA $ 45,809 $ 40,996 $ 88,763 $ 117,225

Liquidity and Capital Resources

The following table is a summary of key balance sheet data as of June 30, 2020 and December 31, 2019 and income statement data for the six months ended June 30, 2020 and 2019 (in thousands):

The following table is a summary of key balance sheet data as of September 30, 2020 and December 31, 2019 and income statement data for the nine months ended September 30, 2020 and 2019 (in thousands):

Balance Sheet Data:

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Cash and cash equivalents $ 89,739 $ 40,165

2 unchanged sentences

Stockholders' equity 246,121 233,139

Income statement data for the six months ended June 30,

Income statement data for the nine months ended September 30, 2020 2019

Total net revenue $ 763,905 $ 853,338

5 unchanged sentences

We are uncertain of the duration and ultimate severity of its effects.

Although we are

undertaking measures to reduce operating expenses and have received government stimulus funding, we may continue to experience operating losses.

Although we are undertaking measures to reduce operating expenses and have received government stimulus funding, we may continue to experience operating losses.

We have credit available from our current credit facilities and borrowing under those facilities is subject to continued compliance with lending covenants.

We currently meet those requirements, but substantial and sustained operating losses could impact our ability to borrow under those facilities.

If we are not able to meet such requirements, we may be required to seek additional financing and there can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.

If we are not able to meet such requirements, we may

be required to seek additional financing and there can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.

On a continuing basis, we also consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures and joint ventures.

3 unchanged sentences

Sources and Uses of Cash

The following table summarizes key components of our sources and uses of cash for the six months ended June 30, 2020 and 2019:

Cash Flow Data

June 30, 2020

June 30, 2019

The following table summarizes key components of our sources and uses of cash for the nine months ended September 30, 2020 and 2019:

Cash Flow Data September 30, 2020 September 30, 2019

Cash provided by operating activities $ 170,343 $ 82,603

1 unchanged sentence

Cash (used in) provided by financing activities (32,495) 38,705

Cash provided by operating activities for the six months ended June 30, 2020 was $131.5 million and $44.5 million for the six months ended June 30, 2019 .

Cash used in investing activities for the six months ended June 30, 2020 , included purchases of property and equipment for approximately $64.2 million and the acquisition of imaging facilities for $4.2 million .

Cash used in financing activities for the six months ended June 30, 2020 , was due to principal payments on our term loan and equipment debt.

Cash provided by operating activities for the nine months ended September 30, 2020 was $170.3 million and $82.6 million for the nine months ended September 30, 2019.

Our cash provided by operating activities was benefited by the reciept of $39.4 million in CMS advances recorded as deferred revenue.

Cash used in investing activities for the nine months ended September 30, 2020, included purchases of property and equipment for approximately $77.3 million and the acquisition of imaging and software business assets for $10.1 million.

Cash used in financing activities for the nine months ended September 30, 2020, was due to principal payments on our term loans and equipment debt obligations.

In 2018 and 2019 we entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements.

1 unchanged sentence

Payments on the associated notes receivables will be reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion.

At June 30, 2020 we have $22.5 million , net of discount, remaining to be collected on these agreements.

At September 30, 2020 we have $20.4 million, net of discount, remaining to be collected on these agreements.

We do not utilize factoring arrangements as an integral part of our financing for working capital.

Senior Secured Credit Facilities

At June 30, 2020 , our credit facilities were comprised of one tranche of term loans (“First Lien Term Loans”) and a revolving credit facility of $137.5 million (the “Barclays Revolving Credit Facility”), both of which are provided pursuant to the Amended and Restated First Lien Credit and Guaranty Agreement dated as of July 1, 2016 (as amended, the “First Lien Credit Agreement”).

At June 30, 2020 , our SunTrust credit facilities, which relate to our consolidated subsidiary NJIN, were comprised of one term loan (the "SunTrust Term Loan") and a revolving credit facility of $30.0 million (the "SunTrust Revolving Credit Facility") both of which are provided pursuant to the SunTrust Restated Credit Agreement.

As of June 30, 2020 , we were in compliance with all covenants under our credit facilities.

Deferred financing costs at June 30, 2020 , net of accumulated amortization, was $1.3 million and is specifically related to our Barclays Revolving Credit Facility.

Included in our condensed consolidated balance sheets at June 30, 2020 are $684.1 million of total term loan debt (exclusive of unamortized discounts of $11.6 million ) in thousands:

Total Carrying

We maintain secured credit facilities with Barclays Bank PLC and with SunTrust.

The Barclays credit facilities are comprised of first lien term loans and a revolving credit facility.

On August 28, 2020 we amended the Barclays credit facilities to increase the amount available under the revolving line of credit to $195.0 million.

The SunTrust credit facilities are comprised of a term loan and a revolving credit facility of $30.0 million.

As of September 30, 2020, we were in compliance with all covenants under our credit facilities.

Deferred financing costs at September 30, 2020, net of accumulated amortization, was $1.9 million and is specifically related to our Barclays revolving credit facility.

Included in our condensed consolidated balance sheets at September 30, 2020 are $673.2 million of total term loan debt (exclusive of unamortized discounts of $10.7 million) in thousands:

Face Value Discount Total Carrying

First Lien Term Loans $ 620,727 $ (10,669) $ 610,058

1 unchanged sentence

Total Term Loans $ 673,227 $ (10,669) $ 662,558

We had no balance under our $137.5 million Barclays Revolving Credit Facility at June 30, 2020 and have reserved against the borrowing capacity $6.3 million for certain letters of credit.

The remaining $131.2 million of our Barclays Revolving Credit Facility was available to draw upon as of June 30, 2020 .

We had no balance under our $30.0 million Suntrust Revolving Credit Facility at June 30, 2020 .

At September 30, 2020, we had no borrowings under our Barclays or SunTrust revolving credit facilities.

After reserves for outstanding letters of credit of $6.3 million on our Barclays Revolving Credit Facility, we have $188.7 million available for borrowing and $30.0 million available under our SunTrust revolving credit facility.

For more information on our secured credit facilities see Note 5 to our condensed consolidated financial statements in this quarterly report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis