RadNet, Inc. 10-Q

Item 1 – Financial Statements RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) March 31, 2021 December 31, 2020 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 31,091 $ 102,018 Accounts receivable 146,665 129,585 Due from affiliates 7,521 5,836 Prepaid expenses and other current assets 37,720 32,985 Total current assets 222,997 270,424 PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS Property and equipment, net 412,711 399,335 Operating lease right-of-use assets 529,563 483,661 Total property, equipment and right-of-use assets 942,274 882,996 OTHER ASSETS Goodwill 502,566 472,879 Other intangible assets 52,198 52,393 Deferred financing costs 1,590 1,767 Investment in joint ventures 36,813 34,528 Deferred tax assets, net of current portion 31,554 34,687 Deposits and other 38,794 36,983 Total assets $ 1,828,786 $ 1,786,657 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable, accrued expenses and other $ 231,700 $ 236,684 Due to affiliates 18,133 14,010 Deferred revenue 40,648 39,257 Current finance lease liability 2,080 2,578 Current operating lease liability 69,890 65,794 Current portion of notes payable 40,166 39,791 Total current liabilities 402,617 398,114 LONG-TERM LIABILITIES Long-term finance lease liability 414 743 Long-term operating lease liability 504,474 463,096 Notes payable, net of current portion 602,684 612,913 Other non-current liabilities 37,239 53,488 Total liabilities 1,547,428 1,528,354 EQUITY Common stock - $ 0.0001 par value, 200,000,000 shares authorized; 52,340,856 and 51,640,537 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 5 5 Additional paid-in-capital 316,032 307,788 Accumulated other comprehensive loss ( 23,138 ) ( 24,051 ) Accumulated deficit ( 108,541 ) ( 117,999 ) Total RadNet, Inc.'s stockholders' equity 184,358 165,743 Noncontrolling interests 97,000 92,560 Total equity 281,358 258,303 Total liabilities and equity $ 1,828,786 $ 1,786,657 The accompanying notes are an integral part of these financial statements. 1 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (unaudited) Three Months Ended March 31, 2021 2020 REVENUE Service fee revenue $ 279,577 $ 248,333 Revenue under capitation arrangements 35,742 33,231 Total service revenue 315,319 281,564 Provider relief funding 6,248 — OPERATING EXPENSES Cost of operations, excluding depreciation and amortization 282,280 267,417 Depreciation and amortization 22,656 21,934 (Gain) loss on sale and disposal of equipment and other ( 1,307 ) 771 Severance costs 285 218 Total operating expenses 303,914 290,340 INCOME (LOSS) FROM OPERATIONS 17,653 ( 8,776 ) OTHER INCOME AND EXPENSES Interest expense 12,826 11,552 Equity in earnings of joint ventures ( 2,285 ) ( 1,955 ) Non-cash change in fair value of interest rate hedge ( 11,245 ) — Other expenses 206 6 Total other (income) expenses ( 498 ) 9,603 INCOME (LOSS) BEFORE INCOME TAXES 18,151 ( 18,379 ) (Provision for) benefit from income taxes ( 4,376 ) 4,381 NET INCOME (LOSS) 13,775 ( 13,998 ) Net income attributable to noncontrolling interests 4,317 2,360 NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 9,458 $ ( 16,358 ) BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.18 $ ( 0.33 ) DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.18 $ ( 0.33 ) WEIGHTED AVERAGE SHARES OUTSTANDING Basic 51,951,506 50,294,329 Diluted 52,828,941 50,294,329 The accompanying notes are an integral part of these financial statements. 2 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (unaudited) Three Months Ended March 31, 2021 2020 NET INCOME (LOSS) $ 13,775 $ ( 13,998 ) Foreign currency translation adjustments ( 12 ) 1 Change in fair value of cash flow hedge, net of taxes — ( 18,549 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes 925 — COMPREHENSIVE INCOME (LOSS) 14,688 ( 32,546 ) Less comprehensive income attributable to noncontrolling interests 4,317 2,360 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 10,371 $ ( 34,906 ) The accompanying notes are an integral part of these financial statements. 3 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE DATA) (unaudited) The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the three months ended March 31, 2021 and March 31, 2020. Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Radnet, Inc.'s Equity Noncontrolling Interests Total Equity Shares Amount BALANCE - January 1, 2021 51,640,537 $ 5 $ 307,788 $ ( 24,051 ) $ ( 117,999 ) $ 165,743 $ 92,560 $ 258,303 Issuance of common stock under the equity compensation plan 699,825 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 494 — — — — — — — Stock-based compensation expense — — 8,248 — — 8,248 — 8,248 Purchase of noncontrolling interests — — ( 4 ) — — ( 4 ) — ( 4 ) Contribution from noncontrolling partner — — — — — — 123 123 Change in cumulative foreign currency translation adjustment — — — ( 12 ) — ( 12 ) — ( 12 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 925 — 925 — 925 Net income — — — — 9,458 9,458 4,317 13,775 BALANCE-MARCH 31, 2021 52,340,856 $ 5 $ 316,032 $ ( 23,138 ) $ ( 108,541 ) $ 184,358 $ 97,000 $ 281,358 BALANCE - January 1, 2020 50,314,328 $ 5 $ 262,865 $ ( 8,026 ) $ ( 103,159 ) $ 151,685 $ 81,454 $ 233,139 Issuance of common stock under the equity compensation plan 380,047 — — — — — — — Stock-based compensation expense — — 6,596 — — 6,596 — 6,596 Change in cumulative foreign currency translation adjustment — — — 1 — 1 — 1 Change in fair value cash flow hedge, net of taxes — — — ( 18,549 ) — ( 18,549 ) — ( 18,549 ) Net (loss) income — — — — ( 16,358 ) ( 16,358 ) 2,360 ( 13,998 ) BALANCE-MARCH 31, 2020 50,694,375 $ 5 $ 269,461 $ ( 26,574 ) $ ( 119,517 ) $ 123,375 $ 83,814 $ 207,189 The accompanying notes are an integral part of these financial statements. 4 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (unaudited) Three Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 13,775 $ ( 13,998 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 22,656 21,934 Amortization of operating lease right-of-use assets 17,863 17,259 Equity in earnings of joint ventures, net of dividends ( 2,285 ) ( 1,955 ) Amortization of deferred financing costs and loan discount 1,147 1,081 (Gain) loss on sale and disposal of equipment and other ( 1,307 ) 771 Amortization of cash flow hedge 925 — Non-cash change in fair value of interest rate hedge ( 11,245 ) — Stock-based compensation 8,248 6,622 Change in fair value of contingent consideration 200 — Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: Accounts receivable ( 17,493 ) 10,504 Other current assets ( 4,308 ) 5,164 Other assets ( 3,507 ) 677 Deferred taxes 3,133 ( 11,413 ) Operating lease liability ( 18,291 ) ( 17,345 ) Deferred revenue 1,416 28 Accounts payable, accrued expenses and other 17,157 21,584 Net cash provided by operating activities 28,084 40,913 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of imaging facilities and other acquisitions ( 57,075 ) ( 4,300 ) Purchase of property and equipment ( 30,424 ) ( 51,538 ) Proceeds from sale of equipment 151 779 Net cash used in investing activities ( 87,348 ) ( 55,059 ) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes and leases payable ( 827 ) ( 914 ) Payments on term loan debt ( 10,824 ) ( 10,824 ) Proceeds from revolving credit facility 87,100 215,900 Payments on revolving credit facility ( 87,100 ) ( 135,900 ) Net cash (used in) provided by financing activities ( 11,651 ) 68,262 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 12 ) 1 NET INCREASE IN CASH AND CASH EQUIVALENTS ( 70,927 ) 54,117 CASH AND CASH EQUIVALENTS, beginning of period 102,018 40,165 CASH AND CASH EQUIVALENTS, end of period $ 31,091 $ 94,282 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 8,267 $ 9,934 The accompanying notes are an integral part of these financial statements. 5 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (unaudited) Supplemental Schedule of Non-Cash Investing and Financing Activities We acquired equipment and certain leasehold improvements for approximately $ 28.8 million and $ 30.8 million during the three months ended March 31, 2021 and 2020, respectively, which were not paid for as of March 31, 2021 and 2020 , respectively. The offsetting amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other. On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, partnership agreement with Simi Valley Hospital and Health Services ("Simi Adventist"). Of the total combined assets of $ 0.4 million, RadNet transferred $ 0.3 million and Simi Adventist contributed the remaining $ 0.1 million. 6 Table of Contents RADNET, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services with operations in seven U.S. states. At March 31, 2021, we operated, directly or indirectly through joint ventures with hospitals, 346 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. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians the convenience of a single location to serve the needs of multiple procedures. In addition to our imaging services, we design and develop software applications, artificial intelligence tools and other computerized systems for the diagnostic imaging industry. Our operations comprise a single segment for financial reporting purposes. The consolidated financial statements include the accounts of RadNet, Inc as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report. Accounting regulations stipulate that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics which evidence a controlling financial interest, is considered a variable interest entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. VIEs that we consolidate as the primary beneficiary consist of professional corporations which are owned or controlled by individuals within our senior management, namely Howard G. Berger, M.D., our President and Chief Executive Officer, and John V. Crues, III, M.D., RadNet's Medical Director, both of whom are members of our Board of Directors. Dr. Berger owns, indirectly, 99 % of the equity interests in Beverly Radiology Medical Group III (BRMG) and a controlling interest in two professional corporations in New York City. BRMG is responsible for the professional medical services at nearly all of our facilities located in California. Dr. Crues owns six professional corporations which provide medical services in Delaware, Maryland, New Jersey and New York. Additionally, Dr. Crues is a 1 % owner of BRMG. These VIEs are collectively referred to as the consolidated medical group ("the Group"). RadNet provides non-medical, technical and administrative services to the Group for which it receives a management fee, pursuant to the related management agreements. Through the management agreements we have exclusive authority over all non-medical decision making related to the ongoing business operations and we determine the annual budget. The Group has insignificant operating assets and liabilities, and de minimis equity. Through management agreements with us, substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group. The Group on a combined basis recognized $ 46.1 million and $ 39.6 million of revenue, net of management services fees to RadNet, for the three months ended March 31, 2021 and 2020, respectively and $ 46.1 million and $ 39.6 million of operating expenses for the three months ended March 31, 2021 and 2020, respectively. RadNet recognized $ 179.0 million and $ 147.9 million of total billed net service fee revenue for the three months ended March 31, 2021, and 2020, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. The cash flows of the Group are included in the accompanying condensed consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. In our condensed consolidated balance sheets at March 31, 2021 and December 31, 2020, we have included approximately $ 89.9 million and $ 82.3 million, respectively, of 7 Table of Contents accounts receivable and approximately $ 20.5 million and $ 15.2 million of accounts payable and accrued liabilities related to the Group, respectively. The creditors of the Group do not have recourse to our general credit and there are no other arrangements that could expose us to losses on their behalf. However, we may be required to provide financial support to cover any operating expenses in excess of operating revenues. We also own a 49 % economic interest in ScriptSender, LLC, which provides secure data transmission services of medical information. Through a management agreement, RadNet provides management and accounting services and receives an agreed upon fee. ScriptSender, LLC is dependent on RadNet to finance its own activities, and as such we determined that it is a VIE but we are not a primary beneficiary since we do not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance. At all of our centers not serviced by the Group we have entered into long-term contracts (typically up to 40 years) with independent radiology groups to provide physician services at those centers. These radiology practices provide professional services, including supervision and interpretation of diagnostic imaging procedures, in our diagnostic imaging centers. The radiology practices maintain full control over the provision of professional services. Under these arrangements, in addition to obtaining technical fees for the use of our diagnostic imaging equipment and the provision of technical services, we provide management services and receive a fee based on the value of the services we provide. We own the diagnostic imaging equipment and, therefore, receive 100% of the technical reimbursements associated with imaging procedures. The radiology practice groups retain the professional reimbursements associated with imaging procedures after deducting management service fees paid to us and we have no economic controlling interest in these radiology practices as such, the financial results of these practices are not consolidated in our financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for conformity with U.S. generally accepted accounting principles for complete financial statements; however, in the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended March 31, 2021 and 2020 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2020. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES During the period covered in this report, there have been no material changes to the significant accounting policies we use and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2020. The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2020. REVENUES - Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period when our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and 8 Table of Contents office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. 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. Our total service revenues during the three months ended March 31, 2021 and 2020 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 March 31, 2021 2020 Commercial insurance $ 182,096 $ 155,461 Medicare 63,589 57,749 Medicaid 8,451 6,628 Workers' compensation/personal injury 10,399 10,274 Other patient revenue 4,775 5,662 Management fee revenue 5,219 2,567 Teleradiology and Software revenue 2,426 3,770 Other 2,622 6,222 Service fee revenue 279,577 248,333 Revenue under capitation arrangements 35,742 33,231 Total service revenue $ 315,319 $ 281,564 COVID-19 PANDEMIC AND CARES ACT FUNDING - On March 11, 2020 the World Health Organization (WHO) designated COVID-19 as a global pandemic. To aid businesses and stimulate the national economy, Congress passed the The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was signed in to law on March 27, 2020. Through March 31, 2021, we have received since inception of the various programs established by the CARES Act, $ 39.5 million of accelerated Medicare payments, $ 32.5 million from general distribution and $ 4.0 million from the Paycheck Protection Program. In addition, we have received $ 5.0 million in advance payments from insurer Blue Shield. The accelerated Medicare and Blue Shield payments are recorded to Deferred Revenue in our condensed consolidated balance sheet and will be applied to revenue as services are performed beginning in 2021. For the three months ended March 31, 2021, $ 2.5 million of the accelerated Medicare and $ 2.5 million of the Blue Shield funds have been applied to revenue. The amounts obtained from general distribution were accounted for as government grants and recognized as other revenue and displayed as Provider relief funding in our condensed consolidated statements of operations, of which $ 6.2 million of the total $ 32.5 million was received in the three months ended March 31, 2021. The $ 4.0 million secured from the Paycheck Protection Program was accounted for as debt and in December 2020 we met the eligibility requirements under the government guidelines for forgiveness and the loans were written off to gain on extinguishment of debt. The CARES Act also provides for a payment deferral of the employer portion of Social Security tax incurred during the pandemic, allowing half of such payroll taxes to be deferred until December 2021 and the remaining half until December 2022. At March 31, 2021, the Company had in total $ 16.3 million of deferred Social Security taxes. These payment deferrals 9 Table of Contents are recorded as payroll tax liability under the caption “Accounts payable, accrued expenses and other” in our condensed consolidated balance sheet. ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience. We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Proceeds on notes receivables are 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 March 31, 2021 we have $ 20.5 million remaining to be collected on these agreements. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis. DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $ 1.6 million and $ 1.8 million, as of March 31, 2021 and December 31, 2020, respectively and related to our Barclays Revolving Credit Facility. See Note 5, Credit Facilities and Notes Payable for more information. PROPERTY AND EQUIPMENT - 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. Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred. BUSINESS COMBINATION - When the qualifications for business combination accounting treatment are met, it requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. GOODWILL AND INDEFINITE LIVED INTANGIBLES - Goodwill at March 31, 2021 totaled $ 502.6 million. Indefinite lived intangible assets at March 31, 2021 were $ 7.1 million. Goodwill and Indefinite Lived Intangibles are recorded as a result of business combinations. When we determine the carrying value of reporting unit exceeds its fair value an impairment charge would be recognized and should not exceed the total amount of goodwill allocated to that reporting unit. We tested goodwill and indefinite lived intangibles for impairment on October 1, 2020, noting no impairment. 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 COVID-19 pandemic and did not identify an indication of goodwill impairment being more likely than not through March 31, 2021. Activity in goodwill for the three months ended March 31, 2021 is provided below (in thousands): Balance as of December 31, 2020 $ 472,879 Goodwill acquired through acquisitions 29,609 Goodwill attributable to formation of Simi Valley Imaging Group LLC 105 Other Adjustments ( 27 ) Balance as of March 31, 2021 $ 502,566 INCOME TAXES - Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax 10 Table of Contents asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized. We recorded income tax expense of $ 4.4 million, or an effective tax rate of 24.1 %, for the three months ended March 31, 2021 compared to a benefit from income taxes of $ 4.4 million, or an effective tax rate of 23.8 % for the three months ended March 31, 2020. The income tax rates for the three months ended March 31, 2021 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. We believe no significant changes in the unrecognized tax benefits will occur within the next 12 months. On March 27, 2020, the President of the United States signed into law the CARES Act, which among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company’s current tax provision. LEASES - We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our consolidated balance sheets. Finance leases are included in property and equipment, current finance lease liability, and long-term finance lease liability in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. 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 ROU 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. Our ROU assets consist of facility and equipment assets on operating leases. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets as of March 31, 2021. Our facility leases require us to maintain insurance policies which would cover major damage to our facilities. We maintain business interruption insurance to cover loss of business due to a facility becoming non-operational under certain circumstances. Our equipment leases are covered by warranty and service contracts which cover repairs and provide regular maintenance to keep the equipment in functioning order. EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we first amended and restated as of April 20, 2015, and again on March 9, 2017 (the “Restated Plan”). 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 which can be issued in the form of options, stock awards, stock appreciation rights, stock units, 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. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. In connection with our acquisition of DeepHealth Inc. on June 1, 2020, we assumed the DeepHealth, Inc. 2017 Stock Incentive Plan, including outstanding options awards that can be exercised for our common stock. No additional awards will be granted under the DeepHealth, Inc. 2017 Equity Incentive Plan. See Note 6, Stock-Based Compensation, for more information. COMPREHENSIVE INCOME (LOSS) - ASC 220 establishes rules for reporting and displaying comprehensive income or loss and its components. Our unrealized gains or losses on foreign currency translation adjustments, interest rate cap and swap agreements are included in comprehensive loss and are included in the consolidated statements of comprehensive income (loss) for the three months ended March 31, 2021 and 2020 . COMMITMENTS AND CONTINGENCIES - We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Based on current information, we do not believe that reasonably possible or probable losses associated with pending legal proceedings would either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of 11 Table of Contents 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. DERIVATIVE INSTRUMENTS 2019 SWAPS In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $ 500,000,000 , consisting of two agreements of $ 50,000,000 each and two agreements of $ 200,000,000 each. The 2019 Swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month LIBOR rates at 1.96 % for the $ 100,000,000 notional and at 2.05 % for the $ 400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates remain above the arranged rates. At inception, we designated our 2019 Swaps as cash flow hedges of floating-rate borrowings. In accordance with accounting guidance, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. The cash flows for both our $ 400,000,000 notional interest rate swap contract locked in at 2.05 % due October 2025 and our $ 100,000,000 notional interest rate swap contract locked in at 1.96 % do not match the cash flows for our First Lien Term Loans and so we have determined that they are not currently effective as cash flow hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $ 400,000,000 notional and after July 1, 2020 for the $ 100,000,000 notional will be recognized in earnings. As of July 1, 2020, the total change in fair value relating to swaps included in other comprehensive income was approximately $ 24.4 million, net of taxes. This amount will be amortized to interest expense through October 2023 at approximately $ 0.4 million per month and continuing at approximately $ 0.3 million through October 2025. A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): For the three months ended March 31, 2021 Account January 1, 2021 Balance Amount of comprehensive loss recognized on derivative net of taxes Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes March 31, 2021 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ ( 22,581 ) $ — $ 925 $ ( 21,656 ) Equity For the twelve months ended December 31, 2020 Account January 1, 2020 Balance Amount of comprehensive loss recognized on derivative net of taxes Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes December 31, 2020 Location Accumulated Other Comprehensive Loss, net of taxes $ ( 5,870 ) $ ( 19,352 ) $ 2,641 $ ( 22,581 ) Equity 12 Table of Contents A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): For the three months ended March 31, 2021 Ineffective interest rate swap Amount of gain recognized in income on derivative (current period ineffective portion) Location of gain recognized in Income on derivative (current period ineffective portion) Amount of loss reclassified from accumulated OCI into income (prior period effective portion) Location of loss reclassified from accumulated OCI into income (prior period effective portion) Interest rate contracts $ 11,245 Other income (expense) $ ( 925 ) Interest Expense See Fair Value Measurements section below for the fair value of the 2019 Swaps at March 31, 2021. FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement: Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data. Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment. Derivatives: The tables below summarize the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our condensed consolidated balance sheets, as follows (in thousands): As of March 31, 2021 Level 1 Level 2 Level 3 Total Current and long term liabilities 2019 Swaps - Interest Rate Contracts $ — $ 26,744 $ — $ 26,744 As of December 31, 2020 Level 1 Level 2 Level 3 Total Current and long term liabilities 2019 Swaps - Interest Rate Contracts $ — $ 37,989 $ — $ 37,989 The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward LIBOR curve. The forward LIBOR curve is readily available in the public markets or can be derived from information available in the public markets. Long Term Debt: The table below summarizes the estimated fair value compared to our face value of our long-term debt as follows (in thousands): As of March 31, 2021 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 652,331 $ — $ 652,331 $ 651,580 13 Table of Contents As of December 31, 2020 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 661,640 $ — $ 661,640 $ 662,403 As of March 31, 2021 and at December 31, 2020 our Barclays revolving credit facility had no balance outstanding. Our SunTrust revolving credit facility relating to our consolidated subsidiary The New Jersey Imaging Network ("NJIN"), had no principal amount outstanding at March 31, 2021 and at December 31, 2020. The estimated fair value of our long-term debt, which is discussed in Note 5, Credit Facilities and Notes Payable, was determined using Level 2 inputs primarily related to comparable market prices. We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment. Additionally, we consider the carrying amount of our finance lease obligations to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates. EARNINGS PER SHARE - Earnings per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding, net of common stock held in treasury, as follows (in thousands except share and per share data): Three Months Ended March 31, 2021 2020 Net income (loss) attributable to RadNet, Inc.'s common stockholders $ 9,458 $ ( 16,358 ) BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 51,951,506 50,294,329 Basic net income (loss) per share attributable to RadNet, Inc.'s common stockholders $ 0.18 $ ( 0.33 ) DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 51,951,506 50,294,329 Add nonvested restricted stock subject only to service vesting 253,265 — Add additional shares issuable upon exercise of stock options and warrants 624,170 — Weighted average number of common shares used in calculating diluted net income per share 52,828,941 50,294,329 Diluted net income (loss) per share attributable to RadNet, Inc.'s common stockholders $ 0.18 $ ( 0.33 ) Stock options and non vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive: Nonvested restricted stock subject to service vesting — 314,962 Shares issuable upon the exercise of stock options: 82,595 527,899 14 Table of Contents EQUITY INVESTMENTS AT FAIR VALUE–Accounting guidance requires entities to measure equity investments at fair value, with any changes in fair value recognized in net income. If there is no readily determinable fair value, the guidance allows entities the ability to measure investments at cost, adjusted for observable price changes and impairments, with changes recognized in net income. As of March 31, 2021, 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. Our investment of $ 1.2 million represents a 14.21 % equity interest in the company. No observable price changes or impairment in our investment was identified as of March 31, 2021. 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. On February 1, 2018, we purchased 2.1 million preferred shares in Turner Imaging Systems for $ 2.0 million. 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 observable price changes or impairment in our investment was identified as of March 31, 2021. 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. No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of March 31, 2021. INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35 % to 55 %. These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling financial interest in such ventures. We evaluate our investment in joint ventures, including cost in excess of book value (equity method goodwill) for impairment whenever indicators of impairment exist. No indicators of impairment existed as of March 31, 2021. Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the three months ended March 31, 2021 (in thousands): Balance as of December 31, 2020 $ 34,528 Equity in earnings in these joint ventures 2,285 Balance as of March 31, 2021 $ 36,813 We charged management service fees from the centers underlying these joint ventures of approximately $ 5.2 million and $ 2.6 million for the three months ended March 31, 2021 and 2020, respectively. 15 Table of Contents The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2021 and December 31, 2020 and income statement data for the three months ended March 31, 2021 and 2020 (in thousands): Balance Sheet Data: March 31, 2021 December 31, 2020 Current assets $ 33,265 $ 27,085 Noncurrent assets 68,493 68,686 Current liabilities ( 13,929 ) ( 12,545 ) Noncurrent liabilities ( 21,371 ) ( 21,582 ) Total net assets $ 66,458 $ 61,644 Book value of RadNet joint venture interests $ 30,351 $ 28,079 Cost in excess of book value of acquired joint venture interests and other 6,462 6,449 Total value of RadNet joint venture interests $ 36,813 $ 34,528 Income statement data for the three months ended March 31, 2021 2020 Net revenue $ 31,718 $ 26,341 Net income $ 4,803 $ 4,245 NOTE 3 – RECENT ACCOUNTING AND REPORTING STANDARD Accounting standards adopted In January 2021, the FASB issued ASU 2021-01 ("ASU 2021-01"), Reference Rate Reform (Topic 848), Scope . ASU 2021-01 provides clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the potential impact of ASU 2021-01 on our financial statements. In March 2020, the FASB issued ASU 2020-04 ("ASU 2020-04"), Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the potential impact of ASU 2020-04 on our financial statements. In January 2020, the FASB issued ASU 2020-01 ("ASU 2020-01"), Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020. The adoption did not have a material impact on our financial statements. In December 2019, the FASB issued ASU 2019-12 ("ASU 2019-12"), Income Taxes (Topic 740). ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other areas of the standard. ASU 2019-12 is effective beginning in the first quarter of 2021. The adoption did not have a material impact on our financial statements. NOTE 4 – FACILITY ACQUISITIONS Acquisitions 16 Table of Contents During the first quarter of 2021, we completed the acquisition of certain assets of the following entities, all located in the New York city area. We made a preliminary fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands): Entity Acquired Total Purchase Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Assets Right of Use Liabilities Personal Health Imaging PLLC $ 2,995 $ 576 $ 608 $ 2,355 $ 50 $ 14 $ ( 608 ) ZP Elmont LLC 2,194 1,112 1,695 1,005 50 27 ( 1,695 ) ZP Freeport LLC 6,065 3,968 2,361 2,018 50 29 ( 2,361 ) Broadway Medical Imaging LLC 1,155 1,076 1,791 6 50 23 ( 1,791 ) 3235 Hempstead LLC 9,386 4,304 10,115 5,032 50 — ( 10,115 ) SLZM Realty LLC 13,671 3,862 7,715 9,759 50 — ( 7,715 ) 2012 Sunrise Merrick LLC 11,428 2,363 5,919 9,015 50 — ( 5,919 ) ZP Bayside LLC 3,545 3,385 9,393 40 50 70 ( 9,393 ) ZP Laurelton LLC 2,658 2,530 5,157 32 50 46 ( 5,157 ) ZP Smith LLC 3,978 3,581 10,558 347 50 — ( 10,558 ) Total $ 57,075 $ 26,757 $ 55,312 $ 29,609 $ 500 $ 209 $ ( 55,312 ) Formation of majority owned subsidiary On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, a partnership with Simi Valley Hospital and Health Services ("Simi Adventist"). The operation will offer multi-modality imaging services out of two locations in Ventura County, California. Total investment in the venture is $ 0.4 million. RadNet contributed $ 0.3 million in assets for a 60 % economic interest and Simi Adventist contributed assets totaling $ 0.1 million for a 40 % economic interest. NOTE 5 – CREDIT FACILITIES AND NOTES PAYABLE As of March 31, 2021 and December 31, 2020 our debt obligations consisted of the following (in thousands): March 31, 2021 December 31, 2020 First Lien Term Loans collateralized by RadNet's tangible and intangible assets $ 601,330 $ 611,028 Discounts on First Lien Term Loans ( 8,730 ) ( 9,699 ) SunTrust Term Loan Agreement collateralized by NJIN's tangible and intangible assets 50,250 51,375 Total debt obligations 642,850 652,704 Less: current portion ( 40,166 ) ( 39,791 ) Long term portion debt obligations $ 602,684 $ 612,913 Included in our condensed consolidated balance sheets at March 31, 2021 are $ 601.3 million of First Lien Term Loans and $ 50.3 million of SunTrust Term Loan debt for a combined total of $ 651.6 million of total term loan debt (exclusive of unamortized discounts of $ 8.7 million) in thousands: 17 Table of Contents Face Value Discount Total Carrying Value First Lien Term Loans $ 601,330 $ ( 8,730 ) $ 592,600 SunTrust Term Loan 50,250 — 50,250 Total Term Loans $ 651,580 $ ( 8,730 ) $ 642,850 We had no outstanding balance under our $ 195.0 million Barclays Revolving Credit Facility at March 31, 2021 and have reserved $ 7.9 million for certain letters of credit. The remaining $ 187.1 million of our Barclays Revolving Credit Facility was available to draw upon as of March 31, 2021. We had no outstanding balance under our $ 30.0 million SunTrust Revolving Credit Facility at March 31, 2021. As of March 31, 2021, we were in compliance with all covenants under our credit facilities. Senior Secured Credit Facilities Barclays Credit Facilities: At March 31, 2021, our Barclays credit facilities were comprised of one tranche of term loans (“First Lien Term Loans”) in the principal amount described in the table above and a revolving credit facility of $ 195.0 million (the “Barclays Revolving Credit Facility”) both of which are provided pursuant to the Amended and Restated First Lien Credit and Guaranty Agreement dated July 1, 2016, among RadNet, Barclays Bank plc, as administrative agent, and the lenders identified therein (as amended, the "First Lien Credit Agreement"). Deferred financing costs at March 31, 2021, net of accumulated amortization, was $ 1.6 million and is specifically related to our Barclays Revolving Credit Facility. Our First Lien Term Loans bear interest at either an Adjusted Eurodollar Rate or a Base Rate, plus an applicable margin according to the following schedule: First Lien Leverage Ratio Eurodollar Rate Spread Base Rate Spread > 5.50 x 4.50 % 3.50 % > 4.00 x but ≤ 5.50 x 3.75 % 2.75 % > 3.50 x but ≤ 4.00 x 3.50 % 2.50 % ≤ 3.50 x 3.25 % 2.25 % At March 31, 2021 the effective Adjusted Eurodollar Rate and the Base Rate for the First Lien Term Loans was 1.00 % and 3.25 %, respectively and the applicable margin for Adjusted Eurodollar Rate and Base Rate borrowings was 3.50 % and 2.50 %, respectively. The First Lien Credit Agreement provides for quarterly payments of principal under the First Lien Term Loans in the amount of approximately $ 9.7 million. The First Lien Term Loans will mature on July 1, 2023 unless otherwise accelerated under the terms of the First Lien Credit Agreement. SunTrust Credit Facilities: At March 31, 2021, our SunTrust credit facilities, which relate to our consolidated subsidiary NJIN, were comprised of one term loan in the principal amount described in the table above (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 Amended and Restated Revolving Credit and Term Loan Agreement dated August 31, 2018, among NJIN, as borrower, with SunTrust Bank, as administrative agent, and the lenders identified therein (as amended, the "SunTrust Credit Agreement"). Our SunTrust Term Loan bears interest at either an Adjusted LIBOR or a Base Rate (each as defined in the SunTrust Credit Agreement), plus an applicable margin according to the following schedule: 18 Table of Contents Pricing Level Leverage Ratio Applicable Margin for Eurodollar Loans Applicable Margin for Base Rate Loans Applicable Margin for Letter of Credit Fees Applicable Percentage for Commitment Fee I Greater than or equal to 3.00 :1.00 2.75 % per annum 1.75 % per annum 2.75 % per annum 0.45 % per annum II Less than 3.00 :1.00 but greater than or equal to 2.50 :1.00 2.25 % per annum 1.25 % per annum 2.25 % per annum 0.40 % per annum III Less than 2.50 :1.00 but greater than or equal to 2.00 :1.00 2.00 % per annum 1.00 % per annum 2.00 % per annum 0.35 % per annum IV Less than 2.00 :1.00 but greater than or equal to 1.50 :1.00 1.75 % per annum 0.75 % per annum 1.75 % per annum 0.30 % per annum V Less than 1.50 :1.00 1.50 % per annum 0.50 % per annum 1.50 % per annum 0.30 % per annum The loans and other obligations outstanding under the SunTrust Credit Agreement currently bear interest at a three month LIBOR election at 0.25 % plus an applicable margin and fees based on Pricing Level III described above. The scheduled amortization of the SunTrust Term Loan began December 31, 2018 with quarterly payments of $ 0.8 million, representing annual amortization equal to 5.0 % of the original principal amount of the SunTrust Term Loan. At scheduled intervals, the quarterly amortization increases by $ 0.4 million, with the remaining balance to be paid at maturity. The SunTrust Term Loan will mature on August 31, 2023 unless otherwise accelerated under the terms of the SunTrust Credit Facility. Revolving Credit Facilities Barclays Revolving Credit Facility Revolving loans borrowed under the Barclays Revolving Credit Facility bear interest at either an Adjusted Eurodollar Rate or a Base Rate (in each case, as more fully defined in the First Lien Credit Agreement) plus an applicable margin. The applicable margin for borrowing under the Barclays Revolving Credit Facility varies based on our leverage ratio in accordance with the same schedule set forth above for First Lien Term Loans. As of March 31, 2021, the effective interest rate payable on revolving loans under the Barclays Revolving Credit Facility was 5.75 %. For letters of credit issued under the Barclays Revolving Credit Facility, letter of credit fees accrue at the applicable margin for Adjusted Eurodollar Rate, currently 3.50 % , and fronting fees accrue at 0.25 % per annum, in each case on the average aggregate daily maximum amount available to be drawn under all letters of credit issued under the First Lien Credit Agreement. In addition, a commitment fee of 0.50 % per annum accrues on the unused revolver commitments under the Barclays Revolving Credit Facility. The Barclays Revolving Credit Facility will terminate on the earlier of July 1, 2023 or termination due to specific events of default pursuant to the First Lien Credit Agreement. Our Barclays Revolving Credit Facility was amended in August 2020 to add $ 57.5 million of revolving commitments, which additional commitments increased the maximum borrowing capacity to $ 195.0 million. Total issue costs added in relation to the eighth amendment amounted to approximately $ 0.7 million and was capitalized as deferred financing costs and will be amortized over the remaining term of the First Lien Credit Agreement. SunTrust Revolving Credit Facility The SunTrust Credit Agreement established a $ 30.0 million revolving credit facility available to NJIN for funding requirements. The SunTrust Revolving Credit Facility terminates on the earliest of (i) August 31, 2023, (ii) the voluntary termination thereof by NJIN pursuant to Section 2.8 of the SunTrust Credit Agreement, or (iii) the date on which all amounts outstanding under the SunTrust Credit Agreement have been declared or have automatically become due and payable (whether 19 Table of Contents by acceleration or otherwise). As of March 31, 2021, NJIN had no borrowings under the SunTrust Revolving Credit Facility. Recent Amendments to credit facilities: Barclays Credit Facilities: On April 23, 2021, after the period covered by this report, we entered into the Second Amended and Restated First Lien Credit and Guaranty Agreement which provides for $ 725.0 million of senior secured first lien term loans and a $ 195.0 million senior secured revolving credit facility. See Note 7, Subsequent Events, for more information. On August 28, 2020, RadNet Management, Inc. and RadNet, Inc. entered into Amendment No. 8, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the "Eighth Amendment"). The Eighth Amendment amends the First Lien Credit Agreement to add $ 57.5 million of revolving commitments to the Barclays Revolving Credit Facility increasing the maximum borrowing capacity under the revolving credit facility to $ 195.0 million while leaving the maturity date of July 1, 2023 unchanged. Total issue costs added in relation to the Eighth Amendment amounted to approximately $ 0.7 million and was capitalized as deferred financing costs and will be amortized over the remaining term of the First Lien Credit Agreement. On April 18, 2019 we entered into the following two amendments to the First Lien Credit Agreement: (i) Amendment No. 6, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the “Sixth Amendment”); and (ii) Amendment No. 7 to Credit and Guaranty Agreement (the “Seventh Amendment”). Among other things, The Sixth Amendment amended the First Lien Credit Agreement to issue $ 100.0 million in incremental First Lien Term Loans and to add an additional $ 20.0 million of revolving commitments to the Barclays Revolving Credit Facility. The Seventh Amendment amended the First Lien Credit Agreement to extend the maturity date of the Barclays Revolving Credit Facility by an additional two years to July 1, 2023, unless sooner terminated in accordance with the terms of the First Lien Credit Agreement. Total issue costs added in relation to the Sixth and Seventh Amendments in 2019 amounted to approximately $ 4.4 million. Of this amount, $ 2.1 million was identified and capitalized as discount on debt, $ 0.7 million was capitalized as deferred financing costs, and $ 1.6 million was expensed. Amounts capitalized will be amortized over the remaining term of the First Lien Credit Agreement. NOTE 6 – STOCK-BASED COMPENSATION Stock Incentive Plans We have one long-term equity incentive plan which we refer to as the 2006 Equity Incentive Plan, which we first amended and restated as of April 20, 2015 and again on March 9, 2017 (the "Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017. We have reserved for issuance under the Restated Plan 14,000,000 shares of common stock. We can issue options (incentive and non-qualified), stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan. Options Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options generally vest over 3 to 5 years and expire 5 to 10 years from the date of grant. As of March 31, 2021, we had outstanding options to acquire 527,899 shares of our common stock, of which options to acquire 433,202 shares were exercisable. The following summarizes all of our option transactions for the three months ended March 31, 2021: Outstanding Options Under the 2006 Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Balance, December 31, 2020 527,899 $ 9.34 Granted — — Balance, March 31, 2021 527,899 9.34 6.09 $ 6,549,853 Exercisable at March 31, 2021 433,202 8.35 5.72 5,806,804 20 Table of Contents Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on March 31, 2021 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on March 31, 2021. No options were exercised during the three months ended March 31, 2021. As of March 31, 2021, total unrecognized stock-based compensation expense related to non-vested employee awards was $ 0.5 million which is expected to be recognized over a weighted average period of approximately 1.30 years. DeepHealth Options During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted 412,434 options at a grant date fair value of $ 16.93 per share unit to DeepHealth employees in replacement of their stock options that were outstanding as of the closing date. As of March 31, 2021, total unrecognized stock based compensation expense related to non-vested DeepHealth options was approximately $ 3.4 million which is expected to be recognized over a weighted average period of approximately 2.07 years. Outstanding Options Under the Deep Health Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Balance December 31, 2020 400,539 $ — Exercised — — Balance, March 31, 2021 400,539 — 8.16 $ 8,711,723 Exercisable at March 31, 2021 33,647 — 8.16 731,822 Restricted Stock Awards The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of March 31, 2021, we have issued a total of 7,152,934 RSA’s of which 410,352 were unvested at March 31, 2021. The following summarizes all unvested RSA’s activities during the three months ended March 31, 2021: RSA's Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value RSA's unvested at December 31, 2020 329,159 $ 16.69 Changes during the period Granted 601,061 $ 18.77 Vested ( 519,868 ) $ 17.59 RSA's unvested at March 31, 2021 410,352 1.20 $ 17.71 We determine the fair value of all RSA’s based on the closing price of our common stock on the award date. Other stock bonus awards The Restated Plan also permits the award of stock bonuses not subject to any future service period. These awards are valued and expensed based on the closing price of our common stock on the date of award. During the three months ended March 31, 2021 no such shares were granted. Plan summary In summary, of the 14,000,000 shares of common stock reserved for issuance under the Restated Plan, at March 31, 2021, we had issued 16,109,252 total shares between options, RSA’s and other stock awards. With options canceled and RSA’s forfeited amounting to 3,281,040 and 61,703 shares, respectively, there remain 1,233,491 shares available under the Restated Plan for future issuance. The DeepHealth options were issued outside of the Restated Plan and are a direct result of our acquisition and not included in the share count of the Restated Plan. 21 Table of Contents NOTE 7 – SUBSEQUENT EVENTS Refinancing of Barclays Credit Facilities: The Second Amended and Restated First Lien Credit and Guaranty Agreement (the "Restated Credit Agreement"): On April 23, 2021, we entered into the Restated Credit Agreement which provides for $ 725.0 million of senior secured first lien term loans and a $ 195.0 million senior secured revolving credit facility. The proceeds of the loans are being used to refinance the outstanding $ 611.0 million term and revolving loans, to pay fees and expenses associated with the refinancing transaction, to pay accrued interest on the previously existing facilities through the date of closing and to fund approximately $ 102.0 million to our balance sheet. The key terms of the Restated Credit Agreement are: • Interest Rates: Borrowings under the Restated Credit Agreement bear interest at either the Eurodollar Rate or the Alternate Base Rate and the floor for the term loans bearing interest at the Eurodollar Rate was reduced from a minimum of 1.00 % to a minimum of 0.75 %. • Maturity Dates: The maturity date for the term loans is April 23, 2028, and the maturity date for the revolving credit facility is April 23, 2026, in each case unless accelerated in accordance with the terms of the Restated Credit Agreement. • Payments: We will be required to make quarterly payments of principal on the terms loans in the amount of approximately $ 1.8 million compared to approximately $ 9.7 million under the prior credit agreement. Acquisitions: In the months of April and May, 2021 we acquired certain business assets for purchase consideration of approximately $ 5.0 million.