What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 244 added, 124 removed, 290 unchanged (56% of the section changed)

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

and potential restrictions and/or obligations related to citizen and business activity to contain the virus;

• 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;

(ii) the consequences of an economic downturn resulting from the impacts of COVID-19 and the possibility of a global economic recession;

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(v) the impact of government and administrative regulation, guidance and appropriations;

(vi) changes in our revenues due to declining patient procedure volumes, changes in payor mix;

(vi) changes in our revenues due to declining patient procedure

volumes, changes in payor mix;

(vii) potential increased expenses or workforce disruptions related to our employees that could lead to unavailability of key personnel;

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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 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.

At June 30, 2021, we operated, directly or indirectly through joint ventures with hospitals, 353 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.

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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 three months ended March 31, 2021 and March 31, 2020:

Three Months Ended March 31,

The following table shows our facilities in operation and revenues for the six months ended June 30, 2021 and June 30, 2020:

Six Months Ended June 30,

Facilities in operation 353 335

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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.

Our total service revenue 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,

Our total service revenue during the six months ended June 30, 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 June 30, Six Months Ended June 30,

2021 2020 2021 2020

Commercial insurance $ 187,354 $ 96,349 $ 369,566 $ 251,711

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Total service revenue $ 333,918 $ 190,566 $ 649,237 $ 472,130

We typically experience some seasonality to our revenue stream.

Although we had a resurgence in procedure volumes for the first quarter ended March 31, 2021, it is in this time period that 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.

Also, 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.

Recent Developments

The discussion of our results below centers on our performance in the first quarter ending March 31, 2021.

During 2020, with the onset of the novel strain of the coronavirus ("COVID-19") and related responses, we began experiencing reduced procedure volumes at the end of the first quarter which intensified through mid year.

Procedure volumes returned to 90% of pre-COVID-19 pace in the third quarter and remained consistent at that level through the fourth quarter.

During 2020, in response to the pandemic, we adjusted our business operations, inclusive of concentrating patient traffic to larger imaging centers, negotiating payment terms with vendors and landlords, initiating employee furloughs, compensation reductions, and telecommuting.

As we enter 2021, the arrival of the mRNA vaccine to protect against the virus is a welcome development.

As inoculations ramp up across the country and other mitigation procedures continue, we can begin to look forward to a return of normal business operations.

We expect that the cost saving measures implemented in 2020 will be beneficial to our financial position in 2021, provided that procedure volumes continue to ramp back up to historic levels.

Despite the impact of COVID-19, we continued to invest and position for future growth.

We acquired 10 new centers in the New York City area during the quarter ended March 31, 2021.

The discussion of our results below centers on our performance through the second quarter ended June 30, 2021.

During the same period in 2020, with the onset of the novel strain of the coronavirus ("COVID-19"), we began experiencing reduced procedure volumes at the end of the first quarter which intensified through mid year.

In response to the pandemic, we adjusted our business operations, inclusive of concentrating patient traffic to larger imaging centers, negotiating payment terms with vendors and landlords, initiating employee furloughs, compensation reductions, and telecommuting.

As we enter mid year 2021, our procedure volume has returned to pre-COVID-19 levels and our business has resumed normal operations.

We expect that the cost saving measures implemented in 2020 will continue to be beneficial to our financial position in 2021, while we continued to invest and position for future growth.

Year to date, we have acquired 19 new centers in California, New Jersey and New York.

Equity Investments, Acquisitions and Dispositions, and Joint Venture Activity

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Equity Investments

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:

As of June 30, 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.

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

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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.

No observable price changes or impairment in our investment was identified as of June 30, 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 it operations.

No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of March 31, 2021.

No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of June 30, 2021.

Facility acquisitions

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

During the first and second quarters of 2021, we completed the acquisition of certain assets of the following entities.

The primary reason for these acquisitions was to strengthen our presence in the New York City, New Jersey and California markets.

We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):

Entity Date Acquired Total Cash Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Assets Right of Use Liabilities

Personal Health Imaging PLLC* 2/1/2021 2,995 576 608 2,355 50 14 (608)

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ZP Smith LLC* 3/1/2021 3,978 3,581 2,214 347 50 — (2,214)

ZP 907 Northern LLC 4/1/2021 562 507 1,817 5 50 — (1,817)

Kelly MD, Inc.

5/1/2021 3,750 990 1,379 2,710 50 — (1,379)

60th Street MRI, LLC 5/1/2021 400 85 — 290 25 — —

ZP Parkchester LLC 5/1/2021 263 213 311 — 50 — (311)

ZP Eastern LLC 6/1/2021 2,868 2,801 1,951 17 50 — (1,951)

Total 64,918 34,549 12,670 29,375 785 209 (12,670)

*Fair Value Determination is Final

Formation of majority owned subsidiary

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Joint Venture Activity

The following table is a summary of our investment in joint ventures during the three months ended March 31, 2021 (in thousands):

The following table is a summary of our investment in joint ventures during the six months ended June 30, 2021 (in thousands):

Balance as of December 31, 2020 $ 34,528

Equity in earnings in these joint ventures 5,406

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.

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):

Equity contributions in existing joint ventures 1,441

Balance as of June 30, 2021 $ 41,375

We charged management service fees from the centers underlying these joint ventures of approximately $5.5 million and $3.3 million for the three months ended June 30, 2021 and 2020 and $10.8 million and $5.9 million for the six months ended June 30, 2021 and 2020, respectively.

On June 23, 2021, we made an additional equity contribution to our joint venture in Arizona of $1.4 million.

Our equity ownership interest percentage in the venture did not change.

The following table is a summary of key balance sheet data for these joint ventures as of June 30, 2021 and December 31, 2020 and income statement data for the six months ended June 30, 2021 and 2020 (in thousands):

Balance Sheet Data:

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Total value of RadNet joint venture interests $ 41,375 $ 34,528

Income statement data for the three months ended March 31, 2021 2021 2020

Income statement data for the six months ended June 30, 2021 2021 2020

Net revenue $ 64,636 $ 43,849

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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

our obligations to provide diagnostic services are satisfied.

Revenues are recorded during the period 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.

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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, changes in business and economic conditions, and the frequent changes in managed care contractual terms resulting from contract re-negotiations and renewals.

Management continually reviews the contractual estimation process to

consider and incorporate updates to laws and regulations, changes in business and economic conditions, and the frequent changes in managed care contractual terms resulting from contract re-negotiations 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.

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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 estimates and assumptions related to revenue recognition did not change materially for the quarter ended March 31, 2021.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended June 30, 2021.

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.

We have recorded provider relief funding in our condensed Consolidated Statements of Operations in the amount of $6.2 million for three months ended March 31, 2021.

We have recorded provider relief funding in our condensed Consolidated Statements of Operations in the amount of $6.3 million for the six months ended June 30, 2021.

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.

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In recognizing revenue associated with provider relief funding our management is required to assess whether our operations have meet the applicable requirements for the funding received.

During the quarter ended March 31, 2021, we continued to evaluate our operating results in light of the most recent government guidance and based on our assessment, the amount of revenue recognized is appropriate.

During the quarter ended June 30, 2021, we continued to evaluate our operating results in light of the most recent government guidance and based on our assessment, the amount of revenue recognized is appropriate.

Accounts Receivable

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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.

Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended March 31, 2021.

Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended June 30, 2021.

Business Combination

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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 and are associated with the value of certain trade name intangibles.

Goodwill at June 30, 2021 totaled $502.3 million.

Indefinite Lived Intangible Assets at June 30, 2021 were $7.1 million and are associated with the value of certain trade name intangibles.

Our management reviews the fair value of our reporting units on an annual basis to determine if an event has occurred which suggest that the fair value of a reporting unit may be impaired.

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We tested goodwill for impairment on October 1, 2020.

We also continue at regular intervals to consider the current and expected future economic and market conditions surrounding the COVID-19 pandemic and to date have not had an indication of goodwill impairment being more likely than not through March 31, 2021.

Recent Accounting Standards

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Results of Operations

The following table sets forth, for the three months ended March 31, 2021 and 2020, the percentage that certain items in the statements of operations bears to total service revenue, inclusive of revenue under capitation contracts.

The following table sets forth, for the three and six months ended June 30, 2021 and 2020, the percentage that certain items in the statements of operations bears to total service revenue, inclusive of revenue under capitation contracts.

AND SUBSIDIARIES

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Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Service fee revenue 88.5 % 81.7 % 88.6 % 85.6 %

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Non-cash change in fair value of interest rate hedge — % 2.0 % (1.7) % 0.8 %

Other expenses 0.1 % — %

Debt restructuring and extinguishment expenses

1.8 % — % 0.9 % — %

Other expenses (income) 0.5 % (0.1) % 0.3 % — %

Total other (income) expenses 5.0 % 7.1 % 2.5 % 4.9 %

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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 months ended March 31, 2021 and 2020 for our operations at a total company and same center level.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

The discussion below shows a breakdown and analysis of revenue and expenses for the three and six months ended June 30, 2021 and 2020 for our operations at a total company and same center level.

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

Total Revenue inclusive of Provider Relief funding where applicable for 2021 and 2020

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Revenue 2021 2020 $ Increase/(Decrease) % Change

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Same Center Revenue $306,740 $212,548 $94,192 44.3%

Increased revenue was spurred by an overall same center 5.1% growth in procedure volumes over the same period in the prior year.

On a same center basis, Mammography procedures rose 15.1%, followed by advanced radiology procedures of PET and CT, which expanded at a combined 8.7%.

The growth in Mammography procedures was precipitated by our investment in the use of artificial intelligence, which is employed to keep track of patient data, catalog findings, and drive patient notification so a regular exam schedule is maintained.

Assisting in the revenue increase was $6.2 million received in Provider Relief funding and annual contractual rate increases in capitation and fee for service plans.

This same center comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2020.

For the three months ended March 31, 2021, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $16.9 million.

For the three months ended March 31, 2020, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $3.6 million.

Increased revenue reflects an overall same center 80.5% growth in total procedure volumes over the same period in the prior year as business returned to pre-COVID-19 levels.

On a same center basis, Mammography procedures rose 106.3%, while advanced radiology procedures of MRI, PET and CT, expanded at a combined 154.4%, eventuating the significant revenue increase over the same period in the prior year.

This same center comparison excludes revenue contributions from centers that were acquired or divested subsequent to April 1, 2020.

For the three months ended June 30, 2021, net service fee revenue from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was $27.2 million.

For the three months ended June 30, 2020, net service fee revenue from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was $3.5 million.

Operating Expenses

Total operating expenses for the three months ended March 31, 2021 increased approximately $13.6 million, or 4.7%, from $290.3 million for the three months ended March 31, 2020 to $303.9 million for the three months ended March 31, 2021.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):

Total operating expenses for the three months ended June 30, 2021 increased approximately $90.4 million, or 41.9%, from $215.9 million for the three months ended June 30, 2020 to $306.3 million for the three months ended June 30, 2021.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

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Depreciation and amortization 24,011 21,355

(Gain) loss on sale and disposal of equipment (1,307) 771

Gain on sale and disposal of equipment (1,567) (569)

Severance costs 268 859

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* Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended June 30, 2021 and 2020 (in thousands):

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

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Salaries and Professional Fees 2021 2020 $ Increase/(Decrease) % Change

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Same Center Salaries $160,092 $109,799 $50,293 45.8%

The moderate rise in same center salaries expense corresponded to the added professional staff requisite for radiology study interpretation that stemmed from higher procedure volumes.

This same center comparison excludes expenses from

centers that were acquired or divested subsequent to January 1, 2020.

For the three months ended March 31, 2021, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $9.1 million.

For the three months ended March 31, 2020, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was approximately $3.2 million.

Same center salaries, which are substantially greater than the same period in the prior year, exemplifies the return to a state of normal business.

During the same period in the prior year, which was the height of the pandemic, our physician and non physician staff were subject to furloughs, pay reductions, and layoffs.

Our staff has now returned to a level to support the influx of patients seeking radiology procedures and combined with restored pay, has resulted in the higher salaries and professional fee expense.

This same center comparison excludes expenses from centers that were acquired or divested

subsequent to April 1, 2020.

For the three months ended June 30, 2021, salaries and professional reading fees from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was $12.8 million.

For the three months ended June 30, 2020, salaries and professional reading fees from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was approximately $2.0 million.

Stock-based compensation

Stock-based compensation increased $1.6 million, or 24.6% to approximately $8.2 million for the three months ended March 31, 2021 compared to $6.6 million for three months ended March 31, 2020.

Stock-based compensation increased $7.4 million, or 511.1% to approximately $8.9 million for the three months ended June 30, 2021 compared to $1.5 million for three months ended June 30, 2020.

This increase was driven by the higher fair value of RSA’s awarded and vested in the first quarter of 2021 as compared to RSA’s awarded and vested in the prior year’s first quarter.

In addition, we granted awards valued at $6.5 million in compensation expense in employee COVID-19 related bonuses.

Building and equipment rental

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Building & Equipment Rental 2021 2020 $ Increase/(Decrease) % Change

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Same Center $25,623 $25,113 $510 2.0%

This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the three months ended March 31, 2021, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $3.0 million.

For the three months ended March 31, 2020, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was approximately $1.2 million.

The overall increase in building and equipment rental expenses was related to centers acquired through our business combinations, as same center expense remained stable.

This same center comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2020.

For the three months ended June 30, 2021, building and equipment rental expenses from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was $5.5 million.

For the three months ended June 30, 2020, building and equipment rental expenses from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was approximately $1.4 million.

Medical supplies

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Medical Supplies Expense 2021 2020 $ Increase/(Decrease) % Change

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Same Center $13,394 $8,450 $4,944 58.5%

Higher same center medical supplies expense related to additional consumption of contrast agents in our advanced imaging modalities driven by volume increases of CT and PET procedures and cost of personal protective equipment in support of staff and patient safety.

This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the three months ended March 31, 2021, medical supplies expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.6 million.

For the three months ended March 31, 2020, medical supplies expense from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.2 million.

Medical supplies expense increase stems from the overall procedural volumes noted above compared to the same period in the prior year and is consistent with the percentage increases in revenue and salaries expense.

This same center comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2020.

For the three months ended June 30, 2021, medical supplies expenses from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was $0.9 million.

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

Other operating expenses

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Other Operating Expenses 2021 2020 $ Increase/(Decrease) % Change

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Same Center $51,368 $44,480 $6,888 15.5%

Savings in same center other operating expenses reflects the cumulative effect of successful contract re-negotiations aimed to reduce charges across a range of vendors from repair and maintenance to professional services.

This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the three months ended March 31, 2021, other operating expense from centers that were acquired or divested subsequent January 1, 2020 and excluded from the above comparison was $3.6 million.

For the three months ended March 31, 2020, other operating expense from centers that were acquired or divested subsequent to January 1, 2020 was $1.0 million.

Increases in same center other expenses is reflective of our improved business conditions, but the rise was less than proportionate with higher revenues due to the cumulative effect of successful contract re-negotiations in the prior year aimed to reduce charges across a range of vendors from repair and maintenance to professional services.

This same center comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2020.

For the three months ended June 30, 2021, other operating expense from centers that were acquired or divested subsequent April 1, 2020 and excluded from the above comparison was $5.0 million.

For the three months ended June 30, 2020, other operating expense from centers that were acquired or divested subsequent to April 1, 2020 was $1.4 million.

Depreciation and amortization

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Depreciation & Amortization 2021 2020 $ Increase/(Decrease) % Change

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Same Center $21,512 $20,605 $907 4.4%

This same center comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the three months ended March 31, 2021, depreciation expense from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $1.7 million.

For the three months ended March 31, 2020, depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.5 million.

This same center comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2020.

For the three months ended June 30, 2021, depreciation expense from centers that were acquired or divested subsequent to April 1, 2020 and excluded from the above comparison was $2.5 million.

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

Gain on sale and disposal of equipment and other

We recorded gains on the disposal of equipment and other items of approximately $1.3 million for the three months ended March 31, 2021 and a loss on sale and disposal of equipment of approximately $0.8 million for the three months ended March 31, 2020.

We recorded gains on the disposal of equipment and other items of approximately $1.6 million for the three months ended June 30, 2021 and approximately $0.6 million for the three months ended June 30, 2020.

Non-cash change in fair value of interest rate hedge

We recorded a gain of $11.2 million for the ineffective portion of our 2019 Swaps for the three months ended March 31, 2021.

We recorded an immaterial gain of $35.0 thousand for the ineffective portion of our 2019 Swaps for the three months ended June 30, 2021 and a expense of $3.8 million for three months ended June 30, 2020.

Other (income) expenses

We recorded other expenses of approximately $0.2 million for the three months ended March 31, 2021.

Amounts for the corresponding period ending March 31, 2020 were immaterial.

We recorded other expenses of approximately $7.7 million for the three months ended June 30, 2021 mainly related to our refinancing of our term loan debt and the change in fair value of contingent consideration.

Amounts for the corresponding period ending June 30, 2020 were other income of $0.1 million.

Severance Costs

We incurred severance expenses of $0.3 million for the three months ended March 31, 2021 and $0.2 million for the three months ended March 31, 2020.

We incurred severance expenses of $0.3 million for the three months ended June 30, 2021 and $0.9 million for the three months ended June 30, 2020.

Interest expense

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Interest Expense 2021 2020 $ Increase/(Decrease) % Change

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

Excluding the effect of interest expense related to derivatives and amortization for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, interest expense decreased $2.1 million, or 20.6%.

Excluding the effect of interest expense related to derivatives and amortization for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, interest expense decreased $1.0 million, or 11.8%.

The reduction in interest expense corresponds to lowered variable LIBOR and Prime interest rates paid on our term loan and revolving debt based on market conditions.

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Equity in earnings from unconsolidated joint ventures

For the three months ended March 31, 2021 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.3 million and for three months ended March 31, 2020 we recognized equity in earnings from unconsolidated joint ventures of $2.0 million, an increase of $0.3 million or 16.9%.

For the three months ended June 30, 2021 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.1 million and for three months ended June 30, 2020 we recognized equity in earnings from unconsolidated joint ventures of $0.9 million, an increase of $2.2 million or 230.3%.

The increase was mainly related to the equity in earnings received from our interest in the Arizona Diagnostic Radiology Group joint venture, which was formed in the fourth quarter of 2020.

Income tax provision

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;

We recorded income tax expense of $2.9 million, or an effective tax rate of 26.2%, for the three months ended June 30, 2021 compared to a benefit from income taxes of $4.5 million, or an effective tax rate of 33.3% for the three months ended June 30, 2020.

The income tax rates for the three and six months ended June 30, 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.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

Total Revenue inclusive of Provider Relief funding for 2020

In Thousands Six Months Ended June 30, 2021

Revenue 2021 2020 $ Increase/(Decrease) % Change

Total Revenue $655,528 $497,605 $157,923 31.7%

Same Center Revenue $609,580 $486,458 $123,122 25.3%

Increased revenue reflects an overall same center 36.1% growth in total procedure volumes over the same period in the prior year as business returned to pre-COVID-19 levels.

Total Provider Relief funding used to offset lost revenue due to the pandemic and included in the above amounts was $6.2 million for the six months ended June 30, 2021 and $25.5 million for the six months ended June 30, 2020.

This comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2020.

For the six months ended June 30, 2021, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $45.9 million.

For the six months ended June 30, 2020, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $11.1 million.

Operating Expenses

Total operating expenses for the six months ended June 30, 2021 increased approximately $104.0 million, or 20.5%, from $506.2 million for the six months ended June 30, 2021 to $610.2 million for the six months ended June 30, 2020.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended June 30, 2021

Salaries and professional reading fees, excluding stock-based compensation $ 350,765 $ 279,322

Stock-based compensation 17,145 8,078

Building and equipment rental 59,850 53,445

Medical supplies 28,238 21,314

Other operating expenses *

109,852 99,476

Cost of operations 565,850 461,635

Depreciation and amortization 46,667 43,289

(Gain) Loss on sale and disposal of equipment (2,874) 202

Severance costs 551 1,076

Total operating expenses $ 610,194 $ 506,202

* Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.

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

In Thousands Six Months Ended June 30, 2021

Salaries and Professional Fees 2021 2020 $ Increase/(Decrease) % Change

Total Salaries $350,765 $279,322 $71,443 25.6%

Same Center Salaries $328,605 $273,159 $55,446 20.3%

The increase in salaries expense was a result of a return to normal pre-Covid19 levels of business.

As noted in our quarterly explanation above, staffing levels have been adjusted to support higher patient volumes with the corresponding rise in salaries and professional fee expense.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the six months ended June 30, 2021, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $22.2 million.

For the six months ended June 30, 2020, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was approximately $6.2 million.

Stock-based compensation

Stock-based compensation increased $9.1 million, or 112.2% to approximately $17.1 million for the six months ended June 30, 2021 compared to $8.1 million for six months ended June 30, 2020.

This increase was driven by the higher fair value of RSA’s awarded and vested in the six months of 2021 as compared to RSA’s awarded and vested in the prior year’s same period.

In addition, we granted awards valued at $6.5 million in compensation expense in employee COVID-19 related bonuses during the first six months of 2021.

Building and equipment rental

In Thousands Six Months Ended June 30, 2021

Building & Equipment Rental 2021 2020 $ Increase/(Decrease) % Change

Total $59,850 $53,445 $6,405 12.0%

Same Center $51,108 $50,401 $707 1.4%

The increase in building and equipment rental expenses was related to centers acquired through our business combinations.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the six months ended June 30, 2021, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $8.7 million.

For the six months ended June 30, 2020, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was approximately $3.0 million.

Medical supplies

In Thousands Six Months Ended June 30, 2021

Medical Supplies Expense 2021 2020 $ Increase/(Decrease) % Change

Total $28,238 $21,314 $6,924 32.5%

Same Center $26,737 $20,944 $5,793 27.7%

Medical supplies expense increase stems from the overall procedural volumes noted above compared to the same period in the prior year and is consistent with the percentage increase in revenue.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the six months ended June 30, 2021, medical supplies expenses from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $1.5 million.

For the six months ended June 30, 2020, medical supplies expense from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $0.4 million.

Other operating expenses

In Thousands Six Months Ended June 30, 2021

Other Operating Expenses 2021 2020 $ Increase/(Decrease) % Change

Total $109,852 $99,476 $10,376 10.4%

Same Center $100,725 $96,148 $4,577 4.8%

As noted in our quarterly analysis above, increases in other operating expenses were mitigated by the cumulative effect of successful contract re-negotiations in the prior year aimed to reduce charges across a range of vendors.

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the six months ended June 30, 2021, other operating expense from centers that were acquired or divested subsequent January 1, 2020 and excluded from the above comparison was $9.1 million.

For the six months ended June 30, 2020, other operating expense from centers that were acquired or divested subsequent to January 1, 2020 was $3.3 million.

Depreciation and amortization

In Thousands Six Months Ended June 30, 2021

Depreciation & Amortization 2021 2020 $ Increase/(Decrease) % Change

Total $46,667 $43,289 $3,378 7.8%

Same Center $42,440 $41,690 $750 1.8%

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2020.

For the six months ended June 30, 2021, depreciation expense from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $4.2 million.

For the six months ended June 30, 2020, depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2020 and excluded from the above comparison was $1.6 million.

Loss on sale and disposal of equipment and other

We recorded a gain on the disposal of equipment and other items of approximately $2.9 million for the six months ended June 30, 2021 and a loss on the disposal of equipment of approximately $0.2 million for the six months ended June 30, 2020.

Non-cash change in fair value of interest rate hedge

We recorded expense of $11.3 million for the ineffective portion of our 2019 Swaps for the six months ended June 30, 2021.

Other (income) expenses

We recorded other expense of approximately $7.9 million for the six months ended June 30, 2021 mainly related to our refinancing of our term loan debt and the change in fair value of contingent consideration.

We recorded other income of approximately $0.1 million for the six months ended June 30, 2020

Severance Costs

We incurred severance expenses of $0.6 million for the six months ended June 30, 2021 and $1.1 million for the six months ended June 30, 2020.

Interest expense

In Thousands Six Months Ended June 30, 2021

Interest Expense 2021 2020 $ Increase/(Decrease) % Change

Total Interest Expense $24,997 $22,382

Interest related to derivatives* $7,334 $1,549

Interest payable on debt obligations** $17,663 $20,833 $(3,170) (15.2) %

Interest related to amortization*** $2,078 $2,163

Adjusted Interest Expense $15,585 $18,670 $(3,085) (16.5) %

* Includes interest on derivatives 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 six months ended June 30, 2021 compared to the six months ended June 30, 2020, interest expense decreased $3.1 million, or 16.5%.

The reduction in interest expense corresponds to lowered variable LIBOR and Prime interest rates paid on our term loan and revolving debt.

See “Liquidity and Capital Resources” below for more details on our credit facilities.

Equity in earnings from unconsolidated joint ventures

For the six months ended June 30, 2021 we recognized equity in earnings from unconsolidated joint ventures in the amount of $5.4 million and for six months ended June 30, 2020 we recognized equity in earnings from unconsolidated joint ventures of $2.9 million, an increase of $2.5 million or 86.4%.

The increase was mainly related to the equity in earnings received from our interest in the Arizona Diagnostic Radiology Group joint venture, which was formed in the fourth quarter of 2020.

Income tax expense

We recorded a provision for income tax of $7.2 million, or an effective tax rate of 24.9%, for the six months ended June 30, 2021 compared to a benefit for income tax of $8.9 million , or an effective tax rate of 27.8% for the six months ended June 30, 2020.

The income tax rates for the three and six months ended June 30, 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.

Adjusted EBITDA

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We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and excluding losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, bargain purchase gains and non-cash equity compensation.

Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taking place during the period.

Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries, and is adjusted for non-cash or

extraordinary and one-time events taking place during the period.

We have not made specific adjustments to our calculation of Adjusted EBITDA in response to COVID 19.

Our net income reflected below includes the effect of the $6.2 million in other revenue received under the Provider Relief Fund.

Our net income (loss) reflected below includes the effect of revenue received under the Provider Relief Fund of $6.2 million and $25.5 million for the six months ended June 30, 2021 and 2020, respectively.

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.

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.

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.

Adjusted EBITDA is most comparable to the GAAP financial measure, net income (loss) attributable to RadNet, Inc.

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

common stockholders to Adjusted EBITDA for the three months ended March 31, 2021 and 2020, respectively.

Three Months Ended March 31,

common stockholders to Adjusted EBITDA for the three and six months ended June 30, 2021 and 2020, respectively.

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income (loss) attributable to RadNet, Inc.

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(Gain) loss on sale and disposal of equipment and other (1,567) (569) (2,874) 202

Debt restructuring and loss on extinguishment expenses 6,044 — 6,044 —

Non-cash change in fair value of interest rate hedge (35) 3,843 (11,280) 3,843

Other adjustment to joint venture investment (565) — (565) —

Other expenses 1,658 (115) 1,867 (108)

Legal settlements — —

Adjusted EBITDA $ 56,629 $ 22,591 $ 102,132 $ 42,954

Liquidity and Capital Resources

The following table summarizes of key balance sheet data related to our liquidity 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):

The following table summarizes key balance sheet data related to our liquidity as of June 30, 2021 and December 31, 2020 and income statement data for the six months ended June 30, 2021 and 2020 (in thousands):

Balance Sheet Data:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 140,852 $ 102,018

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Stockholders' equity 299,279 258,303

Income statement data for the three months ended March 31 2021 2020

Income statement data for the six months ended June 30,

Total net revenue $ 649,237 $ 472,130

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Because our cash flows from operations have been insufficient to fund all of these capital requirements, we have depended on the availability of financing under credit arrangements with third parties.

As noted in our forward looking statements, we are uncertain of the duration and ultimate severity of the effects of the COVID 19 pandemic on our business.

During the six months ended June 30, 2021 we had a substantial acceleration of procedure volumes compared to the prior year.

Net income from the period, together with proceeds from the refinance of our credit facility has resulted in substantial improvement of our working capital position compared to December 31, 2020.

However, as noted in our forward looking statements, we are uncertain of the duration and ultimate severity of the effects of the COVID 19 pandemic on our business.

Although we have received government stimulus funding and are undertaking measures to reduce operating expenses, we may again experience operating losses as a result of the pandemic which can impact both the consumption and cost of our medical imaging services.

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Sources and Uses of Cash

The following table summarizes key components of our sources and uses of cash for the three months ended March 31, 2021 and 2020:

Cash Flow Data March 31, 2021 March 31, 2020

The following table summarizes key components of our sources and uses of cash for the six months ended June 30, 2021 and 2020:

Cash Flow Data June 30, 2021 June 30, 2020

Cash provided by operating activities $ 58,701 $ 131,465

Cash used in investing activities (119,658) (67,602)

Cash (used in) provided by financing activities (11,651) 68,262

Cash provided by operating activities for the three months ended March 31, 2021 was $28.1 million and $40.9 million for the three months ended March 31, 2020.

Our cash provided by operating activities for the period ended March 31, 2020 was benefited by the receipt of $39.5 million in CMS advances recorded as deferred revenue.

Cash used in investing activities for the three months ended March 31, 2021, included purchases of property and equipment for approximately $30.4 million and the acquisition of imaging and software business assets for $57.1 million.

Cash provided by (used in) financing activities 99,812 (19,439)

Cash provided by operating activities for the six months ended June 30, 2021 was $58.7 million and $131.5 million for the six months ended June 30, 2020.

Our cash provided by operating activities for the period ended June 30, 2020 was benefited by the receipt of $39.5 million in CMS advances recorded as deferred revenue.

Cash used in investing activities for the six months ended June 30, 2021, included purchases of property and equipment for approximately $53.8 million and the acquisition of imaging business assets for $64.9 million.

As part of our business operations we continually evaluate investment opportunities.

As noted in Note 7, Subsequent Events, we have purchase commitments for acquisitions of $5.0 million.

Cash used in financing activities for the three months ended March 31, 2021, was due to principal payments on our term loans and equipment debt obligations.

Cash provided by financing activities of $99.8 million for the six months ended June 30, 2021, was due to refinancing of our term loan obligations with the Second Amended and Restated First Lien Credit Agreement on April 23, 2021.

Please see Note 5, Credit Facilities and Notes Payable in the notes to consolidated financials statements for more information.

We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements.

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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 March 31, 2021 we have $20.5 million, net of discount, remaining to be collected on these agreements.

At June 30, 2021 we have $19.8 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.

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

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 which extended and increased the amount available under the revolving line of credit to $195.0 million.

The Barclays credit facilities are comprised of first lien term loans and a revolving credit facility of $195.0 million.

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

As of March 31, 2021, we were in compliance with all covenants under our credit facilities.

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.

Included in our condensed consolidated balance sheets at March 31, 2021 are $651.6 million of total term loan debt (exclusive of unamortized discounts of $8.7 million) in thousands:

As of June 30, 2021, we were in compliance with all

covenants under our credit facilities.

Deferred financing costs at June 30, 2021, net of accumulated amortization, was $2.4 million and is specifically related to our Barclays revolving credit facility.

Included in our condensed consolidated balance sheets at June 30, 2021 are $774.1 million of total term loan debt (exclusive of unamortized discounts of $14.3 million) in thousands:

Face Value Discount Total Carrying

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Total Term Loans $ 774,125 $ (14,257) $ 759,868

At March 31, 2021, we had no borrowings under our Barclays or SunTrust revolving credit facilities.

At June 30, 2021, we had no borrowings under our Barclays or SunTrust revolving credit facilities.

After reserves for outstanding letters of credit of $7.8 million on our Barclays Revolving Credit Facility, we have $187.2 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.

On April 23, 2021, after the period covered by this report, 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 loan were 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.

In addition, the Restated Credit Agreement lowered our interest rates and reduced our principal payments from $9.7 million to $1.8 million per quarter.

We expect our existing capital resources, anticipated cash from operations and our borrowing capacity under our credit facilities will be sufficient to sustain our operations for the next twelve months and the foreseeable future.

Please see Note 5, Credit Facilities and Notes Payable in the notes to consolidated financials statements for more information on our refinancing activity of April 23, 2021.

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