What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 238 added, 98 removed, 318 unchanged (51% of the section changed)

24 unchanged sentences

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

At March 31, 2022, we operated, directly or indirectly through joint ventures with hospitals, 351 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York.

At June 30, 2022, 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 operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Artificial Intelligence

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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 centers.

The following table shows our centers in operation and revenues for the three months ended March 31, 2022 and March 31, 2021:

Three Months Ended March 31,

The following table shows our centers in operation and revenues for the six months ended June 30, 2022 and June 30, 2021:

Six Months Ended June 30,

Centers in operation 353 353

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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, 2022 and 2021 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 fee revenues during the three and six months ended June 30, 2022 and 2021 are presented in the table below.

Our imaging review is based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage.

Additional revenues are earned from our management services provided to joint ventures and our software and AI subsidiaries.

In Thousands Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Commercial insurance $ 195,066 $ 187,354 $ 383,615 $ 369,566

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Software revenue 2,421 2,628 6,419 5,054

AI revenue 599 —

Other 3,577 3,788 8,623 6,409

Service fee revenue 303,276 279,577

Revenue under capitation arrangements 37,874 38,424 76,365 74,166

Imaging Center Segment Revenue 352,818 333,918 693,985 649,237

AI Segment Revenue 1,557 — 2,156 —

Total service revenue $ 354,375 $ 333,918 $ 696,141 $ 649,237

Recent Developments

As 2022 begins, our procedure volumes remain strong.

Through the second quarter ended June 30, 2022 our imaging business continued to expand, with procedure volumes returning to levels experienced before the COVID-19 pandemic, with same center procedure volumes increasing 3.7% and overall procedure volumes increasing 6.2% over the same period in 2021.

We opened a net of six imaging centers in the first half of 2022, through a combination of acquisition and internal development.

We continued to pursue our strategy of expansion within geographic regions, with a concentration on adding new facilities in Maryland.

While imaging volumes returned to pre-pandemic levels, our operations have experienced effects from the pandemic and related macroeconomic issues.

We are experiencing tighter labor markets, resulting in increased salaries as we seek to retain our skilled workforce.

Our acquisitions of Aidence Holding B.V.

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have expanded our AI initiatives to encompass imaging diagnostics solutions for the most prevalent cancers.

We have also opened five centers through a combination of acquisition and internal development.

Efforts in AI are largely in the product development stage at this time and we expect that the segment will continue to experience operating losses for the foreseeable future as we seek to secure both regulatory approvals and market acceptance for our products.

Equity Investments, Acquisitions and Dispositions, and Joint Venture Activity

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Equity Investments

As of March 31, 2022, 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, 2022, 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, 2022.

No observable price changes or impairment in our investment was identified during the three and six months ended June 30,2022.

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 into an additional 80,000 shares effective December 21, 2019.

No observable price changes or impairment in our investment was identified as of March 31, 2022.

On January 1, 2019 we funded a convertible promissory note in

the amount of $0.1 million that converted into an additional 80,000 shares effective December 21, 2019.

No observable price changes or impairment in our investment was identified during the three and six months ended June 30,2022.

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, 2022.

No observable price changes, impairment in our investment or impairment of the loan receivable was identified during the three and six months ended June 30,2022.

Imaging Center

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As we finalize our estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months).

The initial accounting is incomplete as of March 31, 2022 for the acquired assets and liabilities as we are currently in the process of completing the assessment of valuation inputs and assumptions as well as completing the assessment of the tax attributes of the business combination.

The initial accounting is incomplete as of June 30, 2022 for the acquired assets and liabilities as we are currently in the process of completing the assessment of valuation

inputs and assumptions as well as completing the assessment of the tax attributes of the business combination.

The finalization of the acquisition accounting valuation assessment may result in a change in the valuation of the deferred tax assets and liabilities and intangible assets, along with the opening working capital accounts, which could have a material impact on our results of operations and financial position.

Formation of majority owned subsidiary

Frederick County Radiology, LLC

On April 1, 2022 we formed Frederick County Radiology, LLC ("FCR"), a partnership with Frederick Health Hospital, Inc.

("Hospital").

The operation offers multi-modality services out of six locations in Frederick, Maryland.

We contributed the operations of 4 centers to the enterprise and Hospital contributed $5.5 million in fixed assets, $3.0 million in equipment, $10.8 million in goodwill.

As a result of the the transaction, we retain a 65% controlling economic interest in FCR and Hospital retains a preliminary $10.7 million or 35% noncontrolling economic interest in FCR.

The initial accounting is preliminary as of June 30, 2022 for the acquired assets and liabilities as we are currently in the process of completing the assessment of valuation inputs and assumptions as well as completing the assessment of the tax attributes of the business combination.

Advanced Radiology at Capital Region, LLC

On June 15, 2022 we entered into Advanced Radiology at Capital Region, LLC, a partnership with Dimension Health Corporation.

("Dimension"), and affiliate of the University of Maryland.

The operation will provide multi-modality services out of two yet to be determined locations in the Largo, Maryland area.

The venture was initially capitalized with nominal amounts of $5.1 thousand for a 51% economic interest from us and $4.9 thousand from Dimension for a 49% economic interest.

Joint Venture Activity

Acquisition by equity method investee

During the first quarter of 2022, our joint venture with Calvert Medical Imaging Center, LLC, completed the acquisition of certain assets to strengthen our presence in the Maryland market.

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^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, two of which were purchased separately by wholly owned RadNet subsidiaries.

The following table is a summary of our investment in joint ventures during the three months ended March 31, 2022 (in thousands):

The following table is a summary of our investment in joint ventures during the six months ended June 30, 2022 (in thousands):

Balance as of December 31, 2021 $ 42,229

Equity in earnings in these joint ventures 5,266

Balance as of March 31, 2022 $ 44,746

We charged management service fees from the centers underlying these joint ventures of approximately $5.5 million and $5.2 million for the three months ended March 31, 2022 and 2021, respectively.

The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2022 and December 31, 2021 and income statement data for the three months ended March 31, 2022 and 2021 (in thousands):

Equity contributions in existing joint ventures 1,441

Balance as of June 30, 2022 $ 48,936

We charged management service fees from the centers underlying these joint ventures of approximately $5.6 million and $5.5 million for the three months ended June 30, 2022 and 2021 and $11.1 million and $10.8 million for the six months ended June 30, 2022 and 2021, respectively.

On June 24, 2022, 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, 2022 and December 31, 2021 and income statement data for the six months ended June 30, 2022 and 2021 (in thousands):

Balance Sheet Data:

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Total value of RadNet joint venture interests $ 48,936 $ 42,229

Income statement data for the three months ended March 31,

Income statement data for the six months ended June 30,

Net revenue $ 69,757 $ 64,636

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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, 2022.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended June 30, 2022.

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 the three months ended March 31, 2021.

No provider relief funding was received for the three months ended March 31, 2022.

We have recorded provider relief funding in our condensed Consolidated Statements of Operations in the amount of $43.0 thousand for the three months ended June 30, 2021 and $6.3 million for the six months ended June 30, 2021.

No provider relief funding was received for the three and six months ended June 30,2022.

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, 2022, 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, 2022, 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, 2022.

Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended June 30, 2022.

Business Combination

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Goodwill and Indefinite Lived Intangibles

Goodwill at March 31, 2022 totaled $570.2 million.

Indefinite Lived Intangible Assets at March 31, 2022 were $13.2 million and are associated with the value of certain trade name intangibles.

Goodwill at June 30, 2022 totaled $577.8 million.

Indefinite Lived Intangible Assets at June 30, 2022 were $12.7 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, 2021.

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, 2022.

Recent Accounting Standards

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Results of Operations

The following table sets forth, for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021, 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

2022 2021 2022 2021

Service fee revenue 89.3 % 88.5 % 89.0 % 88.6 %

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Total operating expenses 94.5 % 91.7 % 97.4 % 94.0 %

(LOSS) INCOME FROM OPERATIONS (0.5) % 5.6 %

INCOME FROM OPERATIONS 5.5 % 8.3 % 2.6 % 7.0 %

OTHER INCOME AND EXPENSES

1 unchanged sentence

Equity in earnings of joint ventures (0.8) % (0.9) % (0.8) % (0.8) %

Non-cash change in fair value of interest rate hedge (6.1) % (3.6) %

Other expenses — % 0.1 %

Total other income (3.4) % (0.2) %

Non-cash change in fair value of interest rate swaps (1.8) % — % (3.9) % (1.7) %

Debt restructuring and extinguishment expenses

— % 1.8 % — % 0.9 %

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

Total other expenses (income) 0.7 % 5.0 % (1.3) % 2.5 %

INCOME BEFORE INCOME TAXES 4.9 % 3.3 % 3.9 % 4.5 %

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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, 2022 and 2021.

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

The discussion below shows a breakdown and analysis of revenue and expenses for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Total Revenue inclusive of Provider Relief funding where applicable for 2022 and 2021

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Revenue 2022 2021 $ Increase/(Decrease) % Change

2 unchanged sentences

Excluded $18,774 $7,375 — —

Upswing in revenue reflects an overall same center 6.2% growth in total procedure volumes over the same period in the prior year as business continues to return to pre-COVID-19 levels.

On a same center basis, with routine imaging procedures rising 5.6%, and advanced radiology procedures of MRI, PET and CT, expanding at a combined 7.9%, revenue increased over the same period in the prior year.

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 three months ended March 31, 2021.

Excluded amounts refer to revenue contributions for the three month periods ending March 31, 2022 and March 31, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through March 31, 2022.

Upswing in revenue was driven by an overall total procedure volume growth of 4.1% over the same period in the prior year.

On a same center basis, the increase in revenue was largely attributable to product mix as advanced radiology procedures of MRI, PET, and CT expanded at combined 3.4% to provide the major portion of the revenue growth.

Excluded amounts refer to revenue contributions for the three month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between April 1, 2021 through June 30, 2022.

Operating Expenses

Total operating expenses for the three months ended March 31, 2022 increased approximately $34.7 million, or 11.5%, from $302.6 million for the three months ended March 31, 2021 to $337.3 million for the three months ended March 31, 2022.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended March 31, 2022 and 2021 (in thousands):

Total operating expenses for the three months ended June 30, 2022 increased approximately $21.5 million, or 7.1%, from $305.0 million for the three months ended June 30, 2021 to $326.6 million for the three months ended June 30, 2022.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

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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, 2022 and 2021 (in thousands):

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended June 30, 2022 and 2021 (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 2022 2021 $ Increase/(Decrease) % Change

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Excluded $8,579 $5,231 — —

Stemming from the higher procedure volumes noted above, our staffing levels were adjusted to support the influx of patients seeking radiology procedures.

In addition, we face inflation in employee cost similar to the general economy as demand returns to pre-Covid levels.

Excluded amounts refer to salaries and professional reading fees for the three month

periods ending March 31, 2022 and March 31, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through March 31, 2022.

Increases in salary expenses was partially driven by increased staffing associated with the growth in revenues and procedure volumes.

In addition, we have raised salaries for staff in order to retain a skilled work force in the competitive post-pandemic labor market.

Excluded amounts refer to salaries and professional reading fees for the three month periods ending

June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between April 1, 2021 through June 30, 2022.

Stock-based compensation

Stock-based compensation increased $2.6 million, or 32.9% to approximately $10.4 million for the three months ended March 31, 2022 compared to $7.8 million for three months ended March 31, 2021.

This increase was driven by the higher fair value of RSA’s awarded and vested in the first quarter of 2022 as compared to RSA’s awarded and vested in the prior year’s first quarter.

Stock-based compensation decreased $4.4 million, or 52.3% to approximately $4.0 million for the three months ended June 30, 2022 compared to $8.4 million for three months ended June 30, 2021.

This decrease is a result of a one time pandemic related stock awards to employees that was granted in the second quarter 2021.

There was no similar one time award granted in 2022.

Building and equipment rental

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Building & Equipment Rental 2022 2021 $ Increase/(Decrease) % Change

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Excluded Sites $3,514 $2,454 — —

The decrease in building and rental expense relates to reduced equipment rental expenses relating to operating lease contracts which ended or were bought out during 2021.

Excluded amounts refer to building and equipment rental for the three month periods ending March 31, 2022 and March 31, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through March 31, 2022.

The decrease in same center building and rental relates to reduced equipment rental expenses for operating lease contracts which ended or were bought out during 2021.

Excluded amounts refer to building and equipment rental for the three month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between April 1, 2021 through June 30, 2022.

Medical supplies

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Medical Supplies Expense 2022 2021 $ Increase/(Decrease) % Change

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Excluded Sites $1,092 $467 — —

The rise in Medical supplies expense corresponds to higher patient volume combined with price increases for contrasting agents used in advanced radiology procedures.

Excluded amounts refer to medical supplies expense for the three month periods ending March 31, 2022 and March 31, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through March 31, 2022.

On an overall basis, increase in medical supplies expense was lower than increase in procedure volumes.

This reduction, which is reflected in a decrease to same center supplies expenses, is from optimization of inventory levels for improved efficiency and reduced purchases of contrast agents used in advanced radiology procedures due to varying degrees of available supply.

Excluded amounts refer to medical supplies expense for the three month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between April 1, 2021 through June 30, 2022.

Other operating expenses

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Other Operating Expenses 2022 2021 $ Increase/(Decrease) % Change

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Excluded Sites $3,728 $1,566 — —

Other operating expenses increase relates to one time settlement charge for telecom contracts being phased out as part of a change in service provider.

Excluded amounts refer to other operating expenses for the three month periods ending March 31, 2022 and March 31, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through March 31, 2022.

Excluded amounts refer to other operating expenses for the three month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between April 1, 2021 through June 30, 2022.

Additional segment operating and non operating expenses:

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

2022 2021 $ Increase/(Decrease) % Change

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Loss (gain) on disposal of equipment and other $36 ($1,567) $1,602 nm

Non-cash change in fair value of interest rate hedge ($20,819) ($11,245) (9,575) nm

Non-cash change in fair value of interest rate swaps ($6,306) ($35) (6,272) nm

Other expenses* $784 $6,610 ($5,826) nm

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nm= not meaningful

*Other expenses for 2021 include $6.0 million of debt extinguishment and restructuring expenses.

Interest expense

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Interest Expense 2022 2021 $ 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, 2022 compared to the three months ended March 31, 2021, interest expense decreased $0.7 million, or 9.3%.

The reduction in interest expense is attributable to a lower base rate that that was negotiated as part of an amendment to our senior credit facilities which reduced the effective interest rates on our term loan and revolving credit facilities as compared to the same period last year.

Excluding the effect of interest expense related to derivatives and amortization for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, interest expense increased $0.1 million, or 1.4%.

The increase in interest expense is attributable to a slightly higher variable interest rate paid on our debt balance compared to the rate paid over the same period in the prior year.

Based on recent increases in global interests rates, we expect the effective interest rates on our senior credit facilities, and our related interest expense, to rise in the near term.

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Equity in earnings from unconsolidated joint ventures

For the three months ended March 31, 2022 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.5 million and for three months ended March 31, 2021 we recognized equity in earnings from unconsolidated joint ventures of $2.3 million, an increase of $0.2 million or 10.2%.

The increase was mainly related to the equity in earnings received from our venture operations in Maryland.

For the three months ended June 30, 2022 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.7 million and for three months ended June 30, 2021 we recognized equity in earnings from unconsolidated joint ventures of $3.1 million, an decrease of $0.4 million or 12.0%.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Total Revenue inclusive of Provider Relief funding for 2021

In Thousands Six Months Ended June 30,

Revenue 2022 2021 $ Increase/(Decrease) % Change

Total Revenue $693,985 $655,528 $38,457 5.9%

Same Center Revenue $629,917 $615,951 $13,966 2.3%

Excluded Sites $64,068 $39,577 — —%

Increased revenue reflects a 3.7% growth in overall same center procedure volumes compared with the same period in the prior year.

Total Provider Relief funding, used to offset lost revenue due to the pandemic and included in the above amounts, was $6.3 million for the six months ended June 30, 2021.

No Provider Relief funding was received in 2022.

Excluded amounts refer to revenue contributions for the six month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through June 30, 2022.

Operating Expenses

Total operating expenses for the six months ended June 30, 2022 increased approximately $56.3 million, or 9.3%, from $607.6 million for the six months ended June 30, 2022 to $663.9 million for the six months ended June 30, 2021.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended June 30,

Salaries and professional reading fees, excluding stock-based compensation $ 388,202 $ 349,483

Stock-based compensation 14,390 16,236

Building and equipment rental 60,829 59,850

Medical supplies 30,080 28,238

Other operating expenses *

115,959 109,624

Cost of operations 609,460 563,431

Depreciation and amortization 52,906 46,489

Loss (gain) on sale and disposal of equipment 1,189 (2,874)

Severance costs 300 551

Total operating expenses $ 663,855 $ 607,597

* 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,

Salaries and Professional Fees 2022 2021 $ Increase/(Decrease) % Change

Total Salaries $388,202 $349,483 $38,719 11.1%

Same Center Salaries $357,598 $329,346 $28,252 8.6%

Excluded Sites $30,604 $20,137 — —%

Increases in salary expenses was partially driven by increased staffing associated with the growth in revenues and procedure volumes.

In addition, we have raised salaries for staff in order to retain a skilled work force in the competitive post-pandemic labor market.

Excluded amounts refer to salaries and professional reading fees for the six month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through June 30, 2022.

Stock-based compensation

Stock-based compensation decreased $1.8 million, or 11.4% to approximately $14.4 million for the six months ended June 30, 2022 compared to $16.2 million for six months ended June 30, 2021.

The decrease is a result of a one time pandemic related stock awards to employees that was granted in the second quarter 2021.

There was no similar one-time award granted in 2022.

Building and equipment rental

In Thousands Six Months Ended June 30,

Building & Equipment Rental 2022 2021 $ Increase/(Decrease) % Change

Total $60,829 $59,850 $979 1.6%

Same Center $49,921 $51,224 $(1,303) (2.5)%

Excluded Sites $10,908 $8,626 — —%

The decrease in same center building and rental relates to reduced equipment rental expenses for operating lease contracts which ended or were bought out during 2021.

Excluded amounts refer to building and equipment rental for the six month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through June 30, 2022.

Medical supplies

In Thousands Six Months Ended June 30,

Medical Supplies Expense 2022 2021 $ Increase/(Decrease) % Change

Total $30,080 $28,238 $1,842 6.5%

Same Center $27,394 $26,589 $805 3.0%

Excluded Sites $2,686 $1,649 — —%

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.

Excluded amounts refer to medical supplies expense for the six month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through June 30, 2022.

Other operating expenses

In Thousands Six Months Ended June 30,

Other Operating Expenses 2022 2021 $ Increase/(Decrease) % Change

Total $115,959 $109,624 $6,335 5.8%

Same Center $104,886 $102,153 $2,733 2.7%

Excluded Sites $11,073 $7,471 — —%

The rise in other operating expenses is due to service charge increases across many expense categories and is reflective of higher prices noted throughout the general economy.

Excluded amounts refer to other operating expenses for the six month periods ending June 30, 2022 and June 30, 2021, respectively, from centers that were acquired or divested between January 1, 2021 through June 30, 2022.

Additional segment operating and non operating expenses:

In Thousands Six Months Ended June 30,

2022 2021 $ Increase/(Decrease) % Change

Depreciation and amortization $52,906 $46,489 $6,417 13.8%

Loss (gain) on disposal of equipment and other $1,189 ($2,874) $4,064 nm

Non-cash change in fair value of interest rate swaps ($27,125) ($11,279) (15,846) nm

Other expenses $1,445 $6,617 ($5,172) nm

Severance $300 $551 (251) (45.6)%

nm= not meaningful

*Other expenses for 2021 include $6.0 million of debt extinguishment and restructuring expenses.

Interest expense

In Thousands Six Months Ended June 30,

Interest Expense 2022 2021 $ Increase/(Decrease) % Change

Total Interest Expense $22,978 $24,997 $(2,019) (8.1) %

Interest related to derivatives* $6,738 $7,334

Interest related to amortization** $1,295 $2,078

Adjusted Interest Expense*** $14,945 $15,585 $(640) (4.1) %

* Includes interest on derivatives not related to debt obligations.

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

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

Excluding interest expense for derivatives and amortization for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, interest expense decreased $0.6 million, or 4.1% and relates to lowered variable LIBOR and Prime interest rates paid on our term and revolving loans stemming from our debt refinance of April 2021.

Based on recent increases in global interests rates, we expect the effective interest rates on our senior credit facilities, and our related interest expense, to rise in the near term.

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, 2022 we recognized equity in earnings from unconsolidated joint ventures in the amount of $5.3 million and for the six months ended June 30, 2021 we recognized equity in earnings from unconsolidated joint ventures of $5.4 million, a decrease of $0.1 million or 2.6%.

Our AI segment develops and deploys clinical applications to enhance interpretation of medical images and improve patient outcomes with an emphasis on brain, breast, prostate, and pulmonary diagnostics.

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Our 2022 results now include our recent additions of Aidence Holding B.V and Quantib B.V.

The breakdown of revenue and expenses of the segment for the three months ended March 31, 2022 and 2021 are as follows:

In Thousands Three Months Ended March 31,

2022 2021 $ Increase/(Decrease)

Revenue $599 $— $599

Loss from Operations ($5,617) ($1,354) ($4,263)

Other ($504) $200 (704)

Segment loss ($5,113) ($1,554) ($3,559)

The breakdown of revenue and expenses of the segment for the three and six months ended June 30, 2022 and 2021 are as follows:

In Thousands Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Increase/(Decrease) % Change 2022 2021 $ Increase/(Decrease) % Change

Statement of Operations

Revenue $1,558 $— $1,558 nm $2,156 $— $2,156 nm

Salaries and Wages $4,447 $624 $3,823 nm $7,731 $1,282 $5,068 nm

Stock compensation $661 $452 $208 nm $1,405 $909 $497 nm

Other operating $1,318 $75 $1,242 nm $2,218 $230 $1,988 nm

Depreciation & Amort.

$1,762 $91 $1,670 nm $3,074 $178 $2,896 nm

Other operating loss $45 $— $45 nm $20 $— $20 nm

Total operating expenses $8,232 $1,243 $6,989 nm $14,447 $2,598 $11,849 nm

Loss from Operations ($6,675) ($1,243) ($5,432) nm ($12,291) ($2,598) ($9,693) nm

Other (income) loss ($783) $1,093 (1,876) nm ($1,287) $1,292 (2,580) nm

Income before taxes ($5,891) ($2,336) ($3,555) nm ($11,004) ($3,890) ($7,114) nm

Income taxes ($790) $— ($790) nm ($1,457) $— ($1,457) nm

Segment net income ($5,101) ($2,336) ($2,765) nm ($9,547) ($3,890) ($5,657) nm

Adjusted EBITDA

Segment net income ($5,101) ($2,336) ($9,547) ($3,890)

Stock Compensation $661 $452 $1,405 $909

Depreciation & Amort $1,762 $91 $3,074 $178

Other operating loss $45 $— $20 $—

Other (income) loss ($783) $1,093 ($1,287) $1,292

Income taxes ($790) $— ($1,457) $—

Adjusted EBITDA ($4,207) ($700) ($3,507) nm ($7,792) ($1,511) ($6,282) nm

Adjusted EBITDA

We use both GAAP and non-GAAP metrics to measure our financial results.

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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 revenue received under the Provider Relief Fund of $6.2 million for the three months ended March 31, 2021.

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.

Our net income reflected below includes the effect of revenue received under the Provider Relief Fund of $6.3 million for the six months ended June 30, 2021.

operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.

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.

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

common stockholders to Adjusted EBITDA for the three months ended March 31, 2022 and 2021, respectively.

Three Months Ended March 31,

common stockholders to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021, respectively.

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

2022 2021 2022 2021

Net income attributable to RadNet, Inc.

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Loss (gain) on sale and disposal of equipment and other 81 (1,567) 1,209 (2,874)

Non-cash change in fair value of interest rate hedge (20,819) (11,245)

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

Non-cash change in fair value of interest rate swaps (6,306) (35) (27,125) (11,280)

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

Other expenses (7) 1,658 158 1,867

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Non operational rent expenses 1,222 — 2,160 —

Gain on sale of equipment attributable to noncontrolling interest

Adjusted EBITDA including losses from AI Segment & Provider Relief Funding $ 51,337 $ 56,629 $ 89,470 $ 102,132

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Adjusted EBITDA including losses from AI Segment and excluding benefit from Provider Relief Funding $ 51,337 $ 56,586 $ 89,470 $ 95,841

Losses from AI Segment 3,585 811

Adjusted EBITDA losses from AI Segment 4,207 700 7,792 1,511

Adjusted EBITDA excluding losses from AI Segment & Provider Relief Funding $ 55,544 $ 57,286 $ 97,262 $ 97,352

Liquidity and Capital Resources

The following table summarizes key balance sheet data related to our liquidity as of March 31, 2022 and December 31, 2021 and income statement data for the three months ended March 31, 2022 and 2021 (in thousands):

The following table summarizes key balance sheet data related to our liquidity as of June 30, 2022 and December 31, 2021 and income statement data for the six months ended June 30, 2022 and 2021 (in thousands):

Balance Sheet Data:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and cash equivalents $ 99,170 $ 134,606

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Stockholders' equity 451,385 346,157

Income statement data for the three months ended March 31,

Income statement data for the six months ended June 30,

Total net revenue $ 696,141 $ 649,237

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In addition to operations, we require a significant amount of capital for the initial start-up and development of new diagnostic imaging centers, the acquisition of additional centers and new diagnostic imaging equipment.

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.

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.

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

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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:

Cash Flow Data March 31, 2022 March 31, 2021

The following table summarizes key components of our sources and uses of cash for the six months ended:

Cash Flow Data June 30, 2022 June 30, 2021

Cash provided by operating activities $ 65,744 $ 58,701

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Cash used in financing activities (6,625) 99,812

Cash used in operating activities for the three months ended March 31, 2022 was $0.9 million and cash provided by operation activities was $28.1 million for the three months ended March 31, 2021.

Our cash provided by operating activities for the three months ended March 31, 2022 was affected by the non-cash change in fair value of our interest rate hedge of $20.8 million.

Our cash provided by operating activities for the period ended March 31, 2021 was benefited by the receipt of $39.6 million in CMS advances recorded as deferred revenue.

Cash used in investing activities for the three months ended March 31, 2022, included purchases of property and equipment for approximately $36.6 million and the acquisition of imaging business and other assets for $25.1 million.

Cash provided by operating activities was $65.7 million and $58.7 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

Our cash provided by operating activities for the six months ended June 30, 2022 was affected by the non-cash change in fair value of our interest rate swap of $27.1 million.

Cash used in investing activities for the six months ended June 30, 2022, included purchases of property and equipment for approximately $72.7 million and the acquisition of imaging business and other assets for $26.0 million.

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

Cash used in financing activities of $3.3 million for the three months ended March 31, 2022, was due to payment on our term loan obligations.

Cash used in financing activities of $6.6 million for the six months ended June 30, 2022, was due to payment on our term loan obligations.

Cash provided by financing activities for the six months ended June 30, 2021 was due to the refinancing of our term loan obligations under our secured credit facilities on April 23, 2021.

Please see Note 6, Credit Facilities and Notes Payable in the notes to consolidated financials statements for more information.

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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, 2022 we have $17.0 million, net of discount, remaining to be collected on these agreements.

At June 30, 2022 we have $17.0 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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The SunTrust credit facilities are comprised of a term loan and a revolving credit facility of $30.0 million.

As of March 31, 2022, we were in compliance with all covenants under our credit facilities.

Deferred financing costs at March 31, 2022, net of accumulated amortization, was $2.0 million and is specifically related to our Barclays revolving credit facility.

Included in our condensed consolidated balance sheets at March 31, 2022 are $764.6 million of total term loan debt (exclusive of unamortized discounts of $12.7 million) in thousands:

As of June 30, 2022, we were in compliance with all covenants under our credit facilities.

Deferred financing costs at June 30, 2022, net of accumulated amortization, was $1.9 million and is specifically related to our Barclays revolving credit facility.

Included in our condensed consolidated balance sheets at June 30, 2022 are $761.3 million of total term loan debt (exclusive of unamortized discounts of $12.2 million) in thousands:

Face Value Discount Total Carrying

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Total Term Loans $ 761,250 $ (12,170) $ 749,080

At March 31, 2022, we had no borrowings under our Barclays or SunTrust revolving credit facilities.

At June 30, 2022, we had no borrowings under our Barclays or SunTrust revolving credit facilities.

After reserves for outstanding letters of credit of $7.6 million on our Barclays Revolving Credit Facility, we have $187.4 million available for borrowing and $30.0 million available under our SunTrust Revolving Credit Facility.

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 6, Credit Facilities and Notes Payable in the notes to consolidated financials statements for more information on our secured credit facilities and refinancing activity of April 23, 2021.

Please see Note 6, Credit Facilities and Notes Payable in the notes to consolidated financials statements for more information on our secured credit facilities.certain

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