What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 163 added, 144 removed, 412 unchanged (43% of the section changed)

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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 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.

At September 30, 2022, we operated, directly or indirectly through joint ventures with hospitals, 349 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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Our current AI focus is to develop solutions that employ machine learning to assist radiologists and other clinicians in interpreting images and improving patient care, initially in the fields of brain, breast, prostate, and pulmonary diagnostics.

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 six months ended June 30, 2022 and June 30, 2021:

Six Months Ended June 30,

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

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

Nine Months Ended September 30,

Centers in operation 349 353

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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 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.

Our total service fee revenues during the three and nine months ended September 30, 2022 and 2021 are presented in the table below.

Our imaging center revenue is displayed as the estimated service fee, broken down by classification of insurance coverage type.

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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Recent Developments

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.

Through the third quarter ended September 30, 2022 our imaging business continued to expand, with procedure volumes returning to levels experienced before the COVID-19 pandemic, with year to date same center procedure volumes increasing 3.1% and overall procedure volumes increasing 6.0% over the same period in 2021.

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.

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.

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Equity Investments

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:

As of September 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 during the three and six months ended June 30,2022.

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

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 nine months ended September 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 during the three and six months ended June 30,2022.

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

Imaging Center

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("Aidence") an artificial intelligence enterprise centered on lung cancer screening, in an combination stock and cash purchase.

Aidence is reported as part of our artificial intelligence segment and was acquired to enhance our AI capabilities.

The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $45.2 million including i) 1,117,872 shares issued at $26.80 per share with a fair value of $30.0 million ii) cash of $1.8 million and iii) assuming liabilities of $11.9 million, $7.4 million in milestone contingent consideration and cash holdback of $4.5 million and iv) a settlement of a loan from RadNet of $1.5 million.

Aidence is reported as part of our AI segment and was acquired to enhance our AI capabilities.

The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $45.2 million including i) 1,117,872 shares issued at $26.80 per share with a fair value of $30.0 million ii) cash of $1.8 million and iii) assumed liabilities of $11.9 million, $7.4 million in milestone contingent consideration and cash holdback of $4.5 million and iv) a settlement of a loan from RadNet of $1.5 million.

In addition we paid certain seller closing costs through the issuance of 23,362 shares at a fair value of $0.6 million.

We preliminarily recorded $1.0 million in current assets, $0.2 million in property plant and equipment, $27.7 million in intangible assets, $3.2 million in liabilities and $19.0 million in goodwill.

We recorded $1.0 million in current assets, $0.2 million in property plant and equipment, $27.7 million in intangible assets, $3.2 million in liabilities and $19.0 million in goodwill.

On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V.

("Quantib") an artificial intelligence enterprise centered on prostate cancer screening, in a combination stock and cash purchase.

Quantib is reported as part of our artificial intelligence segment, and was acquired to enhance our AI capabilities.

Quantib is reported as part of our AI segment, and was acquired to enhance our AI capabilities.

The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $42.3 million including i) 965,058 shares issued at $26.80 per share with a fair value of $25.9 million ii) cash of $11.8 million and iii) 113,303 shares with a fair value at the date of close of $3.0 million and cash holdback of $1.6 million to be issued 18 months after acquisition subject to adjustment for any indemnification claims.

We preliminarily recorded $2.4 million million in current assets, $0.1 million in property plant and equipment, $21.3 million in intangible assets, $3.7 million in liabilities and $22.2 million in goodwill.

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 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.

We recorded $2.4 million million in current assets, $0.1 million in property plant and equipment, $21.3 million in intangible assets, $3.7 million in liabilities and $22.2 million in goodwill.

Formation of majority owned subsidiary

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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.

We contributed the operations of 4 centers to the enterprise and Hospital contributed $5.4 million in fixed assets, $3.0 million in equipment, and $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 $11.1 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.

The initial accounting is preliminary as of September 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

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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 six months ended June 30, 2022 (in thousands):

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

Balance as of December 31, 2021 $ 42,229

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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.

Balance as of September 30, 2022 $ 52,020

We charged management service fees from the centers underlying these joint ventures of approximately $6.1 million and $5.3 million for the three months ended September 30, 2022 and 2021 and $17.2 million and $16.0 million for the nine months ended September 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):

The following table is a summary of key balance sheet data for these joint ventures as of September 30, 2022 and December 31, 2021 and income statement data for the nine months ended September 30, 2022 and 2021 (in thousands):

Balance Sheet Data:

September 30,

2022 December 31,

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Total value of RadNet joint venture interests $ 52,020 $ 42,229

Income statement data for the six months ended June 30,

Income statement data for the nine months ended September 30,

Net revenue $ 107,241 $ 98,193

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As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees.

As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.

As it relates to other centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.

Our revenues are based upon our management's estimate of amounts we expect to be entitled to receive from patients and third-party payors.

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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 June 30, 2022.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended September 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 $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.

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

No provider relief funding was received for the three and nine months ended September 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 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.

During the quarter ended September 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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Receivables generally are collected within industry norms for third-party payors.

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 June 30, 2022.

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 September 30, 2022.

Business Combination

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Goodwill and Indefinite Lived 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.

Goodwill at September 30, 2022 totaled $575.1 million.

Indefinite Lived Intangible Assets at September 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 June 30, 2022.

Recent Accounting Standards

See Note 3, Recent Accounting and Reporting Standards to the financial statements included in this report for further information.

Subsequent Events

Refinancing of SunTrust (Now Truist) Credit Facilities:

On October 7, 2022, our subsidiary, NJIN, entered into a Second Amended and Restated Credit and Term Loan Agreement which provides for a single term loan of $150.0 million and a $50.0 million revolving credit facility.

The proceeds of the term loan were used to partially fund the acquisition of Montclair Radiological Associates, refinance the outstanding $42.0 million term loan and pay fees and expenses associated with the refinancing transaction.

The key terms of the Restated Credit and Term Loan Agreement are:

• Interest Rates:

Borrowings bear interest at either the SOFR or Base Rate as defined in the agreement, plus an applicable margin.

• Maturity Dates:

The maturity date for both the term loan and revolving loans is October 7, 2027, unless accelerated in accordance with the terms of the agreement.

Beginning March 31, 2023, we will be required to make quarterly principal amortization payments on the term loan in the amount of $1.9 million, which will increase to $3.8 million, with the balance paid at maturity.

Acquisitions:

On October 1, 2022, through our NJIN subsidiary, we acquired Montclair Radiological Associates for purchase consideration of approximately $112.6 million.

Montclair consists of six multi modality radiology centers located in New Jersey.

On November 1, 2022, we acquired a 75% controlling share interest in London-based Heart & Lung Imaging Limited ("HLH").

HLH was founded to improve lung cancer outcomes through early detection and accurate diagnosis.

HLH will be integrated into our AI operations.

Total combined purchase consideration, including contingencies, consists of RadNet common stock and cash up to a potential $27.6 million.

Results of Operations

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.

The following table sets forth, for the three and nine months ended September 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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Depreciation and amortization 8.4 % 7.4 % 8.1 % 7.3 %

Loss (gain) on sale and disposal of equipment and other — % (0.5) % 0.2 % (0.4) %

(Gain) loss on sale and disposal of equipment and other (0.1) % 0.8 % 0.1 % — %

Severance costs 0.1 % — % 0.1 % 0.0 %

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— % — % — % 0.6 %

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

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

Other expenses (income) 0.5 % — % 0.2 % 0.1 %

Total other (income) expenses (0.5) % 1.8 % (1.0) % 2.3 %

INCOME BEFORE INCOME TAXES 2.5 % 8.0 % 3.4 % 5.6 %

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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 and six months ended June 30, 2022 and 2021.

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

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

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

In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of July 1, 2021 through September 30, 2022.

Excluded amounts relate to imaging centers that were acquired or divested between July 1, 2021 through September 30, 2022.

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

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

Revenue 2022 2021 $ Increase/(Decrease) % Change

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Excluded $7,694 $5,045 — —

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

Overall revenue change was driven by procedure volume growth of 3.6% compared to 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 7.0% 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 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):

Total operating expenses for the three months ended September 30, 2022 increased approximately $36.7 million, or 12.3%, from $298.7 million for the three months ended September 30, 2021 to $335.4 million for the three months ended September 30, 2022.

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

Three Months Ended

September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 195,878 $ 163,756

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Depreciation and amortization 27,590 24,437

Loss on sale and disposal of equipment 36 (1,567)

(Gain) loss on sale and disposal of equipment (253) 2,595

Severance costs 187 163

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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 June 30, 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 September 30, 2022 and 2021 (in thousands):

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

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

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

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Excluded $7,200 $4,229 — —

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.

Similar to prior quarters, growth in procedure volumes precipitated increases in salary expenses both to meet additional professional staffing needs and retain our skilled work force in the current tight labor market.

Stock-based compensation

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.

Stock-based compensation decreased $1.4 million, or 34.5% to approximately $2.6 million for the three months ended September 30, 2022 compared to $4.0 million for three months ended September 30, 2021.

This decrease is a result of a one time pandemic related stock awards to employees that were 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 June 30,

In Thousands Three Months Ended September 30,

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

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Excluded Sites $3,207 $2,100 — —

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.

The decrease in same center building and rental relates to a combination of reduced expenses for equipment operating lease contracts which ended or were bought out during 2021 and for radiology centers abandoned in the fourth quarter of 2021 due to reduced patient utilization rates post pandemic.

Medical supplies

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

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

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Excluded Sites $1,191 $548 — —

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.

Increased medical supplies expense corresponds to the 7.0% growth in advanced radiology volumes as noted above combined with price increases for the contrasting agents utilized in their administration.

Other operating expenses

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

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

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Excluded Sites $2,919 $1,551 — —

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.

The increase in other operating expenses was lower than overall revenue growth and relatively unchanged on a same center basis.

Additional segment operating and non operating expenses:

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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 June 30,

In Thousands Three Months Ended September 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 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.

Excluding the effect of interest expense related to derivatives and amortization for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, adjusted interest expense increased $2.6 million, or 34.2%.

The rise in adjusted interest expense is attributable to a higher overall loan balance in combination with increased variable interest rates paid on the balance compared to 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 continue to rise in the near term.

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

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Equity in earnings from unconsolidated joint ventures

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

For the three months ended September 30, 2022 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.1 million and for three months ended September 30, 2021 we recognized equity in earnings from unconsolidated joint ventures of $2.9 million, an increase of $0.2 million or 8.1%.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of January 1, 2021 through September 30, 2022.

Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2021 through September 30, 2022.

Total Revenue inclusive of Provider Relief funding for 2021

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

Revenue 2022 2021 $ Increase/(Decrease) % Change

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Increased revenue reflects a 3.1% 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.

On a same center basis, advanced radiology procedures of MRI, PET, and CT increased at combined 5.8% to provide the major portion of the revenue growth.

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 nine months ended September 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,

Total operating expenses for the nine months ended September 30, 2022 increased approximately $92.9 million, or 10.3%, from $906.3 million for the nine months ended September 30, 2021 to $999.2 million for the nine months ended September 30, 2022.

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

Nine Months Ended September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 584,080 $ 513,239

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

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

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Excluded Sites $47,600 $31,791 — —%

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.

Growth in procedure volumes accounted for a portion of the increase in salary expense.

However, we are experiencing tight labor markets and higher labor costs as we seek to retain and recruit qualified staff.

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.

Stock-based compensation decreased $3.2 million, or 15.9% to approximately $17.0 million for the nine months ended September 30, 2022 compared to $20.2 million for nine months ended September 30, 2021.

The decrease is a result of a one time pandemic related stock awards to employees that were 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,

In Thousands Nine Months Ended September 30,

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

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Excluded Sites $17,091 $14,410 — —%

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,

In Thousands Nine Months Ended September 30,

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

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Excluded Sites $4,596 $2,683 — —%

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.

Increased medical supplies expense corresponds to the 5.8% growth in advanced radiology volumes as noted above combined with price increases for the contrasting agents utilized in their administration.

Other operating expenses

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

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Excluded Sites $17,017 $12,399 — —%

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.

The increase in other operating expenses was lower than the growth in overall revenue for the period.

Additional segment operating and non operating expenses:

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

2022 2021 $ Increase/(Decrease) % Change

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nm= not meaningful

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

*Other expenses for 2021 include $6.0 million of debt extinguishment and restructuring expenses related to to our Barclays Restated Credit Agreement.

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

Interest expense

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 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 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.

Excluding interest expense for derivatives and amortization for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, adjusted interest expense increased $2.0 million, or 8.6%.

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 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.

For the nine months ended September 30, 2022 we recognized equity in earnings from unconsolidated joint ventures in the amount of $8.4 million and for the nine months ended September 30, 2021 we recognized equity in earnings from unconsolidated joint ventures of $8.3 million, a decrease of $0.1 million or 1.1%.

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

We are developing our AI segment initially through acquisition activity.

Our acquisitions of Nulogix and Deephealth comprise the results for 2021.

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 and six months ended June 30, 2022 and 2021 are as follows:

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

Our 2022 results 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 and nine months ended September 30, 2022 and 2021 are as follows:

In Thousands Three Months Ended September 30, Nine Months Ended September 30,

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

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Other operating loss 6 — 6 nm 26 — 26 nm

Severance 8 — 8 nm 8 — 8 nm

Total operating expenses 7,728 1,416 6,312 nm 22,175 4,013 18,162 nm

Loss from Operations (6,828) (920) (5,908) nm (19,119) (3,517) (15,602) nm

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

Other expense (income) 959 (401) 1,360 nm (329) 891 (1,220) nm

Income before taxes (7,787) (519) (7,268) nm (18,790) (4,408) (14,382) nm

Income taxes — — — 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

Segment net loss ($7,787) ($519) ($7,268) nm ($17,333) ($4,408) ($12,925) nm

Adjusted EBITDA

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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 $6.3 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.

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

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 attributable to RadNet, Inc.

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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 and six months ended June 30, 2022 and 2021, respectively.

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

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

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

2022 2021 2022 2021

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Non-cash employee stock-based compensation 3,317 4,422 19,112 21,566

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

(Gain) loss on sale and disposal of equipment and other (247) 2,595 962 (279)

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

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Legal settlements — — 2,197 —

Change in estimate relating to refund liability 8,089 — 8,089 —

Non operational rent expenses 959 — 3,120 —

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Adjusted EBITDA excluding losses from AI Segment & Provider Relief Funding $ 50,234 $ 62,591 $ 147,494 $ 159,940

The following table is a reconciliation of GAAP net income for our AI Segment to Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021, respectively.

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

2022 2021 2022 2021

Segment net loss $ (7,787) $ (519) $ (17,333) $ (4,408)

Stock Compensation 713 444 2,119 1,353

Depreciation & Amort 1,639 170 4,713 348

Other operating loss 6 — 26 —

Other expense (income) 959 (401) (329) 891

Severance 8 — 8 —

Income taxes — — (1,457) —

Adjusted EBITDA AI Segment $ (4,462) $ (306) $ (12,253) $ (1,816)

Liquidity and Capital Resources

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):

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

Balance Sheet Data:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cash and cash equivalents $ 95,006 $ 134,606

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Stockholders' equity 458,390 346,157

Income statement data for the six months ended June 30,

Income statement data for the nine months ended September 30,

Total net revenue $ 1,046,185 $ 981,928

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Sources and Uses of Cash

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

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

Cash Flow Data September 30, 2022 September 30, 2021

Cash provided by operating activities $ 92,770 $ 100,295

Cash used in investing activities (123,048) (159,506)

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

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.

Cash (used in) provided by financing activities (9,938) 108,478

Cash provided by operating activities was $92.8 million and $100.3 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Our cash provided by operating activities for the nine months ended September 30, 2022 was affected by the non-cash change in fair value of our interest rate swap of $39.6 million.

Cash used in investing activities for the nine months ended September 30, 2022, included purchases of property and equipment for approximately $98.6 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 $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.

Cash used in financing activities of $9.9 million for the nine months ended September 30, 2022, was due to payment on our term loan obligations.

Cash provided by financing activities for the nine months ended September 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 June 30, 2022 we have $17.0 million, net of discount, remaining to be collected on these agreements.

At September 30, 2022 we have $15.5 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 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:

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

Deferred financing costs at September 30, 2022, net of accumulated amortization, was $1.8 million and is specifically related to our Barclays revolving credit facility.

Included in our condensed consolidated balance sheets at September 30, 2022 are $757.9 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 $ 757,938 $ (11,649) $ 746,289

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.

At September 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 had $187.4 million available for borrowing and $30.0 million available under our SunTrust Revolving Credit Facility.

On October 7, 2022, after the period covered by this report, our consolidated subsidiary NJIN entered into a Second Amended and Restated Credit and Term Loan Agreement which provided for a $150.0 million term loan.

The proceeds of the term loan were used to partially fund the $112.6 million purchase of Montclair Radiological Associates, to refinance the outstanding $42 million term loan and to pay fees and expenses associated with refinancing transaction.

In connection with the Second Amended and Restated Credit and Term Loan Agreement, the revolving credit facility was increased from $30 million to $50 million.

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.certain

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

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