What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-10 · 198 added, 94 removed, 299 unchanged (49% of the section changed)

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• potential timing and impact of changes in regulations impacting our business;

• the ongoing impact on our business, suppliers, payors, customers, referral sources, partners, patients and employees of the COVID-19 pandemic;

• the anticipated effect of the measures we are taking to respond to the COVID-19 pandemic;

• the anticipated impact on our business of the COVID-19 pandemic and similar events and the expected efficacy of any remediation measures that we take in response to such events;

• our ability to successfully acquire and integrate new imaging operations;

• cost savings, efficiencies and improvements anticipated from our investments in artificial intelligence and machine learning products and services;

• cost savings, efficiencies and improvements anticipated from our investments in AI and machine learning products and services;

• our future liquidity and our continuing ability to service and remain in compliance with applicable debt covenants or refinance our current indebtedness.

Forward-looking statements are neither historical facts nor assurances of future performance.

Because forward-looking statements relate to the future, they are inherently subject to known and unknown risks, uncertainties and other factors

that are difficult to predict and out of our control.

Because forward-looking statements relate to the future, they are inherently subject to known and unknown risks, uncertainties and other factors that are difficult to predict and out of our control.

Our actual results, level of activity, performance or achievements may be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Important factors that could cause our actual results to differ materially from those indicated or implied in our forward-looking statements include the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2022 or supplemented by the information in Part II– Item 1A below.

Important factors that could cause our actual results to differ materially from those indicated or implied in our forward-looking statements include the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2022 as supplemented by the information in Part II– Item 1A below.

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

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We are a national provider of diagnostic imaging services in the United States.

At March 31, 2023, we operated directly or indirectly through joint ventures with hospitals, 363 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York.

At June 30, 2023, we operated directly or indirectly through joint ventures with hospitals, 363 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.

For further financial information about these segments, see Note 5, Segment Reporting, in the notes accompanying our consolidated financial statements included in this report.

For further financial information about these segments, see Note 5, Segment Reporting, in the notes accompanying our condensed consolidated financial statements included in this report.

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

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and Quantib B.V., both based in The Netherlands.

The following table shows our centers in operation and revenues for the three months ended March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

The following table shows our centers in operation and revenues for the six months ended June 30, 2023 and June 30, 2022:

Six Months Ended June 30,

Centers in operation 363 353

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We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class.

Our total service fee revenue, net of contractual allowances and discounts, and implicit price concessions for the three months ended March 31, 2023 and 2022 is summarized in the following table (in thousands):

Three Months Ended March 31,

Our total service fee revenue, net of contractual allowances and discounts, and implicit price concessions for the six months ended June 30, 2023 and 2022 is summarized in the following table (in thousands):

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

In Thousands 2023 2022 2023 2022

Commercial insurance $ 224,842 $ 195,066 $ 442,044 $ 383,615

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Recent Developments

As 2023 begins, we continue to have strong growth in our procedure volumes, which have increased 14% in the same period over the prior year on an overall basis, and we have opened 10 new advanced imaging centers.

We have continued to advance both of our core businesses in the first half of 2023 and completed a significant capital transaction in the second quarter of 2023.

Our imaging center business saw continued growth coming out of the pandemic.

During the first and second quarter of 2023 we added a net of 10 additional imaging centers.

Overall revenue for the six months ended June 30, 2023 increased 13.8% over six month period ended June 30, 2022.

Our same center revenue increased 7.4% and same center procedure volumes increased 7.6% during the six month period ended June 30, 2023, over the same period in 2022.

Our AI segment continues to commercialize its solutions.

In December of 2022, our subsidiary DeepHealth, Inc, received FDA clearance of its mammography density assessment software that assists radiologists in interpreting visual images.

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Initial locations for this service are in Florida, New Jersey and New York.

In May of 2023, our subsidiary Quantib B.V., received FDA clearance of its third generation prostate reading and reporting tool that improves the workflow and output for radiologists and urologists.

In June 2023, we completed a secondary public offering of our common stock.

After exercise in full of the underwriter's overallotment option, we sold an aggregate of 8,711,250 shares of our common stock to the public at a price of $29.75 per share.

The offering resulted in net proceeds of $246.2 million, after underwriting discounts.

We intend to use the net proceeds from the proposed offering for working capital and general corporate purposes.

Acquisitions, Equity Investments and Joint Venture Activity

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Imaging Center

During the first quarter of 2023, we completed the acquisition of certain assets of the following entities, which either engage directly in the practice of radiology or associated businesses.

During the first and second quarter of 2023, we completed the acquisition of certain assets of the following entities, which either engage directly in the practice of radiology or associated businesses.

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

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2/1/2023 2,000 1,663 3,775 229 100 8 (3,775)

Madison Radiology Medical Group, Inc.

4/1/2023 250 100 — 150 — — —

Total 10,165 3,541 7,836 6,324 250 50 (7,836)

Equity Investments

As of March 31, 2023, 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, 2023, 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, 2023.

No observable price changes or impairment in our investment was identified as of June 30, 2023.

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

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On January 1, 2019 we funded a convertible promissory note in the amount of $0.1 million that converted 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, 2023.

No observable price changes or impairment in our investment was identified as of June 30, 2023.

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, 2023.

No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of June 30, 2023.

Joint Venture Activity

The following table is a summary of our investment in joint ventures during the three months ended March 31, 2023 (in thousands):

The following table is a summary of our investment in joint ventures during the six months ended June 30, 2023 (in thousands):

Balance as of December 31, 2022 $ 57,893

Equity in earnings in these joint ventures 2,851

Balance as of March 31, 2023 $ 59,321

We charged management service fees from the centers underlying these joint ventures of approximately $4.2 million and $5.5 million for the three months ended March 31, 2023 and 2022, respectively.

The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2023 and December 31, 2022 and income statement data for the three months ended March 31, 2023 and 2022 (in thousands):

Distribution of earnings (8,540)

Equity contributions in existing joint ventures 288

Balance as of June 30, 2023 $ 52,492

We charged management service fees from the centers underlying these joint ventures of approximately $4.0 million and $5.6 million for the three months ended June 30, 2023 and 2022 and $8.2 million and $11.1 million for the six months ended June 30, 2023 and 2022, respectively.

The following table is a summary of key balance sheet data for these joint ventures as of June 30, 2023 and December 31, 2022 and income statement data for the six months ended June 30, 2023 and 2022 (in thousands):

Balance Sheet Data:

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Total net assets $ 94,274 $ 106,458

Book value of RadNet joint venture interests $ 50,754 $ 49,564

Cost in excess of book value of acquired joint venture interests 8,567 8,329

Total value of RadNet joint venture interests $ 59,321 $ 57,893

Income statement data for the three months ended March 31,

Income statement data for the six months ended June 30,

Net revenue $ 84,699 $ 69,757

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Critical Accounting Policies

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

uncertain and may change in subsequent periods.

In Note 2 to our consolidated financial statements in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2022, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates.

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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, 2023.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended June 30, 2023.

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 March 31, 2023.

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, 2023.

Business Combination

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Goodwill and Indefinite Lived Intangibles

Goodwill at March 31, 2023 totaled $687.1 million.

Indefinite Lived Intangible Assets at March 31, 2023 were $24.3 million and are associated with the value of certain trade name intangibles and in process research and development (IPR&D).

Goodwill at June 30, 2023 totaled $687.9 million.

Indefinite Lived Intangible Assets at June 30, 2023 were $24.3 million and are associated with the value of certain trade name intangibles and in process research and development (IPR&D).

Goodwill, trade name intangibles and IPR&D are recorded as a result of business combinations.

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If multiple valuation methodologies are used, the results are weighted appropriately.

Our annual test of goodwill, trade name and IPR&D noted no impairment as of October 1, 2022, and we have not identified any indicators of impairment through March 31, 2023.

Our annual test of goodwill, trade name and IPR&D noted no impairment as of October 1, 2022, and we have not identified any indicators of impairment through June 30, 2023.

Recent Accounting Standards

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Results of Operations

The following table sets forth, for the three months ended March 31, 2023 and 2022, 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, 2023 and 2022, 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

2023 2022 2023 2022

Service fee revenue 90.1 % 89.3 % 90.2 % 89.0 %

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Non-cash change in fair value of interest rate hedge (1.0) % (1.8) % — % (3.9) %

Other expenses 0.4 % — %

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

Total other expense (income) 2.6 % 0.7 % 3.8 % (1.3) %

(LOSS) INCOME BEFORE INCOME TAXES (3.4) % 2.9 %

Provision for income taxes (0.3) % (0.4) %

NET (LOSS) INCOME (3.7) % 2.4 %

INCOME (LOSS) BEFORE INCOME TAXES 3.5 % 4.9 % 0.1 % 3.9 %

(Provision for) Benefit from income taxes 0.2 % (1.0) % (0.1) % (0.7) %

NET INCOME (LOSS) 3.6 % 3.9 % 0.0 % 3.2 %

Net income attributable to noncontrolling interests 1.5 % 1.7 % 1.6 % 1.6 %

NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC.

NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC.

COMMON STOCKHOLDERS 2.1 % 2.2 % (1.6) % 1.7 %

Results of Operations

Imaging Center Segment

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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, 2023 and 2022.

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

In Thousands Three Months Ended March 31,

The discussion below shows a breakdown and analysis of revenue and expenses for the three and six months ended June 30, 2023 and 2022.

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Total Revenue

In Thousands Three Months Ended June 30,

Revenue 2023 2022 $ Increase/(Decrease) % Change

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Excluded $31,727 $9,125 — —

We experienced an overall same center total procedure volume growth of 8.4% over the same period in the prior year, which resulted in an upswing in revenue through a combination of increased capitation contract rates, a 7.9% rise in same center routine imaging procedures and same center advanced radiology procedures of CT, MRI, PET and Nuclear Medicine expanding by 10.3%.

Excluded amounts refer to revenue contributions for the three month periods ending March 31, 2023 and March 31, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through March 31, 2023.

We experienced an overall same center total procedure volume growth of 6.8% over the same period in the prior year, which resulted in revenue growth of 7.5%, a 6.8% rise in same center routine imaging procedures and same center advanced radiology procedures of CT, MRI, PET and Nuclear Medicine expanding by 6.7%.

Excluded amounts refer to revenue contributions for the three month periods ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between April 1, 2022 through June 30, 2023.

Operating Expenses

Total operating expenses for the three months ended March 31, 2023 increased approximately $37.6 million, or 11.1%, from $337.3 million for the three months ended March 31, 2022 to $374.9 million for the three months ended March 31, 2023.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended March 31, 2023 and 2022 (in thousands):

Total operating expenses for the three months ended June 30, 2023 increased approximately $42.5 million, or 13.0%, from $326.6 million for the three months ended June 30, 2022 to $369.1 million for the three months ended June 30, 2023.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended June 30, 2023 and 2022 (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, 2023 and 2022 (in thousands):

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended June 30, 2023 and 2022 (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 2023 2022 $ Increase/(Decrease) % Change

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Similar to other businesses, we still face inflation in employee cost as we compete for talent in the marketplace.

Excluded amounts refer to salaries and professional reading fees for the three month periods ending March 31, 2023 and March 31, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through March 31, 2023.

Excluded amounts refer to salaries and professional reading fees for the three month periods ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between April 1, 2022 through June 30, 2023.

Stock-based compensation

Stock-based compensation rose $1.2 million, or 11.3% to approximately $11.5 million for the three months ended March 31, 2023 compared to $10.4 million for three months ended March 31, 2022.

Although the fair value of stock awarded and vested in the first quarter of 2023 was lower as compared to stock awarded and vested in the prior year, the higher amount of shares granted over the same period in the prior year spurred the increase.

Stock-based compensation was unchanged at $4.0 million for the three months ended June 30, 2023 and 2022.

Building and equipment rental

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Building & Equipment Rental 2023 2022 $ Increase/(Decrease) % Change

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The decrease in building and equipment rental expense relates to reduced equipment rental relating to operating lease contracts which ended or were bought out during 2022.

Excluded amounts refer to building and equipment rental for the three month periods ending March 31, 2023 and March 31, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through March 31, 2023.

Excluded amounts refer to building and equipment rental for the three month periods ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between April 1, 2022 through June 30, 2023.

Medical supplies

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Medical Supplies Expense 2023 2022 $ Increase/(Decrease) % Change

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In addition, we had a high utilization rate of a specialty isotope PYLARIFY which is used in our PSMA study of prostate cancer, for which we are ultimately reimbursed on a cost plus margin basis that exceeds our initial expense outlay.

Excluded amounts refer to medical supplies expense for the three month periods ending March 31, 2023 and March 31, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through March 31, 2023.

Excluded amounts refer to medical supplies expense for the three month periods ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between April 1, 2022 through June 30, 2023.

Other operating expenses

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Other Operating Expenses 2023 2022 $ Increase/(Decrease) % Change

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The rise in other operating expenses was experienced across all of our major categories to support the increase in volumes at inflated prices compared to the same period in the prior year.

Excluded amounts refer to other operating expenses for the three month periods ending March 31, 2023 and March 31, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through March 31, 2023.

Excluded amounts refer to other operating expenses for the three month periods ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between April 1, 2022 through June 30, 2023.

Additional segment operating and non operating expenses:

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

2023 2022 $ Increase/(Decrease) % Change

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Non-cash change in fair value of interest rate hedge ($4,158) ($6,306) 2,148 nm

Other expenses $730 $661 $69 nm

Other expenses (income) ($821) $784 (1,605) nm

Severance $153 $99 55 55.6%

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Interest expense

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Interest Expense 2023 2022 $ Increase/(Decrease) % Change

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The rise in total interest expense is attributable to a higher overall loan balances in combination with increased variable interest rates paid on those balances compared to the same period in the prior year.

The change in cash paid for interest relates to timing of interest rate elections, as our interest payment in the first quarter included interest charged to our term loan balances in 2022.

The change in cash paid for interest relates to timing of interest rate elections.

During 2022 we refinanced our Truist term loan which added an additional $108.0 million in obligations to our balance sheet in the fourth quarter.

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To mitigate our future interest expense exposure we have entered into certain interest rate swap agreements.

During the three months ended March 31, 2023, we received cash payments from our swap agreements of approximately $3.0 million, which served to reduce our overall interest expense.

During the three months ended June 30, 2023, we received cash payments from our swap agreements of approximately $6.7 million, which served to reduce our overall interest expense.

See the Derivative Instruments section of Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in this report for more details on our derivative transactions.

Equity in earnings from unconsolidated joint ventures

For the three months ended March 31, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $1.4 million and for three months ended March 31, 2022 we recognized equity in earnings from unconsolidated joint ventures of $2.5 million, an decrease of $1.1 million or 43.3%.

For the three months ended June 30, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $1.4 million and for three months ended June 30, 2022 we recognized equity in earnings from unconsolidated joint ventures of $2.7 million, a decrease of $1.3 million or 48.2%.

The decrease was mainly related to the equity in earnings received from our venture operations in Arizona.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Total Revenue

In Thousands Six Months Ended June 30,

Revenue 2023 2022 $ Increase/(Decrease) % Change

Total Revenue $789,767 $693,986 $95,781 13.8%

Same Center Revenue $727,748 $677,831 $49,917 7.4%

Excluded $63,020 $16,155 — —

We experienced an overall same center total procedure volume growth of 7.6% over the same period in the prior year,

which resulted in revenue growth of 7.4%, a 7.3% rise in same center routine imaging procedures and same center advanced radiology procedures of CT, MRI, PET and Nuclear Medicine expanding by 8.3%.

Excluded amounts refer to revenue contributions for the six month period ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through June 30, 2023.

Operating Expenses

Total operating expenses for the six months ended June 30, 2023 increased approximately $80.1 million, or 12.1%, from $663.9 million for the six months ended June 30, 2022 to $744.0 million for the six months ended June 30, 2023.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended June 30,

Salaries and professional reading fees, excluding stock-based compensation $ 428,309 $ 388,202

Stock-based compensation 15,546 14,390

Building and equipment rental 59,001 60,829

Medical supplies 42,544 30,080

Other operating expenses *

137,809 115,959

Cost of operations 683,209 609,460

Depreciation and amortization 59,826 52,906

(Gain) loss on sale and disposal of equipment 661 1,190

Severance costs 276 301

Total operating expenses $ 743,972 $ 663,857

* 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 2023 2022 $ Increase/(Decrease) % Change

Total Salaries $428,309 $388,202 $40,107 10.3%

Same Center Salaries $400,654 $379,545 $21,109 5.6%

Excluded $27,655 $8,657 — —

Staffing levels have been adjusted to support higher patient volumes with the corresponding rise in salaries and professional fee expense.

Excluded amounts refer to salaries and professional reading fees for the six month period ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through June 30, 2023.

Stock-based compensation

Stock-based compensation increased $1.2 million, or 8.0% to approximately $15.5 million for the six months ended June 30, 2023 compared to $14.4 million for six months ended June 30, 2022.

This increase was driven by the higher fair value of RSA’s awarded and vested in the six months of 2023 as compared to RSA’s awarded and vested in the prior year’s same period.

Building and equipment rental

In Thousands Six Months Ended June 30,

Building & Equipment Rental 2023 2022 $ Increase/(Decrease) % Change

Total $59,001 $60,829 $(1,828) (3.0)%

Same Center $51,941 $56,664 $(4,723) (8.3)%

Excluded Sites $7,060 $4,165 — —

The decrease in building and equipment rental expenses was related to a reduction of operating lease contracts that were terminated or bought out during 2022.

Excluded amounts refer to building and equipment rental for the six month period ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through June 30, 2023.

Medical supplies

In Thousands Six Months Ended June 30,

Medical Supplies Expense 2023 2022 $ Increase/(Decrease) % Change

Total $42,544 $30,080 $12,464 41.4%

Same Center $39,591 $28,958 $10,633 36.7%

Excluded Sites $2,953 $1,122 — —

Medical supplies expense increase stems from the overall procedural volumes noted above compared to the same period in the prior year and and from the high utilization rate of a specialty isotope PYLARIFY which is used in our PSMA study of prostate cancer, for which we are utimately reimbursed on a cost plus margin basis that exceeds our initial expense outlay.

Excluded amounts refer to medical supplies for the six month period ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through June 30, 2023.

Other operating expenses

In Thousands Six Months Ended June 30,

Other Operating Expenses 2023 2022 $ Increase/(Decrease) % Change

Total $137,809 $115,959 $21,850 18.8%

Same Center $127,537 $112,038 $15,499 13.8%

Excluded Sites $10,272 $3,921 — —

The increase in other operating expenses is related to increased infrastructure support cost, additional new equipment, and general inflationary cost increases.

Excluded amounts refer to other operating expenses for the six month period ending June 30, 2023 and June 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through June 30, 2023.

Additional segment operating and non operating expenses:

In Thousands Six Months Ended June 30,

2023 2022 $ Increase/(Decrease) % Change

Depreciation and amortization $59,826 $52,906 $6,920 13.1%

Loss on disposal of equipment and other $661 $1,190 $(529) nm

Non-cash change in fair value of interest rate hedge $(66) $(27,125) $27,059 nm

Other expenses (income) $(91) $1,445 $(1,536) nm

Severance $276 $301 $(25) (8.3)%

nm= not meaningful

Interest expense

In Thousands Six Months Ended June 30,

Interest Expense 2023 2022 $ Increase/(Decrease) % Change

Total Interest Expense $31,761 $22,978 $8,783 38.2 %

Interest related to derivatives* $9,205 $6,738

Interest related to amortization*** $1,494 $1,295

Adjusted Interest Expense $21,062 $14,945 $6,117 40.9 %

* Includes interest on derivatives not related to debt obligations.

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

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

Excluding interest expense for derivatives and amortization for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, interest expense increased $6.1 million, or 40.9% and relates to lowered variable SOFR and Prime interest rates paid on our term loan and revolving debt.

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

Equity in earnings from unconsolidated joint ventures

For the six months ended June 30, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.9 million and for the six months ended June 30, 2022 we recognized equity in earnings from unconsolidated joint ventures of $5.3 million, an decrease of $2.4 million or 45.9%.

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

Income tax expense

We recorded a provision for income tax of $0.5 million, or an effective tax rate of 65.5%, for the six months ended June 30, 2023 compared to a provision for income tax of $4.9 million , or an effective tax rate of 18.1% for the six months ended June 30, 2022.

The income tax rates for the three and six months ended June 30, 2023 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships;

(ii) effects of state income taxes;

(iii) share-based compensation;

and (iv) officer's compensation limitations.

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.

We are developing our AI segment initially through acquisition activity.

The breakdown of revenue and expenses of the segment for the three months ended March 31, 2023 and 2022 are as follows:

In Thousands Three Months Ended March 31,

2023 2022 $ Change % Change

The breakdown of revenue and expenses of the segment for the three and six months ended June 30, 2023 and 2022 are as follows:

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

Statement of Operations

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Segment net loss ($6,756) ($5,102) ($1,654) 32.4 % ($14,874) ($9,546) ($5,328) 55.8 %

Revenues for AI segment increased over the prior year as our Enhance Brest Caner Detection program powered by DeepHealth AI has been introduced in the Florida, New Jersey and New York markets.

Revenues for AI segment increased over the prior year as our Enhanced Breast Cancer Detection program powered by DeepHealth AI has been introduced in the Florida, New Jersey and New York markets.

As we ramp up this program and develop additional products for other types of cancers, our expenses have also risen accordingly.

Segment growth will seen long term through the commercialization of our AI products and expansion of our various cancer detection programs.

We anticipate that our AI segment will continue to generate losses in the near term as we pursue the commercialization of our AI products and expansion of our various cancer detection programs.

Adjusted EBITDA

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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, 2023 and 2022, respectively.

Three Months Ended March 31,

Net (loss) income income attributable to RadNet, Inc.

common stockholders to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022, respectively.

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

2023 2022 2023 2022

Net income (loss) attributable to RadNet, Inc.

common stockholders $ 8,369 $ 7,905 $ (12,636) $ 10,918

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Non-cash change in fair value of interest rate hedge (4,159) (6,306) (66) (27,125)

Other adjustment to joint venture investment — —

Other expenses 40 (7) 1,472 158

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Non operational rent expenses 759 1,222 1,718 2,160

Adjusted EBITDA including losses from AI Segment & Provider Relief Funding $ 48,165 $ 38,132

Adjusted EBITDA including losses from AI Segment and excluding benefit from Provider Relief Funding $ 48,165 $ 38,132

Adjusted EBITDA including losses from AI Segment $ 60,445 $ 51,337 $ 108,611 $ 89,470

EBITDA Losses from AI Segment 3,285 4,207 7,779 7,792

Adjusted EBITDA excluding losses from AI Segment & Provider Relief Funding $ 52,661 $ 41,717

The following table is a reconciliation of GAAP net income for our AI Segment to Adjusted EBITDA for the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended March 31,

Adjusted EBITDA excluding losses from AI Segment $ 63,730 $ 55,544 $ 116,390 $ 97,262

The following table is a reconciliation of GAAP net income for our AI Segment to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022, respectively.

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

2023 2022 2023 2022

Segment net loss $ (6,756) $ (5,102) $ (14,874) $ (9,546)

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Income taxes (1,899) (790) (1,369) (1,458)

Adjusted EBITDA including losses from AI Segment & Provider Relief Funding $ (4,496) $ (3,585)

Adjusted EBITDA including losses from AI Segment $ (3,285) $ (4,207) $ (7,779) $ (7,792)

Liquidity and Capital Resources

The following table summarizes key balance sheet data related to our liquidity as of March 31, 2023 and December 31, 2022 and income statement data for the three months ended March 31, 2023 and 2022 (in thousands):

The following table summarizes key balance sheet data related to our liquidity as of June 30, 2023 and December 31, 2022 and income statement data for the six months ended June 30, 2023 and 2022 (in thousands):

Balance Sheet Data:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 356,651 $ 127,834

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Stockholders' equity 761,004 491,452

Income statement data for the three months ended March 31,

Income statement data for the six months ended June 30,

Total net revenue $ 794,279 $ 696,141

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Sources and Uses of Cash

The following table summarizes key components of our sources and uses of cash (in thousands) for the three months ended:

Cash Flow Data March 31, 2023 March 31, 2022

Cash provided by operating activities $ 32,616 $ 901

Cash used in investing activities (65,556) (61,564)

Cash used in financing activities (3,821) (3,313)

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.

Cash used in investing activities for the three months ended March 31, 2023, included purchases of property and equipment for approximately $55.9 million and the acquisition of imaging business and other assets for $9.6 million.

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

Cash Flow Data June 30, 2023 June 30, 2022

Cash provided by (used in) operating activities $ 100,691 $ 65,744

Cash provided by (used in) investing activities (105,910) (95,988)

Cash provided by (used in) financing activities 234,302 (6,625)

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 hedge of $20.8 million.

Cash used in investing activities for the six months ended June 30, 2023, included purchases of property and equipment for approximately $95.4 million and the acquisition of imaging business and other assets for $10.3 million.

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

Cash used in financing activities of $3.8 million for the three months ended March 31, 2023, was due to payment on our term loan obligations and equipment notes.

Cash provided by financing activities of $234.3 million for the six months ended June 30, 2023, was due to net proceeds from the issuance of 8,711,250 shares of common stock and payments on our term loan obligations and equipment notes.

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

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The Truist credit facilities are comprised of a term loan and a revolving credit facility of $50.0 million.

As of March 31, 2023, we were in compliance with all covenants under our credit facilities.

Deferred financing costs at March 31, 2023, net of accumulated amortization, were $2.1 million and are specifically related to our revolving credit facilities.

Included in our condensed consolidated balance sheets at March 31, 2023 are $860.4 million of total term loan debt (exclusive of unamortized discounts of $11.8 million) in thousands:

As of June 30, 2023, we were in compliance with all covenants under our credit facilities.

Deferred financing costs at June 30, 2023, net of accumulated amortization, were $2.0 million and are specifically related to our revolving credit facilities.

Included in our condensed consolidated balance sheets at June 30, 2023 are $856.8 million of total term loan debt (exclusive of unamortized discounts of $11.8 million) in thousands:

Face Value Discount Total Carrying

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Total Term Loans $ 856,750 $ (11,206) $ 845,544

At March 31, 2023, we had no borrowings under our Barclays or Truist revolving credit facilities.

At June 30, 2023, we had no borrowings under our Barclays or Truist revolving credit facilities.

After reserves for outstanding letters of credit of $7.6 million, we have $187.4 million available for borrowing under our Barclays Credit Facility and $50.0 million available under our Truist Revolving Credit Facility.

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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