# RadNet, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [RadNet, Inc.](/companies/rdnt.md) (CIK 790526)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 17:22 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038345
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/790526/000162828023038345/rdnt-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/790526/000162828023038345/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $402.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.20bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $43.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $74.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $7.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $7.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $17.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $4.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.25 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.26 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 68,809,818 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 63,221,251 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $131.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $337.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $578.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $2.69bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $407.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.89bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $844.3m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $16.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $618.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,686 characters.

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2023.*

### Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect current views about future events and are based on our currently available financial, economic and competitive data and on current business plans. Actual events or results may differ materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology. Forward-looking statements in this report include, among others, statements we make regarding:

- anticipated trends in our revenues, operating expenses or capital expenditures, and our financial guidance;
- potential timing and impact of changes in regulations impacting our business;
- 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;
- anticipated benefits or synergies to be derived from our acquisitions and joint ventures;
- expections concerning the timing of regulatory approval, expected benefits or market acceptance of our new AI solutions;
- cost savings, efficiencies and improvements anticipated from our investments in AI and machine learning products and services; and
- 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. 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 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.

Any forward-looking statement in this report is based on information currently available to us and speaks only as of the date of this report. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report or any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report, except as required by law.

### Overview

We are a national provider of diagnostic imaging services in the United States. At September 30, 2023, we operated directly or indirectly through joint ventures with hospitals, 366 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, often reducing the cost and amount of care for patients. Integral to the imaging center business is our software arm headed by eRAD, Inc., which sells computerized systems that distribute, display, store and retrieve digital images. Internationally, our subsidiary Heart and Lung Imaging LLC, provides teleradiology services for remote interpretation of images on behalf of providers within the framework of the United Kingdom's National Health Service.

We have also established an Artificial Intelligence ("AI") business, that develops and deploys AI suites to enhance radiologist interpretations of breast, lung and prostate images. The division is led by DeepHealth, and includes our acquisitions of Aidence Holding B.V. and Quantib B.V., both based in The Netherlands.

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 financial statements included in this report.

The following table shows our imaging centers in operation and revenues for the nine months ended September 30, 2023 and September 30, 2022:

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Centers in operation | 366 | 349 |
| Net revenues (millions) | $1,196 | $1,046 |

Our revenue is derived from a diverse mix of payors, including private, managed care capitated and government payors. 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 and nine months ended September 30, 2023 and 2022 is summarized in the following table (in thousands):

*In Thousands*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Commercial insurance | $223,555 | $189,634 | $665,604 | $573,259 |
| Medicare | 91,886 | 78,034 | 267,955 | 226,827 |
| Medicaid | 10,742 | 9,669 | 30,882 | 28,456 |
| Workers' compensation/personal injury | 9,952 | 13,200 | 35,478 | 38,785 |
| Other patient revenue | 10,664 | 7,646 | 30,793 | 22,334 |
| Management fee revenue | 3,957 | 6,099 | 12,203 | 17,199 |
| Teleradiology and Software revenue | 2,111 | 3,430 | 7,327 | 9,849 |
| Other | 6,173 | 3,431 | 20,625 | 12,054 |
| Revenue under capitation arrangements | 40,041 | 38,001 | 117,982 | 114,366 |
| Imaging Center Segment Revenue | 399,081 | 349,144 | 1,188,849 | 1,043,129 |
| AI Segment Revenue | 2,887 | 900 | 7,398 | 3,056 |
| Total service revenue | 401,968 | $350,044 | $1,196,247 | $1,046,185 |

### Recent Developments

We have continued to advance both of our core businesses through the period ended September 30, 2023 and completed a significant capital transaction in the second quarter of 2023.

For the year to date ended September 30, 2023 we added a net of 11 additional imaging centers. For the nine months ended September 30, 2023 compared to the same period in 2022, revenue increased 14.3% and also witnessed a 7.5% and 4.2% rise in same center revenue and procedure volumes, respectively.

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. In February of 2023, we launched our Enhanced Breast Cancer Detection service, powered by DeepHealth AI, which provides patients an advanced screening mammography service along with a life time risk assessment for breast cancer and post mammography support. The service is now fully rolled-out to all of our mammography centers on the east coast, where it is experiencing close to a 35% adoption rate. This is expected to grow as we continue to educate patients and referring physicians about its significant advantages over current practices. Additionally 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. These events have resulted in revenues from our AI segment increasing 142.1% for the nine month period ended September 30, 2023, over the same period in 2022.

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 $245.8 million, after underwriting discounts. We intend to use the net proceeds from the secondary public offering for working capital and general corporate purposes.

### Acquisitions, Equity Investments and Joint Venture Activity

The following discussion summarizes certain details concerning our acquisition or disposition of centers, our equity investment and our joint venture transaction. See Note 4, Business Combinations and Related Activity and Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included in this quarterly report on Form 10-Q for further information. The information below updates our activity of such matters contained in our annual report on Form 10-K for the year ended December 31, 2022.

### Acquisitions

### Imaging Center

During the nine months ended September 30, 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, Delaware and New York markets. These acquisitions are reported as part of our Imaging Center segment. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):

| Entity | Date Acquired | Total Consideration | Property & Equipment | Right of Use Assets | Goodwill | Intangible Assets | Other Assets | Right of Use Liabilities |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| C.C.D.G.L.R. & S Services Inc. | 1/1/2023 | 3,500 | 435 | 1,689 | 3,015 | 50 | — | (1,689) |
| Southern California Diagnostic Imaging, Inc. | 1/1/2023 | 1,815 | 466 | 1,184 | 1,272 | 50 | 27 | (1,184) |
| Inglewood Imaging Center, LLC | 2/1/2023 | 2,600 | 877 | 1,188 | 1,658 | 50 | 15 | (1,188) |
| Ramapo Radiology Associates, P.C. | 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 | — | — | — |
| Delaware Diagnostic Imaging, P.A. | 8/1/2023 | 600 | 401 | 337 | 149 | 50 | — | (337) |
| **Total** |  | **10,765** | **3,942** | **8,173** | **6,473** | **300** | **50** | **(8,173)** |

### Formation of majority owned subsidiary

### Los Angeles Imaging Group, LLC

On September 1, 2023 we formed a wholly-owned subsidiary, Los Angeles Imaging Group, LLC ("LAIG"). The operation offers multi-modality imaging services out of three locations in Los Angeles, California. We contributed the operations of 3 centers to the subsidiary. Cedars-Sinai Medical Center ("CSMC") purchased from us a 35% noncontrolling economic interest in LAIG for cash payment of $5.9 million. As a result of the transaction, we retain a 65% controlling economic interest in LAIG.

### Joint venture Investment Contribution

### Santa Monica Imaging Group, LLC

On April 1, 2017, we formed in conjunction with CSMC, the Santa Monica Imaging Group, LLC ("SMIG"), consisting of two multi-modality imaging centers located in Santa Monica, CA with RadNet holding a 40% economic interest and CSMC holding a 60% economic interest. RadNet accounts for our share of the venture under the equity method. On January 1, 2019, CSMC purchased from us an additional 5% economic interest in SMIG and as a result our economic interest in SMIG was reduced to 35%. On September 1, 2023, RadNet contributed an additional multi-modality imaging center and a newly constructed imaging center located in Beverly Hills, CA valued at $27.2 million and purchased an additional 6% interest economic interest in SMIG for cash payment of $5.2 million. Simultaneously, CSMC contributed five additional multi-modality imaging centers located in Santa Monica, CA. As a result of the transaction, our economic interest in SMIG has been increased to 49%. We recorded a gain of $16.8 million, within *(Gain) on contribution of imaging centers into joint venture* in our *Consolidated Statements of Operations.* The related gain on disposal of business was calculated as the difference between the sales price and carrying value of such imaging centers which included equipment, other assets, accrued liabilities, and an allocation of goodwill to such imaging centers. Concurrently, we made additional capital contributions of $8.5 million to the joint venture in the form of construction-in-progress. We accounted for the transaction as an adjustment to our equity investment for the value of the assets contributed.

### Equity Investments

As of September 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 September 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. On February 1, 2018, we purchased 2.1 million preferred shares in Turner Imaging Systems for $2.0 million. On January 1, 2019 we funded a convertible promissory note in the amount of $0.1 million that converted into an additional 80,000 shares effective December 21, 2019. No observable price changes or impairment in our investment was identified as of September 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 September 30, 2023.

### Joint Venture Activity

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

|  |  |
| --- | ---: |
| Balance as of December 31, 2022 | $57,893 |
| Equity in earnings in these joint ventures | 3,935 |
| Distribution of earnings | (8,540) |
| Equity contributions in existing joint ventures | 41,184 |
| Balance as of September 30, 2023 | $94,472 |

35

We charged management service fees from the centers underlying these joint ventures of approximately $3.9 million and $6.1 million for the three months ended September 30, 2023 and 2022 and $12.2 million and $17.2 million for the nine months ended September 30, 2023 and 2022, respectively.

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

| Balance Sheet Data: | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Current assets | $44,605 | $39,304 |
| Noncurrent assets | 176,527 | 134,694 |
| Current liabilities | (42,486) | (29,588) |
| Noncurrent liabilities | (73,770) | (37,952) |
| Total net assets | $104,876 | $106,458 |

| Income statement data for the nine months ended September 30, | 2023 | 2022 |
| --- | ---: | ---: |
| Net revenue | $129,020 | $107,241 |
| Net income | $7,906 | $17,034 |

### 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. 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. The most significant areas involving management’s judgments and estimates are described below.

### Use of Estimates

The financial statements included in this report were prepared in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our consolidated statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could materially differ from these estimates.

### Revenues

Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations, changes in business and economic conditions, and the frequent changes in managed care contractual terms resulting from contract re-negotiations and renewals.

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

Our revenues are based upon our management's estimate of amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under Medicare, Medicaid, managed care and commercial insurance plans are based upon historical collection experience of the payments received from such payors in accordance with the underlying contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have price concessions applied. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect.

Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans. Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended September 30, 2023.

### Accounts Receivable

Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. 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 September 30, 2023.

### Business Combination

We evaluate all acquisitions under the framework Clarifying the Definition of a Business in the accounting guidance. Once a purchase has been determined to be the acquisition of a business, we are required to recognize the assets acquired and the liabilities assumed at their acquisition date fair values. Any portion of the purchase consideration transferred in excess of the net of the acquisition date fair values of the assets acquired and the liabilities assumed, is allocated to goodwill. The allocation requires our management to make estimates of the value of various assets acquired and liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

### Goodwill and Indefinite Lived Intangibles

Goodwill at September 30, 2023 totaled $676.4 million. Indefinite Lived Intangible Assets at September 30, 2023 were $20.2 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. When we determine the carrying value of goodwill exceeds its fair value, an impairment charge would be recognized which should not exceed the total amount of goodwill allocated to that reporting unit. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

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

On September 30, 2023, we determined that an In-process Research and Development ("IPR&D") nonamortized intangible related to Aidence's Ai Veye Lung Nodule and Veye Clinic would not receive FDA approval for sale in the US without a new submission and additional expenditures for rework in the original projected timeline. The additional expenditures, delay and reduction of US sales affected the estimated fair value of the related IPR&D intangible asset and resulted in impairment charges of $3.9 million within Cost of operations in our Consolidated Statements of Operations. The estimated fair value of the IPR&D Intangible was determined using the multi-period excess earnings method under the income approach, which estimates the present value of the free cash flows associated with the asset and tax amortization benefit to arrive at the fair value of the asset. We have not identified any other indicators of impairment through September 30, 2023.

### Recent Accounting Standards

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

### Results of Operations

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

### RADNET, INC. AND SUBSIDIARIES

### CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

### (IN THOUSANDS EXCEPT SHARE DATA)

### (unaudited)

| REVENUE | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Service fee revenue | 90.0% | 89.1% | 90.1% | 89.1% |
| Revenue under capitation arrangements | 10.0% | 10.9% | 9.9% | 10.9% |
| Total service revenue | 100.0% | 100.0% | 100.0% | 100.0% |
| **OPERATING EXPENSES** |  |  |  |  |
| Cost of operations, excluding depreciation and amortization | 85.0% | 89.7% | 86.8% | 89.3% |
| Depreciation and amortization | 8.0% | 8.4% | 8.0% | 8.1% |
| (Gain) on contribution of imaging centers into joint venture | (4.2)% | —% | (1.4)% | —% |
| Loss (gain) on sale and disposal of equipment and other | 0.1% | (0.1)% | 0.1% | 0.1% |
| Severance costs | 0.3% | 0.1% | 0.3% | 0.0% |
| Total operating expenses | 89.2% | 98.0% | 93.8% | 97.6% |
| **INCOME (LOSS) FROM OPERATIONS** | 10.8% | 2.0% | 6.2% | 2.4% |
| **OTHER INCOME AND EXPENSES** |  |  |  |  |
| Interest expense | 4.0% | 3.5% | 4.0% | 3.4% |
| Equity in earnings of joint ventures | (0.3)% | (0.9)% | (0.3)% | (0.8)% |
| Non-cash change in fair value of interest rate hedge | 0.3% | (3.6)% | 0.1% | (3.8)% |
| Other (income) expenses | (1.0)% | 0.4% | (0.2)% | 0.1% |
| Total other expense (income) | 3.0% | (0.5)% | 3.5% | (1.0)% |
| **INCOME (LOSS) BEFORE INCOME TAXES** | 7.8% | 2.5% | 2.7% | 3.4% |
| (Provision for) Benefit from income taxes | (1.8)% | (0.6)% | (0.6)% | (0.7)% |
| **NET INCOME (LOSS)** | 6.0% | 1.8% | 2.0% | 2.7% |
| Net income attributable to noncontrolling interests | 1.6% | 1.7% | 1.6% | 1.6% |
| **NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS** | 4.4% | 0.2% | 0.4% | 1.2% |

38

### Imaging Center Segment

We have developed our medical imaging centers segment through a combination of organic growth, equity investments, acquisitions and joint venture formations. 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 nine months ended September 30, 2023 and 2022.

### Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

### Total Revenue

*In Thousands*

| Revenue | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total Revenue | $399,081 | $349,144 | $49,937 | 14.3% |
| Same Center Revenue | $365,616 | $339,534 | $26,082 | 7.7% |
| Excluded | $33,465 | $9,610 | — | — |

Our 7.7% increase in same center revenue over the same period last year was driven by same center total procedure volume growth of 3.4% inclusive of rises in routine and advanced modality imaging procedures of 2.8% and 5.1%, respectively. Excluded amounts refer to revenue contributions for the three month periods ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

### Operating Expenses

Total operating expenses for the three months ended September 30, 2023 increased approximately $18.9 million, or 5.6%, from $335.4 million for the three months ended September 30, 2022 to $354.3 million for the three months ended September 30, 2023. The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended September 30, 2023 and 2022 (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Salaries and professional reading fees, excluding stock-based compensation | $212,127 | $195,878 |
| Stock-based compensation | 3,937 | 2,604 |
| Building and equipment rental | 29,781 | 31,420 |
| Medical supplies | 21,285 | 18,121 |
| Other operating expenses \* | 71,972 | 59,845 |
| Cost of operations | 339,102 | 307,868 |
| Depreciation and amortization | 30,379 | 27,590 |
| (Gain) Loss on contribution of imaging centers into joint venture | (16,808) | — |
| Loss on sale and disposal of equipment | 524 | (253) |
| Severance costs | 1,141 | 187 |
| Total operating expenses | $354,338 | $335,392 |

**\*** 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 September 30, 2023 and 2022 (in thousands):

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

*In Thousands*

| Salaries and Professional Fees | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total Salaries | $212,127 | $195,878 | $16,249 | 8.3% |
| Same Center Salaries | $197,075 | $190,862 | $6,213 | 3.3% |
| Excluded | $15,052 | $5,016 | — | — |

Stemming from the higher procedure volumes noted above, our staffing levels were adjusted to support the influx of patients seeking radiology procedures. 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 September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

### Stock-based compensation

Stock-based compensation for the three months ended September 30, 2023 increased approximately $1.3 million, or 51.2%, from $2.6 million for the three months ended September 30, 2022 to $3.9 million for the three months ended September 30, 2023. This increase was driven by the higher fair value of RSA’s, additional and higher probability adjusted Performance Stock Options ("PSO") and Performance Stock Units ("PSU") granted and vested in the nine months of 2023 as compared the prior year’s same period.

### Building and equipment rental

*In Thousands*

| Building & Equipment Rental | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total | $29,781 | $31,420 | $(1,639) | (5.2)% |
| Same Center | $26,349 | $29,053 | $(2,704) | (9.3)% |
| Excluded Sites | $3,432 | $2,367 | — | — |

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 September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

### Medical supplies

*In Thousands*

| Medical Supplies Expense | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total | $21,285 | $18,121 | $3,164 | 17.5% |
| Same Center | $19,636 | $17,291 | $2,345 | 13.6% |
| Excluded Sites | $1,649 | $830 | — | — |

The increase in medical supplies expense was driven by higher patient volume combined with price increases for contrasting agents used in advanced radiology procedures. 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 September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

### Other operating expenses

*In Thousands*

| Other Operating Expenses | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total | $71,972 | $59,845 | $12,127 | 20.3% |
| Same Center | $65,518 | $57,881 | $7,637 | 13.2% |
| Excluded Sites | $6,454 | $1,964 | — | — |

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 September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

### Additional segment operating and non operating expenses:

*In Thousands*

|  | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $30,379 | $27,590 | $2,789 | 10.1% |
| (Gain) Loss on contribution of imaging centers into joint venture | ($16,808) | $— | (16,808) | nm |
| Loss on disposal of equipment and other | $524 | ($253) | $777 | (307.1)% |
| Non-cash change in fair value of interest rate hedge | $1,014 | ($12,451) | 13,465 | (108.1)% |
| Other expenses (income) | ($3,920) | $447 | (4,367) | (977.0)% |
| Severance | $1,141 | $187 | 954 | 510.2% |

nm= not meaningful

### Interest expense

*In Thousands*

| Interest Expense | Three Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total Interest Expense | $16,116 | $12,420 | $3,696 | 29.8% |
| Cash Paid for Interest | $19,255 | $10,564 | $8,691 | 82.3% |

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.

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. Based on recent increases in global interest 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.

To mitigate our future interest expense exposure we have entered into certain interest rate swap agreements. During the three months ended September 30, 2023, we received cash payments from our swap agreements of approximately $4.2 million, which was offset against our overall interest expense. See the Derivative Instruments section of Note 2, Significant Accounting Policies, to the 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 September 30, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $1.1 million and for three months ended September 30, 2022 we recognized equity in earnings from unconsolidated joint ventures of $3.1 million, a decrease of $2.0 million or 64.9%. The decrease was mainly related to the equity in earnings received from our venture operations in Arizona.

### Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

### Total Revenue

*In Thousands*

| Revenue | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total Revenue | $1,188,849 | $1,043,129 | $145,720 | 14.0% |
| Same Center Revenue | $1,091,551 | $1,015,799 | $75,752 | 7.5% |
| Excluded | $97,298 | $27,330 | — | — |

Our 7.5% increase in same center revenue over the same period last year was driven by same center total procedure volume growth of 6.1% inclusive of rises in routine and advanced modality imaging procedures of 5.8% and 7.2%, respectively. Excluded amounts refer to revenue contributions for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

### Operating Expenses

Total operating expenses for the nine months ended September 30, 2023 increased approximately $99.1 million, or 9.9%, from $999.2 million for the nine months ended September 30, 2022 to $1,098.3 million for the nine months ended September 30, 2023. The following table sets forth a breakdown of our cost of operations and total operating expenses for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Salaries and professional reading fees, excluding stock-based compensation | $640,459 | $584,080 |
| Stock-based compensation | 19,484 | 16,993 |
| Building and equipment rental | 88,781 | 92,249 |
| Medical supplies | 63,829 | 48,200 |
| Other operating expenses \* | 209,757 | 175,807 |
| Cost of operations | 1,022,310 | 917,329 |
| Depreciation and amortization | 90,204 | 80,496 |
| (Gain) loss on contribution of imaging centers into joint venture | (16,808) | — |
| (Gain) loss on sale and disposal of equipment | 1,185 | 936 |
| Severance costs | 1,417 | 488 |
| Total operating expenses | $1,098,308 | $999,249 |

**\*** 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*

| Salaries and Professional Fees | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total Salaries | $640,459 | $584,080 | $56,379 | 9.7% |
| Same Center Salaries | $597,488 | $570,275 | $27,213 | 4.8% |
| Excluded | $42,971 | $13,805 | — | — |

42

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 nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

### Stock-based compensation

Stock-based compensation increased $2.5 million, or 14.7% to approximately $19.5 million for the nine months ended September 30, 2023 compared to $17.0 million for nine months ended September 30, 2022. This increase was driven by the higher fair value of RSA’s, additional and higher probability adjusted Performance Stock Options ("PSO") and Performance Stock Units ("PSU") granted and vested in the nine months of 2023 as compared the prior year’s same period.

### Building and equipment rental

*In Thousands*

| Building & Equipment Rental | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total | $88,781 | $92,249 | $(3,468) | (3.8)% |
| Same Center | $78,098 | $85,358 | $(7,260) | (8.5)% |
| Excluded Sites | $10,683 | $6,891 | — | — |

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 nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

### Medical supplies

*In Thousands*

| Medical Supplies Expense | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total | $63,829 | $48,200 | $15,629 | 32.4% |
| Same Center | $59,231 | $46,249 | $12,982 | 28.1% |
| Excluded Sites | $4,598 | $1,951 | — | — |

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 ultimately reimbursed on a cost plus margin basis that exceeds our initial expense outlay. Excluded amounts refer to medical supplies for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

### Other operating expenses

*In Thousands*

| Other Operating Expenses | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total | $209,757 | $175,807 | $33,950 | 19.3% |
| Same Center | $193,822 | $169,932 | $23,890 | 14.1% |
| Excluded Sites | $15,935 | $5,875 | — | — |

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 nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

### Additional segment operating and non operating expenses:

*In Thousands*

|  | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $90,204 | $80,496 | $9,708 | 12.1% |
| (Gain) Loss on contribution of imaging centers into joint venture | $(16,808) | — | $(16,808) | nm |
| Loss on disposal of equipment and other | $1,185 | $936 | $249 | 26.6% |
| Non-cash change in fair value of interest rate hedge | $949 | $(39,576) | $40,525 | (102.4)% |
| Other expenses (income) | $(4,011) | $1,892 | $(5,903) | (312.0)% |
| Severance | $1,417 | $488 | $929 | 190.4% |

nm= not meaningful

### Interest expense

*In Thousands*

| Interest Expense | Nine Months Ended September 30, 2023 | 2022 | $ Increase/(Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Total Interest Expense | $47,876 | $35,398 | $12,478 | 35.3% |
| Cash Paid for Interest | $59,421 | $30,251 | $29,170 | 96.4% |

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.

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. Based on recent increases in global interest 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.

To mitigate our future interest expense exposure we have entered into certain interest rate swap agreements. During the nine months ended September 30, 2023, we received cash payments from our swap agreements of approximately $10.9 million, which was offset against our overall interest expense. See the Derivative Instruments section of Note 2, Significant Accounting Policies, to the financial statements included in this report for more details on our derivative transactions.

### Equity in earnings from unconsolidated joint ventures

For the nine months ended September 30, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.9 million and for the nine months ended September 30, 2022 we recognized equity in earnings from unconsolidated joint ventures of $8.4 million, an decrease of $4.4 million or 52.9%. 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 $7.7 million, or an effective tax rate of 24.1%, for the nine months ended September 30, 2023 compared to a provision for income tax of $7.1 million, or an effective tax rate of 19.8% for the nine months ended September 30, 2022. The income tax rates for the three and nine months ended September 30, 2023 diverge from the federal statutory rate due to benefits related to (i) noncontrolling interests from controlled partnerships, (ii) foreign tax rate differentials, (iii) reversal of uncertain tax positions due to statute of limitation expiration, and (iv) release of state valuation allowances, offset by (i) effects of state income taxes and related prior year adjustments, (ii) share-based compensation, (iii) officer's compensation limitations, and (v) partial valuation allowance on losses in foreign jurisdictions.

### AI Segment

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 and nine months ended September 30, 2023 and 2022 are as follows:

*In Thousands*

| Statement of Operations | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | **$2,887** | **$900** | **$1,987** | **220.8%** | **$7,398** | **$3,056** | **$4,342** | **142.0%** |
| Salaries and Wages | $4,212 | $3,641 | $571 | 15.7% | $13,298 | $11,370 | $1,928 | 16.9% |
| Stock Compensation | 388 | 713 | -325 | (45.6)% | 1,897 | 2,119 | -222 | (10.5)% |
| Other operating | 1,174 | 1,721 | -547 | (31.8)% | 4,383 | 3,939 | 444 | 11.3% |
| Non-cash change to contingent consideration | -7,191 | — | -7,191 | —% | -7,191 | — | -7,191 | —% |
| Acquisition related to non-cash intangible adjustment | 3,950 | — | 3,950 | —% | 3,950 | — | 3,950 | —% |
| Depreciation & Amort. | 1,831 | 1,639 | 192 | 11.7% | 5,501 | 4,713 | 788 | 16.7% |
| Other operating loss (gain) | 3 | 6 | (3) | (50.0)% | (2) | 26 | (28) | (107.7)% |
| Severance | 12 | 8 | 4 | —% | 1,740 | 8 | 1,732 | —% |
| Total operating expenses | **$4,379** | **$7,728** | **($3,349)** | **(43.3)%** | **$23,576** | **$22,175** | **$1,401** | **6.3%** |
| Loss from Operations | **($1,492)** | **($6,828)** | **$5,336** | **(78.1)%** | **($16,178)** | **($19,118)** | **$2,940** | **(15.4)%** |
| Other expense (income) | **($162)** | **$958** | **($1,120)** | **(116.9)%** | **$1,401** | **($329)** | **$1,730** | **525.6%** |
| Income before taxes | **($1,330)** | **($7,786)** | **$6,456** | **(82.9)%** | **($17,579)** | **($18,790)** | **$1,211** | **(6.4)%** |
| Income taxes | **($4,492)** | **($1,286)** | **($3,206)** | **249.3%** | **($5,862)** | **($2,743)** | **($3,119)** | **113.7%** |
| Segment net loss | **$3,162** | **($6,500)** | **$9,662** | **(148.6)%** | **($11,717)** | **($16,047)** | **$4,330** | **(27.0)%** |

In February of 2023, we launched our Enhanced Breast Cancer Detection service, powered by DeepHealth AI, which provides patients an advanced screening mammography service along with a life time risk assessment for breast cancer and post mammography support. The service is now fully rolled-out to all of our mammography centers on the east coast, where it is experiencing close to a 35% adoption rate. This is expected to grow as we continue to educate patients and referring physicians about its significant advantages over current practices. Additionally 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. These events have resulted in revenues from our AI segment increasing 142.1% for the nine month period ended September 30, 2023, over the same period in 2022. However, we anticipate that our AI segment will continue to generate losses in the near term as we pursue the continued commercialization of our AI products and expansion of our various cancer detection programs.

### Adjusted EBITDA

We use both GAAP and non-GAAP metrics to measure our financial results. We believe that, in addition to GAAP metrics, certain non-GAAP metrics, such as Adjusted EBITDA assist us in measuring our business performance, cash generated from operations, leverage capacity and ability to service our debt obligations.

Our Adjusted EBITDA metric removes non-cash and non-recurring charges that occur in the affected period and provides a basis for measuring the Company’s core financial performance against other periods.

We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted to exclude losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, bargain purchase gains, loss on de-consolidation of joint ventures and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries, and is adjusted for non-cash or one-time events that take place during the period.

Adjusted EBITDA is a non-GAAP financial measure used as an analytical indicator by us and the healthcare industry to assess business performance, and is a measure of leverage capacity and ability to service debt. Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and 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 and this metric, as presented, may not be comparable to other similarly titled measures of other companies.

The following is a reconciliation of GAAP net income attributable to RadNet, Inc. common stockholders to Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, respectively.

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income attributable to RadNet, Inc. common stockholders | $17,540 | $668 | $4,904 | $11,585 |
| Income taxes | 7,220 | 2,188 | 7,741 | 7,087 |
| Interest expense | 16,115 | 12,420 | 47,876 | 35,398 |
| Severance costs | 1,153 | 195 | 3,157 | 496 |
| Depreciation and amortization | 32,210 | 29,229 | 95,705 | 85,209 |
| Non-cash employee stock-based compensation | 4,325 | 3,317 | 21,381 | 19,112 |
| (Gain) loss on sale and disposal of equipment and other | 527 | (247) | 1,183 | 962 |
| Non-cash change in fair value of interest rate hedge | 1,015 | (12,451) | 949 | (39,576) |
| Gain on contribution of imaging centers into joint venture | (16,808) | — | (16,808) | — |
| Other expenses | (4,081) | 1,405 | (2,609) | 1,562 |
| Legal settlements | — | — | — | 2,197 |
| Non-cash change to contingent consideration | (6,276) | — | (3,646) |  |
| Change in estimate related to refund liability | — | 8,089 | — | 8,089 |
| Acquisition related non-cash intangible adjustment | 3,950 | — | 3,950 | — |
| Non operational rent expenses | 1,030 | 959 | 2,748 | 3,120 |
| **Adjusted EBITDA including EBITDA losses from AI Segment** | **$57,920** | **$45,772** | **$166,531** | **$135,241** |
| EBITDA Losses from AI Segment | 2,499 | 4,462 | 10,283 | 12,253 |
| **Adjusted EBITDA excluding EBITDA losses from AI Segment** | **$60,419** | **$50,234** | **$176,814** | **$147,494** |

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, 2023 and 2022, respectively.

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Segment net loss | $3,162 | $(6,500) | $(11,717) | $(16,047) |
| Stock Compensation | 388 | 713 | 1,897 | 2,119 |
| Depreciation & Amortization | 1,831 | 1,639 | 5,501 | 4,713 |
| Other operating loss | 3 | 6 | (2) | 26 |
| Other expense (income) | (162) | 958 | 1,401 | (329) |
| Severance | 12 | 8 | 1,740 | 8 |
| Income taxes | (4,492) | (1,286) | (5,862) | (2,743) |
| Non-cash change to contingent consideration | (7,191) | — | (7,191) | — |
| Acquisition related to non-cash intangible adjustment | 3,950 | — | 3,950 | — |
| **Adjusted EBITDA from AI Segment** | **$(2,499)** | **$(4,462)** | **$(10,283)** | **$(12,253)** |

### Liquidity and Capital Resources

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

| Balance Sheet Data: | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $337,884 | $127,834 |
| Accounts receivable | 167,736 | 166,357 |
| Working capital (exclusive of current operating lease liabilities) | 230,919 | (41,932) |
| Stockholders' equity | 796,158 | 491,452 |

| Income statement data for the nine months ended September 30, | 2023 | 2022 |
| --- | ---: | ---: |
| Total net revenue | $1,196,247 | $1,046,185 |
| Net income attributable to RadNet common stockholders | 4,904 | 11,585 |

We operate in a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations. In addition to operations, we require a significant amount of capital for the initial start-up and development of new diagnostic imaging centers, the acquisition of additional centers and new diagnostic imaging equipment. Because our cash flows from operations have been insufficient to fund all of these capital requirements, we have depended on the availability of financing under credit arrangements with third parties to fund our working capital requirements.

We have credit available from our current credit facilities and borrowing under those facilities is subject to continued compliance with lending covenants. We currently meet those requirements, and expect that we will continue to do so for the foreseeable future, but substantial and sustained operating losses could impact our ability to borrow under those facilities. If we are not able to meet such requirements, we may be required to seek additional financing and there can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.

On a continuing basis, we also consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures and joint ventures. These types of transactions may result in future cash proceeds or payments but the general timing, size or success of any acquisition, divestiture or joint venture effort and the related potential capital commitments cannot be predicted. We expect to fund any future acquisitions primarily with cash flow from operations and borrowings, including borrowing from amounts available under our senior secured credit facilities or through new equity or debt issuances.

We and our subsidiaries or affiliates may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise.

#### Sources and Uses of Cash

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

| Cash Flow Data | September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Cash provided by (used in) operating activities | $131,943 | $92,770 |
| Cash provided by (used in) investing activities | (152,823) | (123,048) |
| Cash provided by (used in) financing activities | 231,101 | (9,938) |

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 hedge of $39.6 million.

Cash used in investing activities for the nine months ended September 30, 2023, included purchases of property and equipment for approximately $136.5 million and the acquisition of imaging business and other assets for $10.9 million. As part of our business operations we continually evaluate investment opportunities.

Cash provided by financing activities of $231.1 million for the nine months ended September 30, 2023, was due to net proceeds of the $245.8 million received from the issuance of 8,711,250 shares of common stock and offset by payments on our term loan obligations and equipment notes. Please see Note 6, Credit Facilities and Notes Payable in the notes to consolidated financial statements included in this report for more information.

### Senior Secured Credit Facilities

We maintain secured credit facilities with Barclays Bank PLC and with Truist Bank. The Barclays credit facilities are comprised of first lien term loans and a revolving credit facility of $195.0 million. The Truist credit facilities are comprised of a term loan and a revolving credit facility of $50.0 million. As of September 30, 2023, we were in compliance with all covenants under our credit facilities. Deferred financing costs at September 30, 2023, net of accumulated amortization, were $1.8 million and are specifically related to our revolving credit facilities.

Included in our condensed consolidated balance sheets at September 30, 2023 are $853.1 million of total term loan debt (exclusive of unamortized discounts of $10.6 million) in thousands:

|  | Face Value | Discount | Total Carrying Value |
| --- | ---: | ---: | ---: |
| First Lien Term Loans | $708,688 | $(9,563) | $699,125 |
| Truist Term Loan | 144,375 | (1,056) | 143,319 |
| Total Term Loans | $853,063 | $(10,619) | $842,444 |

At September 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.

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 financial statements included in this report for more information on our secured credit facilities.

## Market risk

As filed, 3,650 characters.

***Foreign Currency Exchange Risk:*** We receive payment for substantially all of our imaging services exclusively in United States dollars. As a result, our financial results are unlikely to be affected by factors such as changes in foreign currency, exchange rates or weak economic conditions in foreign markets.

We are exposed to foreign exchange risk with respect to revenues and expenses denominated in the Euro, Canadian Dollar and Hungarian Forint and Pound Sterling. We have Artificial Intelligence operations in the Netherlands, radiology services in the United Kingdom, and maintain research and development centers in Canada and Hungary. At the present time, we do not have any foreign currency exchange contracts to mitigate this risk. At September 30, 2023, a hypothetical 1% decline in the currency exchange rates between the U.S. dollar against these currencies, would have resulted in an annual increase of approximately $0.3 million in operating expenses.

***Interest Rate Sensitivity***: We pay interest on various types of debt instruments to our suppliers and lending institutions. The agreements entail either fixed or variable interest rates. Instruments which have fixed rates are mainly leases on radiology equipment. Variable rate interest obligations relate primarily to amounts borrowed under our outstanding credit facilities. Accordingly, our interest expense and consequently, our earnings, are affected by changes in short term interest rates. However due to our purchase of the 2019 Swaps, described below, the effects of interest rate changes are limited.

We can elect SOFR or Alternative Base Rate interest options on amounts outstanding under the First Lien Term Loans. At September 30, 2023, we had $708.7 million outstanding subject to a SOFR election on First Lien Term Loans and our effective rate plus applicable margin was 8.43%. A hypothetical 1% increase in the SOFR rates under the Restated Credit Agreement would result in an increase of $2.1 million in annual interest expense and a corresponding decrease in income before taxes, after giving effect to the payments to be received under our 2019 Swaps.

We can elect SOFR or Base Rate interest rate options on amounts outstanding under the Truist Restated Credit and Term Loan Agreement. At September 30, 2023, we had $144.4 million outstanding subject to an adjusted SOFR election on the Truist Restated Credit and Agreement. At September 30, 2023, our effective SOFR rate plus applicable margin was 7.18%. A hypothetical 1% increase in the adjusted Eurodollar rates under the Truist Restated Credit Agreement would result in an increase of approximately $1.4 million in annual interest expense and a corresponding decrease in income before taxes.

In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $500,000,000, consisting of two agreements of $50,000,000 each and two agreements of $200,000,000 each. The 2019 Swaps are intended to secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month Term SOFR rates at 1.89% for the $100,000,000 notional and at 1.98% for the $400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive payments under the 2019 Swaps if interest rates rise above the arranged rates.

## Controls and procedures

As filed, 1,145 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the design and operation of our “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report for the purposes set forth above.

### Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 482 characters.

For information about the risks and uncertainties related to our business, please see the risk factors described in our annual report on Form 10-K for the year ended December 31, 2022. The risks described in our annual report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038345. Last ingested by Listed: Oct 26, 2026, 16:12 ET. No prices; not investment advice.