RDNT 10-Q Quarterly Report June 30, 2019

RADNET, INC.

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10-Q 1 rdnt-20190630x10q.htm 10-Q Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33307

RadNet, Inc.

(Exact name of registrant as specified in charter)



Delaware	13-3326724
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

1510 Cotner Avenue
Los Angeles, California	90025
(Address of principal executive offices)	(Zip Code)

(310) 478-7808

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)



Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:



Class Title	Trading Symbol	Registered Exchange
Common Stock	RDNT	NASDAQ

The number of shares of the registrant’s common stock outstanding on August 6, 2019 was 50,127,234 shares.

Table of Contents

RADNET, INC.

TABLE OF CONTENTS



	Page

PART I – FINANCIAL INFORMATION	3

ITEM 1. Condensed Consolidated Financial Statements (unaudited)	3

Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018	3

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	5

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	6

Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended June 30, 2019 and 2018	7

Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2019 and 2018	8

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	9

Notes to Condensed Consolidated Financial Statements	11

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	50

ITEM 4. Controls and Procedures	51

PART II – OTHER INFORMATION	52

ITEM 1. Legal Proceedings	52

ITEM 1A. Risk Factors	52

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	52

ITEM 3. Defaults Upon Senior Securities	52

ITEM 4. Mine Safety Disclosures	52

ITEM 5. Other Information	52

ITEM 6. Exhibits	52

SIGNATURES	54

INDEX TO EXHIBITS	53

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

Table of Contents



	June 30, 2019			December 31, 2018
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	30,504		$	10,389
Accounts receivable	159,323			148,919
Due from affiliates	649			595
Prepaid expenses and other current assets	41,957			46,288
Assets held for sale	2,041			2,499
Total current assets	234,474			208,690
PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS
Property and equipment, net	352,624			345,729
Operating lease right-of-use assets	432,557			—
Total property, equipment and right-of-use assets	785,181			345,729
OTHER ASSETS
Goodwill	437,940			418,093
Other intangible assets	40,800			40,593
Deferred financing costs	1,782			1,354
Investment in joint ventures	38,621			37,973
Deferred tax assets, net of current portion	34,013			31,506
Deposits and other	23,865			25,392
Total assets	$	1,596,676		$	1,109,330
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other	$	168,815		$	181,028
Due to affiliates	13,543			13,089
Deferred revenue	1,732			2,398
Current portion of deferred rent	—			3,735
Current finance lease liability	4,334			—
Current operating lease liability	65,461			—
Current portion of notes payable	39,364			33,653
Current portion of obligations under capital leases	—			5,614
Total current liabilities	293,249			239,517
LONG-TERM LIABILITIES
Deferred rent, net of current portion	—			31,542
Long-term finance lease liability	4,851			—
Long-term operating lease liability	404,463			—
Notes payable, net of current portion	672,534			626,507
Obligations under capital lease, net of current portion	—			6,505
Other non-current liabilities	9,149			5,006
Total liabilities	1,384,246			909,077
EQUITY
RadNet, Inc. stockholders' equity:
Common stock - $.0001 par value, 200,000,000 shares authorized; 50,127,234 and 48,977,485 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	5			5
Additional paid-in-capital	257,607			242,835
Accumulated other comprehensive income	(6,944		)	2,259
Accumulated deficit	(116,750		)	(117,915		)
Total RadNet, Inc.'s stockholders' equity	133,918			127,184
Noncontrolling interests	78,512			73,069
Total equity	212,430			200,253
Total liabilities and equity	$	1,596,676		$	1,109,330

The accompanying notes are an integral part of these financial statements.

Table of Contents

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
REVENUE
Service fee revenue	$	258,171		219,416			$	500,844		423,584
Revenue under capitation arrangements	30,926			24,979			59,803			52,203
Total revenue	289,097			244,395			560,647			475,787
OPERATING EXPENSES
Cost of operations, excluding depreciation and amortization	246,558			210,055			489,615			425,689
Depreciation and amortization	20,083			18,086			39,703			35,942
Loss (gain) on sale and disposal of equipment	101			105			1,073			(1,831		)
Severance costs	371			279			1,002			1,005
Total operating expenses	267,113			228,525			531,393			460,805
INCOME FROM OPERATIONS	21,984			15,870			29,254			14,982

OTHER INCOME AND EXPENSES
Interest expense	12,399			10,641			24,694			20,680
Equity in earnings of joint ventures	(2,244		)	(3,748		)	(4,117		)	(6,725		)
Other (income) expenses	1,269			5			1,269			6
Total other expenses	11,424			6,898			21,846			13,961
INCOME BEFORE INCOME TAXES	10,560			8,972			7,408			1,021
Provision for income taxes	(2,969		)	(2,505		)	(1,740		)	(8		)
NET INCOME	7,591			6,467			5,668			1,013
Net income attributable to noncontrolling interests	2,692			1,061			4,503			2,945
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	4,899		$	5,406		$	1,165		$	(1,932	)

BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.10		$	0.11		$	0.02		$	(0.04	)

DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.10		$	0.11		$	0.02		$	(0.04	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	49,702,869			47,969,003			49,490,234			47,896,216
Diluted	50,144,540			48,526,033			49,988,036			47,896,216

The accompanying notes are an integral part of these financial statements.

Table of Contents

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(IN THOUSANDS)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
NET INCOME	$	7,591		$	6,467		$	5,668		$	1,013
Foreign currency translation adjustments	3			(91		)	(5		)	(69		)
Change in fair value of cash flow hedge, net of taxes	(8,002		)	1,199			(9,198		)	4,294
COMPREHENSIVE (LOSS) INCOME	(408		)	7,575			(3,535		)	5,238
Less comprehensive income attributable to noncontrolling interests	2,692			1,061			4,503			2,945
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO
RADNET, INC. COMMON STOCKHOLDERS	$	(3,100	)	$	6,514		$	(8,038	)	$	2,293

The accompanying notes are an integral part of these financial statements.

Table of Contents

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the three months ended June 30, 2019 and June 30, 2018 .



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Radnet, Inc.'s Equity			Noncontrolling Interests			Total Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Radnet, Inc.'s Equity			Noncontrolling Interests			Total Equity
BALANCE - MARCH 31, 2019	50,081,478		$	5	$	256,488		$	1,055		$	(121,648	)	$	135,900		$	77,638		$	213,538

Issuance of common stock under the equity compensation plan	47,256		—		—			—			—			—			—			—
Stock-based compensation expense	—		—		1,124			—			—			1,124			—			1,124
Forfeiture of restricted stock	(1,500	)	—		(5		)	—			—			(5		)	—			(5		)
Distributions paid to noncontrolling interests	—		—		—			—			—			—			(1,818		)	(1,818		)
Change in cumulative foreign currency translation adjustment	—		—		—			3			—			3			—			3
Change in fair value cash flow hedge, net of taxes	—		—		—			(8,002		)	—			(8,002		)	—			(8,002		)
Other	—		—		—			—			(1		)	(1		)	—			(1		)
Net loss	—		—		—			—			4,899			4,899			2,692			7,591
BALANCE-JUNE 30, 2019	50,127,234		$	5	$	257,607		$	(6,944	)	$	(116,750	)	$	133,918		$	78,512		$	212,430

BALANCE - MARCH 31, 2018	48,236,616		$	5	$	234,567		$	2,569		$	(157,496	)	$	79,645		$	36,722		$	116,367

Issuance of common stock under the equity compensation plan	49,459		$	—	$	—		$	—		$	—		$	—		$	—		$	—
Stock-based compensation expense	—		$	—	$	1,153		$	—		$	—		$	1,153		$	—		$	1,153
Forfeiture of restricted stock	(1,150	)	$	—	$	(7	)	$	—		$	—		$	(7	)	$	—		$	(7	)
Distributions paid to noncontrolling interests	—		$	—	$	—		$	—		$	—		$	—		$	(154	)	$	(154	)
Change in cumulative foreign currency translation adjustment	—		$	—	$	—		$	(91	)	$	—		$	(91	)	$	—		$	(91	)
Change in fair value cash flow hedge, net of taxes	—		$	—	$	—		$	1,199		$	—		$	1,199		$	—		$	1,199
Net loss	—		$	—	$	—		$	—		$	5,406		$	5,406		$	1,061		$	6,467
BALANCE-JUNE 30, 2018	48,284,925		$	5	$	235,713		$	3,677		$	(152,090	)	$	87,305		$	37,629		$	124,934

The accompanying notes are an integral part of these financial statements.

Table of Contents

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the six months ended June 30, 2019 and June 30, 2018.



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Radnet, Inc.'s Equity			Noncontrolling Interests			Total Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Radnet, Inc.'s Equity			Noncontrolling Interests			Total Equity
BALANCE - JANUARY 1, 2019	48,977,485		$	5	$	242,835		$	2,259		$	(117,915	)	$	127,184		$	73,069		$	200,253
Issuance of common stock upon exercise of options	10,000		—		50			—			—			50			—			50
Issuance of common stock under the equity compensation plan	701,042		—		—			—			—			—			—			—
Stock-based compensation expense	—		—		5,638			—			—			5,638			—			5,638
Issuance of common stock for purchase of membership interest in HVRA	440,207		—		6,000			—			—			6,000			—			6,000
Forfeiture of restricted stock	(1,500	)	—		(5		)	—			—			(5		)	—			(5		)
Sale of noncontrolling interests, net of taxes	—		—		3,089			—			—			3,089			2,008			5,097
Distributions paid to noncontrolling interests	—		—		—			—			—			—			(1,818		)	(1,818		)
Contribution from noncontrolling partner	—		—		—			—			—			—			750			750
Change in cumulative foreign currency translation adjustment	—		—		—			(5		)	—			(5		)	—			(5		)
Change in fair value cash flow hedge, net of taxes	—		—		—			(9,198		)	—			(9,198		)	—			(9,198		)
Net income	—		—		—			—			1,165			1,165			4,503			5,668
BALANCE-JUNE 30, 2019	50,127,234		$	5	$	257,607		$	(6,944	)	$	(116,750	)	$	133,918		$	78,512		$	212,430

BALANCE - JANUARY 1, 2018	47,723,915		$	5	$	212,261		$	(548	)	$	(150,158	)	$	61,560		$	8,365		$	69,925

Issuance of common stock under the equity compensation plan	562,160		$	—	$	—		$	—		$	—		$	—		$	—		$	—
Stock-based compensation expense	—		$	—	$	4,796		$	—		$	—		$	4,796		$	—		$	4,796
Forfeiture of restricted stock	(1,150	)	$	—	$	(7	)	$	—		$	—		$	(7	)	$	—		$	(7	)
Sale of noncontrolling interests, net of taxes	—		$	—	$	18,663		$	—		$	—		$	18,663		$	27,232		$	45,895
Distributions paid to noncontrolling interests	—		$	—	$	—		$	—		$	—		$	—		$	(913	)	$	(913	)
Change in cumulative foreign currency translation adjustment	—		$	—	$	—		$	(69	)	$	—		$	(69	)	$	—		$	(69	)
Change in fair value cash flow hedge, net of taxes	—		$	—	$	—		$	4,294		$	—		$	4,294		$	—		$	4,294
Net loss	—		$	—	$	—		$	—		$	(1,932	)	$	(1,932	)	$	2,945		$	1,013
BALANCE-JUNE 30, 2018	48,284,925		$	5	$	235,713		$	3,677		$	(152,090	)	$	87,305		$	37,629		$	124,934

The accompanying notes are an integral part of these financial statements.

Table of Contents

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(unaudited)



	Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,668		$	1,013
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	39,703			35,942
Amortization of operating lease right-of-use assets	32,937			—
Equity in earnings of joint ventures	(4,117		)	(6,725		)
Distributions from joint ventures	3,438			7,083
Amortization deferred financing costs and loan discount	2,021			1,949
Gain on sale and disposal of equipment and other	1,073			(1,831		)
Stock-based compensation	5,582			4,890
Other noncash items included in cost of operations	(559		)	—
Change in fair value of contingent consideration	(1,953		)	—
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable	(12,042		)	(7,113		)
Other current assets	4,331			(568		)
Other assets	2,069			(900		)
Deferred taxes	(3,542		)	(78		)
Operating lease liability	(32,268		)	—
Deferred rent	—			1,788
Deferred revenue	(666		)	153
Accounts payable, accrued expenses and other	2,860			11,345
Net cash provided by operating activities	44,535			46,948
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities	(27,149		)	(14,094		)
Equity investments at fair value	(143		)	(2,200		)
Purchase of property and equipment	(50,342		)	(45,133		)
Proceeds from sale of equipment	760			2,324
Proceeds from the sale of equity interests in a joint venture	132			—
Equity contributions in existing and purchase of interest in joint ventures	(103		)	(2,000		)
Net cash used in investing activities	(76,845		)	(61,103		)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable	(3,320		)	(3,393		)
Payments on term loan debt	(19,469		)	(16,540		)
Deferred financing costs from debt issuance	(683		)	—
Debt discount from debt issuance	(2,173		)	—
Proceeds from debt issuance	100,000			—
Distributions paid to noncontrolling interests	—			(913		)
Proceeds from sale of noncontrolling interest	5,275			—
Contribution from noncontrolling partner	750			—
Proceeds from revolving credit facility	236,200			19,800
Payments on revolving credit facility	(264,200		)	(19,800		)
Proceeds from issuance of common stock upon exercise of options	50			—
Net cash provided by (used in) financing activities	52,430			(20,846		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(5		)	(69		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	20,115			(35,070		)
CASH AND CASH EQUIVALENTS, beginning of period	10,389			51,322
CASH AND CASH EQUIVALENTS, end of period	$	30,504		$	16,252

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	23,292		$	17,509

The accompanying notes are an integral part of these financial statements.

Table of Contents

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(unaudited)

Supplemental Schedule of Non-Cash Investing and Financing Activities

We acquired equipment and certain leasehold improvements for approximately $14.0 million and $13.6 million during the six months ended June 30, 2019 and 2018 , respectively, which were not paid for as of June 30, 2019 and 2018 , respectively. The offsetting amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other.

We recorded under accrued expenses an accrual of equity interest distribution to noncontrolling interests of $1.8 million at June 30, 2019 , which was paid in July 2019.

During the six months ended June 30, 2018 we incurred, exclusive of commitments assumed through acquisitions, capital lease debt of approximately $4.0 million from the our partner in the formation of Beach Imaging LLC. No such action was taken for the six months ended June 30, 2019 .

The Company received $15.0 million in fixed assets in January 2018 from the Company’s partner in Beach Imaging LLC.

We recorded an investment in joint venture of $3.0 million to ScriptSender, LLC, on January 6, 2017, representing our capital contribution to the venture. The offsetting amount was recorded on the due to affiliates account of ScriptSender, LLC. The remaining finance capital contribution due at December 31, 2018 of $268,000 was paid during the quarter ended March 31, 2019.

We transferred approximately $4.3 million in net assets to our new joint venture, Ventura County Imaging Group. LLC in March 2019. See Note 4, Facility Acquisitions and Dispositions, for further information.

On February 27, 2019, we issued 440,207 shares of our common stock to the sellers of Hudson Valley Radiology Associates, P.L.L.C. ("HVRA") which permitted our variable interest entity, Lenox Hill Radiology and Medical Imaging Associates, P.C., to complete its purchase of the membership interest of HVRA. The shares were ascribed a value of $6.0 million .

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RADNET, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States based on number of locations and annual imaging revenue. At June 30, 2019 , we operated directly or indirectly through joint ventures with hospitals, 340 centers located in 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. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures.

The consolidated financial statements include the accounts of Radnet Management, Inc. (or “Radnet Management”) and Beverly Radiology Medical Group III, a professional partnership (“BRMG”). BRMG is a partnership of ProNet Imaging Medical Group, Inc., Beverly Radiology Medical Group, Inc. and Breastlink Medical Group, Inc. (formerly known as Westchester Medical Group Inc.). The consolidated financial statements also include Radnet Management I, Inc., Radnet Management II, Inc., Radiologix, Inc., Radnet Managed Imaging Services, Inc., Delaware Imaging Partners, Inc., New Jersey Imaging Partners, Inc. and Diagnostic Imaging Services, Inc., all wholly owned subsidiaries of Radnet Management. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report.

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) 810-10-15-14, Consolidation, stipulates that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics specified in the ASC which evidence a controlling financial interest, is considered a Variable Interest Entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity.

Howard G. Berger, M.D., is our President and Chief Executive Officer, a member of our Board of Directors, and also owns, indirectly, 99% of the equity interests in BRMG. BRMG is responsible for all of the professional medical services at nearly all of our facilities located in California under a management agreement with us, and employs physicians or contracts with various other independent physicians and physician groups to provide the professional medical services at most of our California facilities. We generally obtain professional medical services from BRMG in California, rather than provide such services directly or through subsidiaries, in order to comply with California’s prohibition against the corporate practice of medicine. However, as a result of our close relationship with Dr. Berger and BRMG, we believe that we are able to better ensure that medical service is provided at our California facilities in a manner consistent with our needs and expectations and those of our referring physicians, patients and payors than if we obtained these services from unaffiliated physician groups.

As of February 28, 2019, we contract with seven medical groups which provide professional medical services at all of our facilities in Manhattan and Brooklyn, New York (“the NY Groups”). These contracts are similar to our contract with BRMG. Five of the NY Groups are owned or controlled by John V. Crues, III, M.D., RadNet’s Medical Director, a member of our Board of Directors, and a 1% owner of BRMG. Dr Berger owns a controlling interest in two of the NY Groups which provide professional medical services at one of our Manhattan facilities. On February 28, 2019, one of our NY Group entities, Lenox Hill Radiology and Medical Imaging Associates, P.C. ("LHR"), purchased the membership interest of Hudson Valley Radiology Associates, P.L.L.C. ("HVRA") for $6.0 million of RadNet common stock and contingent consideration valued at $680,000 to guarantee the share value issued for a period of six months post acquisition date. LHR has performed a fair value purchase price allocation and recorded equipment of $10,000 , a covenant not to compete of $50,000 , trade name of $380,000 , other intangible assets of $340,000 and goodwill of $3.1 million from the transaction. In connection with the acquisition, RadNet also settled against the purchase consideration, $2.8 million , net of taxes, of an unfavorable vendor contract with HVRA stemming from the previous acquisition of Radiologix, Inc. in November 2006.

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RadNet provides non-medical, technical and administrative services to BRMG and the NY Groups for which it receives a management fee, pursuant to the related management agreements. Through the management agreements we have exclusive authority over all non-medical decision making related to the ongoing business operations of BRMG and the NY Groups and we determine the annual budget of BRMG and the NY Groups. BRMG and the NY Groups both have insignificant operating assets and liabilities, and de minimis equity. Through management agreements with us, substantially all cash flows of BRMG and the NY Groups after expenses including professional salaries are transferred to us.

We have determined that BRMG and the NY Groups are VIEs, that we are the primary beneficiary, and consequently, we consolidate the revenue and expenses, assets and liabilities of each. BRMG and the NY Groups on a combined basis recognized $38.9 million and $33.5 million of revenue, net of management service fees to RadNet, for the three months ended June 30, 2019 and 2018 , respectively, and $38.9 million and $33.5 million of operating expenses for the three months ended June 30, 2019 and 2018 , respectively. RadNet recognized in its condensed consolidated statement of operations $159.2 million and $133.4 million of net revenues for the three months ended June 30, 2019 , and 2018 respectively, for management services provided to BRMG and the NY Groups relating primarily to the technical portion of total billed revenue.

BRMG and the NY Groups on a combined basis recognized $76.3 million and $67.5 million of revenue, net of management service fees to RadNet, for the six months ended June 30, 2019 and 2018 , respectively, and $76.3 million and $67.5 million of operating expenses for the six months ended June 30, 2019 and 2018 , respectively. RadNet recognized in its condensed consolidated statement of operations $301.6 million and $252.0 million of net revenues for the six months ended June 30, 2019 , and 2018 respectively, for management services provided to BRMG and the NY Groups relating primarily to the technical portion of total billed revenue.

The cash flows of BRMG and the NY Groups are included in the accompanying consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. In our consolidated balance sheets at June 30, 2019 and December 31, 2018 , we have included approximately $99.0 million and $88.9 million , respectively, of accounts receivable and approximately $3.9 million and $5.6 million , respectively, of accounts payable and accrued liabilities related to BRMG and the NY Groups. Also in our consolidated balance sheets at June 30, 2019 we have included $2.6 million in intangible assets related to the purchase of membership interest of a New York Group VIE.

The creditors of BRMG and the NY Groups do not have recourse to our general credit and there are no other arrangements that could expose us to losses on behalf of BRMG and the NY Groups. However, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues.

We also own a 49% economic interest in ScriptSender, LLC, which provides secure data transmission services of medical information. Through a management agreement, RadNet provides management and accounting services and receives an agreed upon fee. ScriptSender LLC is dependent on the Company to finance its own activities, and as such we determined that it is a VIE but we are not a primary beneficiary since we do not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance.

At all of our centers we have entered into long-term contracts with radiology groups in the area to provide physician services at those facilities. These radiology practices provide professional services, including supervision and interpretation of diagnostic imaging procedures, in our diagnostic imaging centers. The radiology practices maintain full control over the provision of professional services. In these facilities we enter into long-term agreements with radiology practice groups (typically 40 years). Under these arrangements, in addition to obtaining technical fees for the use of our diagnostic imaging equipment and the provision of technical services, we provide management services and receive a fee based on the value of the services we provide. Except in New York City, the fee is based on the practice group’s professional revenue, including revenue derived outside of our diagnostic imaging centers. In New York City we are paid a fixed fee set in advance for our services. We own the diagnostic imaging equipment and, therefore, receive 100% of the technical reimbursements associated with imaging procedures. The radiology practice groups retain the professional reimbursements associated with imaging procedures after deducting management service fees paid to us and we have no financial controlling interest in the radiology practices.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for conformity with U.S. generally accepted accounting principles for complete financial statements; however, in the opinion of our management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended June 30, 2019 and 2018 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2018 .

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

During the period covered in this report, we adopted a new significant accounting policy on Leases as described in Note 5 below. Except for the policy on Leases, there have been no material changes to the significant accounting policies we use and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2018 . The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2018 .

REVENUES - Our revenues generally relate to net patient fees received from various payers 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 payer (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 payers. The payment arrangements with third-party payers 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 and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

As it relates to BRMG centers, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by BRMG as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees from BRMG. As it relates to non-BRMG 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 the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). 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 total revenues during the three and six months ended June 30, 2019 and 2018 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Commercial insurance	$	160,185	$	135,479	$	311,899	$	261,751
Medicare	60,151		49,079		114,280		93,107
Medicaid	7,295		6,760		14,423		12,800
Workers' compensation/personal injury	11,014		8,450		22,062		16,906
Other patient revenue	6,017		6,521		11,858		12,112
Management fee revenue	1,753		3,945		3,870		7,621
Teleradiology and Software revenue	4,063		4,000		8,449		7,816
Other	7,693		5,182		14,003		11,471
Service fee revenue	258,171		219,416		500,844		423,584
Revenue under capitation arrangements	30,926		24,979		59,803		52,203
Total revenue	$	289,097	$	244,395	$	560,647	$	475,787

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RECLASSIFICATION – We have reclassified certain amounts within our table of income allocation for 2018 to conform to our 2019 presentation. In addition, we have reclassified certain amounts within our condensed consolidated statements of equity for the three and six months ended June 30, 2018 in common shares issued and additional paid in capital to conform to our 2019 presentation.

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. 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.

In 2018 we entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. The aggregate gross amount factored under these facilities was $20.5 million for the year ended December 31, 2018 and the cost of factoring such accounts receivable for the year ended December 31, 2018 was $440,000 . Proceeds will be received as a combination of cash and payments on notes receivable and will be reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. At June 30, 2019 we have $16.6 million remaining to be collected on these agreements. We do not utilize factoring arrangements as an integral part of our financing for working capital.

DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $1.8 million and $1.4 million , as of June 30, 2019 and December 31, 2018 , respectively and related to our line of credit. In conjunction with our Sixth Amendment and Seventh Amendment to our First Lien Credit Agreement (as defined below), a net addition of approximately $683,000 was added to deferred financing costs. See Note 6, Credit Facility, Notes Payable, and Capital Lease Obligations for more information.

INVENTORIES - Inventories, consisting mainly of medical supplies, are stated at the lower of cost or net realizable value with cost determined by the first-in, first-out method.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years. Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred.

BUSINESS COMBINATION - When the qualifications for business combination accounting treatment are met, it requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the 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 June 30, 2019 totaled $437.9 million . Indefinite lived intangible assets at June 30, 2019 were $10.2 million . Goodwill and Indefinite Lived Intangibles 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 and should not exceed the total amount of goodwill allocated to that reporting unit. We tested goodwill and indefinite lived intangibles for impairment on October 1, 2018. During the review we noted our Teleradiology unit, Imaging On Call, (IOC), experienced a reduction of professional medical group clients and a contract with a major local health provider during 2018. This affected its estimated fair value and resulted in impairment charges to the reporting unit of $3.9 million for the twelve months ended December 31, 2018 , with goodwill representing $3.8 million of the total and the remainder being its trade name of approximately $100,000 . We have not identified any indicators of impairment through June 30, 2019 . Activity in goodwill for the six months ended June 30, 2019 is provided below (in thousands):

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Balance as of December 31, 2018	$	418,093
Adjustments to our preliminary allocation of the purchase price of Medical Arts Radiological Group, P.C.	722
Goodwill acquired through the acquisition of certain assets of Dignity Health	1
Goodwill acquired through the acquisition of certain assets of West Valley Imaging Center, LLC	2,490
Goodwill disposed through sale of assets	(123		)
Goodwill acquired by Lenox Hill Radiology through the membership purchase of HVRA	3,125
Goodwill acquired through the acquisition of certain assets of Kern Radiology, Inc.	11,156
Goodwill acquired through the acquisition of certain assets of Zilkha Radiology, Inc.	2,245
Goodwill acquired through the acquisition of certain assets of Ramic Mahwah, LLC	231
Balance as of June 30, 2019	$	437,940

INCOME TAXES - Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized.

We recorded an income tax expense of $3.0 million , or an effective tax rate of 28.1% , for the three months ended June 30, 2019 compared to income tax expense for the three months ended June 30, 2018 of $2.5 million , or an effective tax rate of 27.9% . We recorded an income tax expense of $1.7 million , or an effective tax rate of 23.5% for the six months ended June 30, 2019 compared to income tax expense for the six months ended June 30, 2018 of $8,000 or an effective tax rate of 0.8% . The income tax rates for the three and six months ended June 30, 2019 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; (iii) excess tax benefits attributable to share-based compensation; and adjustment associated with uncertain tax positions.

We are not under examination in any jurisdiction and the years ended December 31, 2017 , 2016 , and 2015 remain subject to examination. We believe no significant changes in the unrecognized tax benefits will occur within the next 12 months.

LEASES - We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our consolidated balance sheets. Finance leases are included in property and equipment, current finance lease liability, and long-term finance lease liability in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. See Note 5, Leases, for more information.

EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we first amended and restated as of April 20, 2015, and again on March 9, 2017 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017. We have reserved for issuance under the Restated Plan 14,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan. Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options and warrants generally vest over three to five years and expire five to ten years from date of grant. The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. See Note 7, Stock-Based Compensation, for more information.

COMPREHENSIVE (LOSS) INCOME - ASC 220 establishes rules for reporting and displaying comprehensive loss or income and its components. Our unrealized gains or losses on foreign currency translation adjustments, interest rate cap and SWAP

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agreements are included in comprehensive (loss) income and are included in the consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2019 and 2018.

COMMITMENTS AND CONTINGENCIES - We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. We believe that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.

In the second quarter of 2019, RadNet accrued a liability of $2.3 million related to allegations by the US Attorney's Office for the Western District of New York that RadNet submitted certain claims that incorrectly identified the physician who furnished the radiology services. Although the matter remains unresolved and there can be no assurance as to the timing or the terms of any final outcome, we estimate that the range of loss in this matter is $2.0 million to $2.5 million .

DERIVATIVE INSTRUMENTS

2016 CAPS

In the fourth quarter of 2016, we entered into two forward interest rate cap agreements ("2016 Caps"). The 2016 Caps will mature in September and October 2020. The 2016 Caps had notional amounts of $150,000,000 and $350,000,000 , respectively, which were designated at inception as cash flow hedges of future cash interest payments associated with portions of our variable rate bank debt. Under these arrangements, the Company purchased a cap on 3 month LIBOR at 2.0% . We incurred a $5.3 million premium to enter into the 2016 Caps which is being accrued over the life of the agreements.

At inception, we designated our 2016 Caps as cash flow hedges of floating-rate borrowings. In accordance with ASC Topic 815, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. See Fair Value Measurements section below for the fair value of the 2016 Caps at June 30, 2019 .

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A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2016 Caps is as follows (amounts in thousands):



For the three months ended June 30, 2019
Account	April 1, 2019 Balance	Amount of comprehensive loss recognized on derivative		June 30, 2019 Balance		Location
Accumulated Other Comprehensive Income (Loss)	1,310	(2,078	)	(768	)	Liabilities and Equity



For the six months ended June 30, 2019
Account	January 1, 2019 Balance	Amount of comprehensive loss recognized on derivative		June 30, 2019 Balance		Location
Accumulated Other Comprehensive Income (Loss)	2,506	(3,274	)	(768	)	Liabilities and Equity

2019 SWAPS

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 will 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 LIBOR rates at 1.96% for the $100,000,000 notional and at 2.05% 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 interest payments if rates remain above the arranged rates.

At inception, we designated our 2019 SWAPS as cash flow hedges of floating-rate borrowings. In accordance with ASC Topic 815, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. See Fair Value Measurements section below for the fair value of the 2019 SWAPS at June 30, 2019 .

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A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2019 SWAPS is as follows (amounts in thousands):



For the three months ended June 30, 2019
Account	April 1, 2019 Balance	Amount of comprehensive loss recognized on derivative		June 30, 2019 Balance		Location
Accumulated Other Comprehensive Loss	—	(5,924	)	(5,924	)	Liabilities and Equity

FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement:

Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data.

Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment.

Derivatives:

The tables below summarizes the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our consolidated balance sheets, as follows (in thousands):



	As of June 30, 2019
	Level 1		Level 2		Level 3		Total
Current and long term liabilities
2016 Caps - Interest Rate Contracts	$	—	$	547	$	—	$	547
2019 SWAPS - Interest Rate Contracts	$	—	$	8,630	$	—	$	8,630



	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Current assets
2016 Caps - Interest Rate Contracts	$	—	$	3,316	$	—	$	3,316

The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward LIBOR curve. The forward LIBOR curve is readily available in the public markets or can be derived from information available in the public markets.

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Long Term Debt:

The table below summarizes the estimated fair value compared to our face value of our long-term debt as follows (in thousands):



	As of June 30, 2019
	Level 1		Level 2		Level 3		Total Fair Value		Total Face Value
First Lien Term Loans and SunTrust Term Loan	$	—	$	725,299	$	—	$	725,299	$	726,972



	As of December 31, 2018
	Level 1		Level 2		Level 3		Total		Total Face Value
First Lien Term Loans and SunTrust Term Loan	$	—	$	633,229	$	—	$	633,229	$	646,441

As of June 30, 2019 our Barclays revolving credit facility had no balance outstanding while at December 31, 2018 , our Barclays revolving credit facility had a $28.0 million aggregate principal amount outstanding. Our SunTrust revolving credit facility had no principal amount outstanding at June 30, 2019 .

The estimated fair value of our long-term debt, which is discussed in Note 6, was determined using Level 2 inputs primarily related to comparable market prices.

We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment. Additionally, we consider the carrying amount of our capital lease obligations to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates.

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EARNINGS PER SHARE - Earnings per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding, net of common stock held in treasury, as follows (in thousands except share and per share data):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income (loss) attributable to RadNet, Inc.'s common stockholders	$	4,899	$	5,406	$	1,165	$	(1,932	)

BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS
Weighted average number of common shares outstanding during the period	49,702,869		47,969,003		49,490,234		47,896,216
Basic net income (loss) per share attributable to RadNet, Inc.'s common stockholders	$	0.10	$	0.11	$	0.02	$	(0.04	)

DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS
Weighted average number of common shares outstanding during the period	49,702,869		47,969,003		49,490,234		47,896,216
Add nonvested restricted stock subject only to service vesting	134,260		147,868		186,779		—
Add additional shares issuable upon exercise of stock options and warrants	307,411		409,162		311,023		—
Weighted average number of common shares used in calculating diluted net income per share	50,144,540		48,526,033		49,988,036		47,896,216
Diluted net income (loss) per share attributable to RadNet, Inc.'s common stockholders	$	0.10	$	0.11	$	0.02	$	(0.04	)

Stock options excluded from the computation of diluted per share amounts:
Weighted average shares for which the exercise price exceeds average market price of common stock	—		—		—		—

For the six months ended June 30, 2018 we excluded all outstanding options and restricted stock awards in the calculation of diluted earnings per share because their effect would be antidilutive.

EQUITY INVESTMENTS AT FAIR VALUE–Accounting guidance requires entities to measure equity investments at fair value, with any changes in fair value recognized in net income. If there is no readily determinable fair value, the guidance allows entities the ability to measure investments at cost less impairment.

As of June 30, 2019 , we have two 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:

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.

On March 24, 2017, we acquired an initial 12.5% equity interest in Medic Vision for $1.0 million . We also received an option to exercise warrants to acquire up to an additional 12.5% equity interest for $1.4 million within one year from the initial share purchase date, if exercised in full. On March 1, 2018 we exercised our warrant in part and acquired an additional 1.96% for $200,000 . Our initial equity interest has been diluted to 12.25% and our total equity investment stands at 14.21% .

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In accordance with accounting guidance , as we exercise no significant influence over Medic Vision’s operations, the investment is recorded at its cost of $1.2 million , given that the fair value is not readily determinable. No impairment in our investment was identified as of June 30, 2019 .

Turner Imaging:

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 $143,000 that will convert to additional preferred shares no later than December 21, 2019. No impairment in our investment was identified as of June 30, 2019 .

INVESTMENT IN JOINT VENTURES – We have 14 unconsolidated joint ventures with ownership interests ranging from 25% to 55% . These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling financial interest in such ventures. We evaluate our investment in joint ventures, including cost in excess of book value (equity method goodwill) for impairment whenever indicators of impairment exist. No indicators of impairment existed as of June 30, 2019 .

Sale of joint venture interest:

On April 1, 2017, we formed in conjuncture with Cedars Sinai Medical Center (“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 the company, an additional five percent economic interest in SMIG valued at $134,000 . As a result of the transaction, our economic interest in SMIG has been reduced to 35% . We recorded a loss of $2,000 on the transaction.

Joint venture investment and financial information

The following table is a summary of our investment in joint ventures during the six months ended June 30, 2019 (in thousands):



Balance as of December 31, 2018	$	37,973
Equity in earnings in these joint ventures	4,117
Distribution of earnings	(3,438		)
Sale of ownership interest	(134		)
Equity contributions in existing joint ventures	103
Balance as of June 30, 2019	$	38,621

We charged management service fees from the centers underlying these joint ventures of approximately $1.8 million and $3.9 million for the quarters ended June 30, 2019 and 2018 , respectively and $3.9 million and $7.6 million for the six months ended June 30, 2019 and 2018, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures.

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The following table is a summary of key balance sheet data for these joint ventures as of June 30, 2019 and December 31, 2018 and income statement data for the six months ended June 30, 2019 and 2018 (in thousands):



Balance Sheet Data:	June 30, 2019			December 31, 2018
Current assets	$	29,707		$	28,317
Noncurrent assets	67,608			45,912
Current liabilities	(9,038		)	(4,300		)
Noncurrent liabilities	(22,037		)	(4,898		)
Total net assets	$	66,240		$	65,031

Book value of RadNet joint venture interests	$	30,634		$	30,030
Cost in excess of book value of acquired joint venture interests	7,987			7,943
Total value of Radnet joint venture interests	$	38,621		$	37,973

Total book value of other joint venture partner interests	$	35,606		$	35,001



Income statement data for the six months ended June 30,	2019		2018
Net revenue	$	55,624	$	91,559
Net income	$	8,723	$	14,174

NOTE 3 – RECENT ACCOUNTING AND REPORTING STANDARDS

Accounting standards adopted

In February 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-02, Leases (Topic 842) (ASU 2016-02), which amends the existing accounting standards for leases. In September 2017, the FASB issued ASU No. 2017-13 which provides additional clarification and implementation guidance on the previously issued ASU No. 2016-02. Subsequently, in July 2018, the FASB issued ASU No 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Targeted Improvement, to clarify and amend the guidance in ASU No. 2016-02. The amendments in this update were effective for fiscal years (and interim reporting periods within fiscal years) beginning after December 15, 2018, with early adoption permitted for all entities. Under the new guidance, a lessee is required to recognize a lease liability and right-of-use asset for all leases with terms in excess of twelve months. The new guidance also requires additional disclosures to enable users of financial statements to understand the amount, timing, and potential uncertainty of cash flows arising from leases. Consistent with current guidance, a lessee’s recognition, measurement, and presentation of expenses and cash flows arising from a lease will continue to depend primarily on its classification. We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in the consolidated financial statements. We elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. For facility and equipment operating leases, the effect of the adoption amounted to a lease liability of approximately $455.5 million . Operating lease right-of-use assets were recorded in the amount of approximately $419.0 million . Inclusive in the adoption was the transfer of approximately $35.3 million in deferred rent liability and $792,000 in unfavorable rental contract liabilities to operating lease right of use assets. For finance leases, the effect of the adoption amounted to a finance lease liability of approximately $12.1 million , which was transfered from capital lease debt. Equipment leased under the finance arrangements, amounting to $14.1 million , remained in property, plant and equipment. The transition adjustment did not have a material impact on the statement of operations or cash flows. See Note 5, Leases, for more information.

In February 2018, the FASB issued ASU No. 2018-02 (“ASU 2018-02”), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . ASU 2018-02 allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act between “Accumulated other comprehensive income” and “Retained earnings.” This ASU relates to the requirement that adjustments to deferred tax liabilities and assets related to a change in tax laws or rates to be included in “Income from continuing operations”, even in situations where the related items were originally recognized in “Other comprehensive income” (rather than in “Income from continuing operations”). Subsequently, in March 2018, the FASB issued ASU No. 2018-05, Income Taxes, to clarify and amend guidance in ASU 2018-02. ASU 2018-02 and ASU 2018-05 are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption

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permitted. Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax laws or rates were recognized. The adoption had no significant impact on the our results of operations, financial position and cash flows.

In April 2019, the FASB issued ASU 2019-04, ("ASU 2019-04"), Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , which, among other things, clarifies certain hedge accounting guidance. For the year ended 2017, we elected to early adopt ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities , (Topic 815), for which this current ASU 2019-04 amends. For those entities that have already adopted ASU 2017-12, the hedging amendments in ASU 2019-04 are effective as of the beginning of the first annual reporting period beginning after 25 April 2019 and early adoption is permitted. We elected early adoption of ASU 2019-04 and the adoption had no effect on our financial statements.

Accounting standards not yet adopted

In June 2016, the FASB issued ASU No. 2016-13 ("ASU 2016-13), Financial Instruments - Credit Losses. ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard will be effective for us beginning December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this standard on our consolidated financial statements, including accounting policies, processes, and systems.

In August 2018, the FASB issued ASU No. 2018-15 (“ASU 2018-15”), Intangibles-Goodwill and Other-Internal-Use Software. ASU 2018-15 aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective in the first quarter of 2020 with early adoption permitted and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently assessing the impact of the adoption of this ASU on the Company’s results of operations, financial position and cash flows.

NOTE 4 – FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE

Acquisitions

On April 1, 2019 we completed our acquisition of certain assets of Kern Radiology Imaging Systems Inc., consisting of four multi-modality imaging centers located in Bakersfield, California for purchase consideration of $19.3 million . We have made a preliminary fair value determination of the acquired assets and assumed liabilities and approximately $7.6 million in property and equipment, $14.5 million in right-of-use assets, $36,000 in other assets, $500,000 in intangible assets, $14.5 million in operating lease liabilities, and $11.2 million in goodwill were recorded.

On April 1, 2019 we completed our acquisition of certain assets of Zilkha Radiology Inc. consisting of two multi-modality centers located in Islip, New York for purchase consideration of $4.5 million . We have made a fair value determination of the acquired assets and assumed liabilities and approximately $2.2 million in property and equipment, $5.1 million in right-of-use assets, $100,000 in intangible assets, $5.1 million in operating lease liabilities and $2.2 million in goodwill were recorded.

On February 1, 2019 our majority owned subsidiary, West Valley Imaging Group, LLC ("WVIG") completed its acquisition of certain assets of West Valley Imaging Center, LLC ("West Valley"), consisting of a single multi-modality imaging center located in West Hills, CA for purchase consideration of $3.0 million all of which was initially funded by the Company. We have made a preliminary fair value determination of the acquired assets and approximately $300,000 in equipment and fixed assets, $7,000 in other assets, $200,000 in intangible assets and $2.5 million in goodwill were recorded. Subsequent to the transaction, our partner in WVIG, Cedars Sinai Medical Center, contributed $750,000 in cash to maintain its 25% economic interest in the venture.

On February 28, 2019, one of our NY Group entities, Lenox Hill Radiology and Medical Imaging Associates, P.C., purchased the membership interest of Hudson Valley Radiology Associates, P.L.L.C. See Note 1, Nature of Business, for further information.

Joint venture formations

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On February 13, 2019 we formed a wholly owned subsidiary, Ventura County Imaging Group, LLC ("VCIG"). On March 1, 2019, Dignity Health joined as a venture partner. Total agreed contribution of both parties was $10.4 million of cash and assets with RadNet contributing net assets with a book value of $4.3 million for a 60% economic interest and Dignity Health contributing $6.1 million in cash and assets for a 40% economic interest. For its contribution, RadNet transferred net assets of three wholly owned multi-modality imaging centers. Dignity Health contributed approximately $800,000 in assets to acquire 5% economic interest and paid RadNet $5.3 million for an additional 35% economic interest. We maintain controlling economic interest in VCIG and fully consolidate the results into our financial statements.

Assets held for sale:

Effective January 1, 2018 we agreed to sell certain assets of four women’s imaging centers to MemorialCare Medical Foundation. The sale was initially anticipated within 12 months of the effective date, however we extended the date out to 24 months based on a change in business circumstances. The following table summarizes the major categories of assets which remain classified as held for sale in the accompanying condensed consolidated balance sheets at June 30, 2019 :



Property and equipment, net	$	1,049
Goodwill	992
Total assets held for sale	$	2,041

NOTE 5 - LEASES

Adoption of Standard

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms in excess of twelve months. Sufficient disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard was effective for us beginning January 1, 2019. We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in the consolidated financial statements. We also elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. In preparation for adoption of the standard, we have implemented internal control procedures and key system functionality to enable the preparation of financial information.

The adoption of the standard had a material impact on our condensed consolidated balance sheets, but did not have material impact on our condensed consolidated income statements or cash flows. Adoption of the standard resulted in the recognition of an operating lease liability of $455.5 million . Operating lease ROU assets were recorded in the amount of $419.0 million . Inclusive in the adoption was the transfer of $35.3 million in deferred rent liability and $792,000 in unfavorable rental contract liabilities to operating lease ROU assets. For finance leases, the effect of the adoption amounted to a finance lease liability of $12.1 million , which was transfered from capital lease debt and a finance right of use assets in the amount of $14.1 million which remained in property, plant and equipment.

Lease Liability

We have operating leases for medical facilities, administrative offices, warehouse space and major medical equipment. We lease the premises at which these facilities are located and do not have options to purchase the facilities we rent. Our most common initial term varies in length from 5 to 15 years. Including renewal options negotiated with the landlord, we can have a total span of 10 to 35 years at the facilities we lease. We also lease smaller satellite X-Ray locations on mutually renewable terms, usually lasting one year. Additionally, we have operating and finance leases for certain medical and office equipment, with lease terms generally lasting from 5 to 8 years. Our Incremental Borrowing Rate ("IBR") used to discount the stream of lease payments is closely related to the interest rates charged on our collateralized debt obligations and our IBR is adjusted when those rates experience a substantial change.

The components of lease expense were as follows:

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	Three months ended		Six months ended
(In thousands)	June 30, 2019

Operating lease cost	$	24,280	$	47,072

Finance lease cost:
Depreciation of leased equipment	$	785	$	1,567
Interest on lease liabilities	106		229
Total finance lease cost	$	891	$	1,796

Supplemental cash flow information related to leases was as follows:



	Three months ended		Six months ended
(In thousands)	June 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	24,267	$	47,187
Operating cash flows from financing leases	106		229
Financing cash flows from financing leases	1,414		2,936
Right-of-use & Equipment assets obtained in exchange for lease obligations:
Operating leases ⁽¹⁾	33,933		446,628
Financing leases	—		14,056

⁽¹⁾ Amounts for the six months ended June 30, 2019 include the transition adjustment for the adoption of Topic 842 discussed in Note 2, Significant Accounting Policies for further information.

Supplemental balance sheet information related to leases was as follows:

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(In thousands, except lease term and discount rates)
	June 30, 2019

Operating Leases
Operating lease right-of-use assets	$	432,557
Current portion of operating lease liability	$	65,461
Operating lease liabilities	404,463
Total operating lease liabilities	$	469,924

Finance Leases
Property and Equipment, at cost	$	14,056
Accumulated depreciation	(1,567		)
Equipment, net	$	12,489
Current portion of finance lease	$	4,334
Finance lease liabilities	4,851
Total finance lease liabilities	$	9,185

Weighted Average Remaining Lease Term
Operating leases - years	8.6
Finance leases - years	3.4

Weighted Average Discount Rate
Operating leases	6.4		%
Finance leases	4.4		%

Maturities of lease liabilities were as follows:



(In thousands)
	Operating			Financing
Year Ending December 31,	Leases			Leases
2019 (excluding the six months ended June 30, 2019)	$	47,558		$	2,854
2020	89,784			3,481
2021	83,656			2,614
2022	73,751			692
2023	62,634			—
Thereafter	265,997			—
Total Lease Payments	623,380			9,641
Less imputed interest	(153,456		)	(456		)
Total	$	469,924		$	9,185

As of June 30, 2019 , we have additional operating leases for facilities that have not yet commenced of approximately $5.5 million . These operating leases will commence in 2019 with lease terms of 1 to 14 years.

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities of operating lease liabilities were as follows as of December 31, 2018 (in thousands):

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	Facilities		Equipment		Total
2019	$	75,588	$	14,924	$	90,512
2020	66,116		14,385		80,501
2021	57,826		12,966		70,792
2022	48,542		10,264		58,806
2023	38,800		7,095		45,895
Thereafter	160,327		5,144		165,471
	$	447,199	$	64,778	$	511,977

NOTE 6 – CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

As of June 30, 2019 and December 31, 2018 our debt obligations consist of the following (in thousands):




	June 30, 2019			December 31, 2018
First Lien Term Loans collateralized by RadNet's tangible and intangible assets	$	669,222		$	587,191

Discounts on First Lien Term Loans	(15,519		)	(15,112		)

Term Loan Agreement collateralized by NJIN's tangible and intangible assets	57,750			59,250

Revolving Credit Facilities	—			28,000

Promissory note payable to the former owner of a practice acquired at an interest rate of 1.5% due through 2019	—			199

Equipment notes payable at interest rates ranging from 3.3% to 5.6%, due through 2020, collateralized by medical equipment	445			632

Obligations under capital leases at interest rates ranging from 4.3% to 11.2%, due through 2022, collateralized by medical and office equipment ₍₁₎	—			12,119
Total debt obligations	711,898			672,279
Less: current portion	(39,364		)	(39,267		)
Long term portion debt obligations	$	672,534		$	633,012

⁽¹⁾ Obligations under capital leases were transferred to Finance Lease Liability at January 1, 2019 in accordance with the adoption of Accounting Standards Update No 2016-02, Leases (Topic 842) . See Note 5, Leases, for more information.

Senior Secured Credit Facilities

At June 30, 2019 , our Barclays credit facilities were comprised of one tranche of term loans (“First Lien Term Loans”) and a revolving credit facility of $137.5 million (the “Barclays Revolving Credit Facility”), both of which are provided pursuant to the Amended and Restated First Lien Credit and Guaranty Agreement dated as of July 1, 2016 (as amended, the “First Lien Credit Agreement”).

At June 30, 2019 , our SunTrust credit facilities were comprised of one term loan (the "SunTrust Term Loan") and a revolving credit facility of $30.0 million (the "SunTrust Revolving Credit Facility") both of which are provided pursuant to the SunTrust Restated Credit Agreement (as described below).

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As of June 30, 2019 , we were in compliance with all covenants under our credit facilities. Deferred financing costs at June 30, 2019 , net of accumulated amortization, was $1.8 million and is specifically related to our Barclays Revolving Credit Facility.

Included in our condensed consolidated balance sheets at June 30, 2019 are $669.2 million of First Lien Term Loans and $57.8 million of SunTrust Term Loan debt for a combined total of $727.0 million of total term loan debt (net of unamortized discounts of $15.5 million ) in thousands:



	Face Value	Discount		Total Carrying Value
First Lien Term Loans	669,222	(15,519	)	653,703
SunTrust Term Loan	57,750	—		57,750
Total Term Loans	726,972	(15,519	)	711,453

We had a no balance under our $137.5 million Barclays Revolving Credit Facility at June 30, 2019 and have reserved an additional $5.9 million for certain letters of credit. The remaining $131.7 million of our Barclays Revolving Credit Facility was available to draw upon as of June 30, 2019 . We also had no balance under our $30.0 million SunTrust Revolving Credit Facility at June 30, 2019 .

The following describes our financing activities related to our Barclays credit facilities:

2019 Amendments to the First Lien Credit Agreement:

On April 18, 2019 we entered into the following two new amendments to the First Lien Credit Agreement: (i) Amendment No. 6, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement dated as of April 18, 2019 (the “Sixth Amendment”); and (ii) Amendment No. 7 to Credit and Guaranty Agreement dated as of April 18, 2019 (the “Seventh Amendment”).

The Sixth Amendment amended the First Lien Credit Agreement to issue $100.0 million in incremental First Lien Term Loans and to add an additional $20.0 million of revolving commitments to the Barclay's Revolving Credit Facility. Under the First Lien Credit Agreement, we now have approximately $679.0 million in First Lien Term Loans outstanding and capacity to borrow up to $137.5 million under our Barclays Revolving Credit Facility. The proceeds of the incremental First Lien Term Loans have been used to repay revolving loans outstanding under the Revolving Credit Facility and the fees, costs and expenses associated with the Sixth Amendment and the Seventh Amendment. Rates of the applicable margin for borrowing under the First Lien Credit Agreement remain the same as Amendment No. 5 from August 22, 2017 and described below. At June 30, 2019 the effective Adjusted Eurodollar Rate and the Base Rate for the First Lien Term Loans was 2.61% and 5.50% , respectively and the applicable margin for Adjusted Eurodollar Rate and Base Rate borrowings was 3.50% and 2.50% , respectively.

The Seventh Amendment amends the First Lien Credit Agreement to extend the maturity date of the Barclays Revolving Credit Facility by an additional two years to July 1, 2023, unless sooner terminated in accordance with the terms of the First Lien Credit Agreement.

The First Lien Credit Agreement, as amended by the Sixth Amendment, provides for quarterly payments of principal under the First Lien Term Loans in the amount of approximately $9.7 million , as compared to approximately $8.3 million under the First Lien Credit Agreement prior to the Sixth Amendment. Total issue costs for the Sixth Amendment aggregated to approximately $4.4 million . Of this amount, $2.1 million was identified and capitalized as discount on debt, $683,000 was capitalized as deferred financing costs, and $1.6 million was expensed. Amounts capitalized will be amortized over the remaining term of the agreement.

Amendment No. 5, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement

On August 22, 2017, we entered into Amendment No. 5, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the “Fifth Amendment”) with respect to our First Lien Credit Agreement. Pursuant to the Fifth Amendment, we issued $170.0 million in incremental First Lien Term Loans, the proceeds of which were used to repay in full previously outstanding second lien term loans.

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Pursuant to the Fifth Amendment, we also changed the interest rate margin applicable to borrowings under the First Lien Credit Agreement. While borrowings under the First Lien Credit Agreement continue to bear interest at either an Adjusted Eurodollar Rate or a Base Rate (in each case, as more fully defined in the First Lien Credit Agreement) or a combination of both, at the election of the Company, plus an applicable margin. Applicable margin for Adjusted Eurodollar Rate borrowings and Base Rate borrowings was changed to adjust depending on our leverage ratio, according to the following schedule:



First Lien Leverage Ratio	Eurodollar Rate Spread	Base Rate Spread
> 5.50x	4.50%	3.50%
> 4.00x but ≤ 5.50x	3.75%	2.75%
>3.50x but ≤ 4.00x	3.50%	2.50%
≤ 3.50x	3.25%	2.25%

Pursuant to the Fifth Amendment, the First Lien Credit Agreement was amended so that we can elect to request 1) an increase to the existing Barclays Revolving Credit Facility and/or 2) additional First Lien Term Loans, provided that the aggregate amount of such increases and additions does not exceed (a) $100.0 million and (b) as long as the First Lien Leverage Ratio (as defined in the First Lien Credit Agreement) would not exceed 4.00 :1.00 after giving effect to such incremental facilities, an uncapped amount of incremental facilities, in each case subject to the conditions and limitations set forth in the First Lien Credit Agreement. Each lender approached to provide all or a portion of any incremental facility may elect or decline, in its sole discretion, to provide an incremental commitment or loan.

Pursuant to the Fifth Amendment, the First Lien Credit Agreement was also amended to (i) provide for quarterly payments of principal of the First Lien Term Loans in the amount of approximately $8.3 million , as compared to approximately $6.1 million prior to the Fifth Amendment, (ii) extend the call protection provided to the holders of the First Lien Term Loans for a period of twelve months following the date of the Fifth Amendment and (iii) provide us with additional operating flexibility, including the ability to incur certain additional debt and to make certain additional restricted payments, investments and dispositions, in each case as more fully set forth in the Fifth Amendment. Total issue costs for the Fifth Amendment aggregated to approximately $4.7 million . Of this amount, $4.1 million was identified and capitalized as discount on debt, $350,000 was capitalized as deferred financing costs and the remaining $235,000 was expensed. Amounts capitalized will be amortized over the remaining term of the agreement.

Barclays Revolving Credit Facility: The First Lien Credit Agreement provides for a $117.5 million Barclays revolving credit facility. Revolving loans borrowed under the Barclays Revolving Credit Facility bear interest at either an Adjusted Eurodollar Rate or a Base Rate (in each case, as more fully defined in the First Lien Credit Agreement), plus an applicable margin. Pursuant to the Fifth Amendment, the applicable margin was amended to vary based on our leverage ratio in accordance with the following schedule:



First Lien Leverage Ratio	Eurodollar Rate Spread	Base Rate Spread
> 5.50x	4.50%	3.50%
> 4.00x but ≤ 5.50x	3.75%	2.75%
>3.50x but ≤ 4.00x	3.50%	2.50%
≤ 3.50x	3.25%	2.25%

For letters of credit issued under the Barclays Revolving Credit Facility, letter of credit fees accrue at the applicable margin (see table above) for Adjusted Eurodollar Rate revolving loans and fronting fees accrue at 0.25% per annum, in each case on the average aggregate daily maximum amount available to be drawn under all letters of credit issued under the First Lien Credit Agreement. In addition a commitment fee of 0.5% per annum accrues on the unused revolver commitments under the Barclays Revolving Credit Facility.

As of June 30, 2019 , the interest rate payable on revolving loans was 8.00% . With no amounts outstanding and a reserve for letters of credit of $5.9 million as of June 30, 2019 , the amount available to borrow under the Barclays Revolving Credit Facility at June 30, 2019 was $131.7 million .

The Barclays Revolving Credit Facility will terminate on the earliest to occur of (i) July 1, 2021 , (ii) the date we voluntarily agree to permanently reduce the Barclays Revolving Credit Facility to zero pursuant to section 2.13(b) of the First Lien Credit Agreement, and (iii) the date the Barclays Revolving Credit Facility is terminated due to specific events of default pursuant to section 8.01 of the First Lien Credit Agreement.

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The following describes our financing activities with respect to our SunTrust credit facilities:

Amended and Restated Revolving Credit and Term Loan Agreement

On August 31, 2018, our subsidiary, New Jersey Imaging Networks ("NJIN"), entered into the Amended and Restated Revolving Credit and Term Loan Agreement (as amended, the "SunTrust Restated Credit Agreement) as borrower with SunTrust Bank and other financial institutions as lenders to restate the SunTrust Original Credit Agreement (as described below) and to provide NJIN additional aggregate credit facilities of $48.1 million as categorized below:

SunTrust Revolving Credit Facility: The SunTrust Restated Credit Agreement establishes a $30.0 million revolving credit facility available to NJIN for funding requirements. This represents an increase of $20.0 million over the revolving facility of $ 10.0 million made available to NJIN under the SunTrust Original Credit Agreement. The SunTrust Revolving Credit Facility terminates on the earliest of (i) August 31, 2023, (ii) the voluntary termination thereof by NJIN pursuant to Section 2.8 of the SunTrust Restated Credit Agreement, or (iii) the date on which all amounts outstanding under the SunTrust Restated Credit Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise). NJIN has not borrowed against the revolving credit line.

SunTrust Term Loan: Pursuant to the SunTrust Restated Credit Agreement, the lenders thereunder made a term loan to NJIN in the amount of $60.0 million . This represents an increase of $28.1 million over the outstanding amount of the term loan under the SunTrust Original Credit Agreement and extends the term of the loan from September 30, 2020 to August 31, 2023. The SunTrust Term Loan is repayable in scheduled quarterly amounts (as described below) and has a maturity date of the earlier of (a) August 31, 2023 and (b) the date on which the principal amount of the SunTrust Term Loan has been declared or automatically has become due and payable (whether by acceleration or otherwise).

Interest: For the period from August 31, 2018, through the date NJIN delivered its financial statements and compliance certificate for the fiscal quarter ending September 30, 2018, the interest rates and fees applicable to the SunTrust Revolving Credit Facility and the SunTrust Term Loan were (i) for Eurodollar Loans (as defined in the SunTrust Restated Credit Agreement), the Adjusted LIBOR (as defined in the SunTrust Restated Credit Agreement) plus 2.75% per annum, (ii) for Base Rate Loans (as defined in the SunTrust Restated Credit Agreement), the Base Rate (as defined in the SunTrust Restated Credit Agreement) plus 1.75% per annum, (iii) for letters of credit, 2.75% per annum, and (iv) for the unused commitment fee on the SunTrust Revolving Credit Facility, 0.45% per annum. Thereafter, the rates of the applicable margin for borrowing under the SunTrust Restated Credit Agreement will adjust depending on our leverage ratio, according to the following table:



Pricing Level	Leverage Ratio	Applicable Margin for Eurodollar Loans	Applicable Margin for Base Rate Loans	Applicable Margin for Letter of Credit Fees	Applicable Percentage for Commitment Fee
I	Greater than or equal to 3.00:1.00	2.75% per annum	1.75% per annum	2.75% per annum	0.45% per annum
II	Less than 3.00:1.00 but greater than or equal to 2.50:1.00	2.25% per annum	1.25% per annum	2.25% per annum	0.40% per annum
III	Less than 2.50:1.00 but greater than or equal to 2.00:1.00	2.00% per annum	1.00% per annum	2.00% per annum	0.35% per annum
IV	Less than 2.00:1.00 but greater than or equal to 1.50:1.00	1.75% per annum	0.75% per annum	1.75% per annum	0.30% per annum
V	Less than 1.50:1.00	1.50% per annum	0.50% per annum	1.50% per annum	0.30% per annum

The loans and other obligations outstanding under the SunTrust Restated Credit Agreement currently bear interest and fees based on Pricing Level I described above.The loans outstanding under the SunTrust Restated Credit Agreement currently bear interest based on a one month Eurodollar election.

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Payments: The scheduled amortization of the SunTrust Term Loan began December 31, 2018 with quarterly payments of $750,000 , representing annual amortization equal to 5% of the original principal amount of the SunTrust Term Loan. At scheduled intervals, the quarterly amortization increases by $375,000 , with the remaining balance to be paid at maturity.

Revolving Credit and Term Loan Agreement

On September 30, 2015, NJIN entered into the Revolving Credit and Term Loan Agreement (the "SunTrust Original Credit Agreement") as borrower with SunTrust Bank and other financial institutions as lenders, pursuant to which the lenders made available to NJIN credit facilities in an aggregate amount of $50.0 million as categorized below:

Original Revolving Credit Facility: The SunTrust Original Credit Agreement established a $10.0 million revolving credit facility available to NJIN for needed funding requirements. The Original Revolving Credit Facility terminated on the earliest of (i) September 30, 2020, (ii) the voluntary termination thereof by NJIN pursuant to Section 2.8 of the SunTrust Original Credit Agreement, or (iii) the date on which all amounts outstanding under the SunTrust Original Credit Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise).

Original Term Loan: Pursuant to the SunTrust Original Credit Agreement, the lenders thereunder made a term loan to NJIN in the amount of $40.0 million . The Original Term Loan was repayable in scheduled quarterly amounts (as described below) and had a maturity date of the earlier of (a) September 30, 2020 and (b) the date on which the principal amount of the Original Term Loan has been declared or automatically has become due and payable (whether by acceleration or otherwise).

Interest: For the period from September 30, 2015, through the date NJIN delivered its financial statements and compliance certificate for the fiscal quarter ending December 31, 2015, the interest rates and fees applicable to the SunTrust Original Credit Agreement were (i) for Eurodollar Loans (as defined in the SunTrust Original Credit Agreement), the Adjusted LIBOR (as defined in the SunTrust Original Credit Agreement) plus 3.00% per annum, (ii) for Base Rate Loans (as defined in the SunTrust Original Credit Agreement), the Base Rate (as defined in the SunTrust Original Credit Agreement) plus 2.00% per annum, (iii) for letters of credit, 3.00% per annum, and (iv) for the unused commitment fee on the Original Revolving Credit Facility, 0.45% per annum. Thereafter, the rates of the applicable margin for borrowing under the SunTrust Original Credit Agreement adjusted depending on our leverage ratio, according to the following table:



Pricing Level	Leverage Ratio	Applicable Margin for Eurodollar Loans	Applicable Margin for Base Rate Loans	Applicable Margin for Letter of Credit Fees	Applicable Percentage for Commitment Fee
I	Greater than or equal to 3.00:1.00	3.00% per annum	2.00% per annum	3.00% per annum	0.45% per annum
II	Less than 3.00:1.00 but greater than or equal to 2.50:1.00	2.50% per annum	1.50% per annum	2.50% per annum	0.40% per annum
III	Less than 2.50:1.00 but greater than or equal to 2.00:1.00	2.25% per annum	1.25% per annum	2.25% per annum	0.35% per annum
IV	Less than 2.00:1.00 but greater than or equal to 1.50:1.00	2.00% per annum	1.00% per annum	2.00% per annum	0.30% per annum
V	Less than 1.50:1.00	1.75% per annum	0.75% per annum	1.75% per annum	0.30% per annum

Payments: The scheduled amortization of the term loans under the SunTrust Original Credit Agreement began December 31, 2015 with quarterly payments of $500,000 , representing annual amortization equal to 5% of the original principal amount of the term loans under the SunTrust Original Credit Agreement. Each December 31, the scheduled quarterly amortization increased by a certain amount, with the remaining balance to be paid at maturity.

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NOTE 7 – STOCK-BASED COMPENSATION

Stock Incentive Plans

We have one long-term equity incentive plan which we refer to as the 2006 Equity Incentive Plan, which we first amended and restated as of April 20, 2015 and again on March 9, 2017 (the "Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017. We have reserved for issuance under the Restated Plan 14,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan.

Options

Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options generally vest over 3 to 5 years and expire 5 to 10 years from the date of grant.

As of June 30, 2019 , we had outstanding options to acquire 481,451 shares of our common stock, of which options to acquire 129,290 shares were exercisable. The following summarizes all of our option transactions for the six months ended June 30, 2019 :



Outstanding Options Under the 2006 Plan	Shares		Weighted Average Exercise price Per Common Share		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Balance,December 31, 2018	513,282		$	7.44
Granted	89,200		10.93
Exercised	(10,000	)	4.97
Canceled, forfeited or expired	(111,031	)	0.79
Balance, June 30, 2019	481,451		8.22		7.81	$	2,682,017
Exercisable at June 30, 2019	129,290		6.66		6.82	921,961

Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on June 30, 2019 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on June 30, 2019 . Options exercised amounted to 10,000 shares during the six months ended June 30, 2019 . As of June 30, 2019 , total unrecognized stock-based compensation expense related to non-vested employee awards was $985,000 which is expected to be recognized over a weighted average period of approximately 1.9 years .

Restricted Stock Awards (“RSA’s”)

The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of June 30, 2019 , we have issued a total of 6,089,276 RSA’s of which 389,684 were unvested at June 30, 2019 . The following summarizes all unvested RSA’s activities during the six months ended June 30, 2019 :



	RSA's		Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Fair Value
RSA's unvested at December 31, 2018	277,504			$	9.77
Changes during the period
Granted	631,656			$	11.76
Vested	(517,976	)		$	9.66
Forfeited or Cancelled	(1,500	)		$	12.76
RSA's unvested at June 30, 2019	389,684		1.97	$	11.55

We determine the fair value of all RSA’s based on the closing price of our common stock on award date.

Other stock bonus awards

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The Restated Plan also permits the award of stock bonuses not subject to any future service period. These awards are valued and expensed based on the closing price of our common stock on the date of award. During the six months ended June 30, 2019 awards totaling 1,600 shares were granted.

Plan summary

In summary, of the 14,000,000 shares of common stock reserved for issuance under the Restated Plan, at June 30, 2019 , we had issued 14,781,694 total shares between options, RSA’s and other stock awards. With options canceled and RSA’s forfeited amounting to 3,281,040 and 61,703 shares, respectively, there remain 2,561,049 shares available under the Restated Plan for future issuance.

NOTE 8 – SUBSEQUENT EVENTS

Acquisitions:

On August 1, 2019 our subsidiary New Jersey Imaging Networks completed its acquisition of certain assets of Garden State Radiology Network, LLC., consisting of 2 multi-modality imaging centers located in southwest New Jersey for purchase consideration of $2.7 million .

On August 1, 2019 we acquired through a stock purchase a 100% controlling interest in Nulogix, Inc, one of our non-consolidated joint ventures in which we previously held a 25% non-consolidated equity investment. We issued RadNet common stock shares valued at $1.5 million to complete the transaction.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2018 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the U.S. Securities and Exchange Commission (SEC) on March 18, 2019.

Forward-Looking Statements

This quarterly report on Form 10-Q 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. Statements in this quarterly report concerning our ability to successfully acquire and integrate new operations, to grow our contract management business, our financial guidance, our future cost saving efforts, our ability to increase business from new equipment or operations and our ability to finance our operations and repay our outstanding indebtedness, are forward-looking statements.

Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2018 or 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.

These forward-looking statements speak only as of the date when they are made. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Overview

We are a leading national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States based on number of locations and annual imaging revenue. At June 30, 2019 , we operated directly or indirectly through joint

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ventures with hospitals, 340 centers located in 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.

Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. Our operations compose a single segment for financial reporting purposes.

We seek to develop leading positions in regional markets in order to leverage operational efficiencies. Our scale and density within selected geographies provides close, long-term relationships with key payors, radiology groups and referring physicians. Each of our facility managers is responsible for managing relationships with local physicians and payors, meeting our standards of patient service and maintaining profitability. We provide corporate training programs, standardized policies and procedures and sharing of best practices among the physicians in our regional networks.

We derive substantially all of our revenue, directly or indirectly, from fees charged for the diagnostic imaging services performed at our facilities. The following table shows our facilities in operation and revenues for the six months ended June 30, 2019 and June 30, 2018 :



	Six Months Ended June 30,
	2019		2018
Facilities in operation	340		304
Net revenues (millions)	$	560.6	$	475.8

Our revenue is derived from a diverse mix of payors, including private payors, managed care capitated payors and government payors. We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class. In addition, our experience with capitation arrangements over the last several years has provided us with the expertise to manage utilization and pricing effectively, resulting in a predictable stream of revenue. The Company’s total net revenues during the three and six months ended June 30, 2019 and 2018 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Commercial insurance	$	160,185	$	135,479	$	311,899	$	261,751
Medicare	60,151		49,079		114,280		93,107
Medicaid	7,295		6,760		14,423		12,800
Workers' compensation/personal injury	11,014		8,450		22,062		16,906
Other patient revenue	6,017		6,521		11,858		12,112
Management fee revenue	1,753		3,945		3,870		7,621
Teleradiology and Software revenue	4,063		4,000		8,449		7,816
Other	7,693		5,182		14,003		11,471
Net service fee revenue	258,171		219,416		500,844		423,584
Revenue under capitation arrangements	30,926		24,979		59,803		52,203
Total net revenue	$	289,097	$	244,395	$	560,647	$	475,787

We typically experience some seasonality to our business. During the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year. This is primarily the result of two factors. First, our volumes and revenue are typically impacted by winter weather conditions in our northeastern operations. It is common for snowstorms and other inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures. Second, in recent years, we have observed greater participation in high deductible health plans by patients. As these high deductibles reset in January for most of these patients, we have observed that patients utilize medical services less during the first quarter, when securing medical care will result in significant out-of-pocket expenditures.

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During the first quarter of 2018, unusually severe winter weather conditions in our northeastern and mid-Atlantic operations, which represent slightly over 50% of our total revenue, impacted significantly our operating results, and consequently our results for the six months ended June 30, 2018 . Based on our experience we do not believe that lost imaging slots in one quarter are made up later in the quarter or in subsequent quarters.

Investment, Acquisition, and Joint Venture Activity

We have developed our medical imaging business through a combination of organic growth, equity investments, acquisitions and joint venture formations. The information below updates our activity of such matters contained in our annual report on Form 10-K for the year ended December 31, 2018.

Equity Investments

Medic Vision:

On March 24, 2017, we acquired an initial 12.5% equity interest in Medic Vision Imaging Solutions Ltd for $1.0 million . We also received an option to exercise warrants to acquire up to an additional 12.5% equity interest for $1.4 million within one year from the initial share purchase date, if exercised in full. On March 1, 2018 we exercised our warrant in part and acquired an additional 1.96% for $200,000 . Our initial equity interest has been diluted to 12.25% and our total equity investment stands at 14.21% . No impairment in our investment was identified as of the six months ended June 30, 2019 .

Turner Imaging:

Facility acquisitions

On February 1, 2019 our majority owned subsidiary, West Valley Imaging Group, LLC ("WVIG") completed its acquisition of certain assets of West Valley Imaging Center, LLC ("West Valley"), consisting of a single multi-modality imaging center located in West Hills, CA for purchase consideration of $3.0 million which was initially funded by the Company. We have made a fair value determination of the acquired assets and approximately $300,000 in equipment and fixed assets, $7,000 in other assets, $200,000 in intangible assets and $2.5 million in goodwill were recorded. Subsequent to the transaction, our partner in WVIG, Cedars Sinai Medical Center, contributed $750,000 in cash to maintain its 25% economic interest in the venture.

Joint venture formations

On February 13, 2019 we formed a wholly owned subsidiary, Ventura County Imaging Group, LLC ("VCIG"). On March 1, 2019, Dignity Health joined as a venture partner. Total agreed contribution of both parties was $10.4 million of cash and assets with RadNet contributing $4.3 million in assets for a 60% economic interest and Dignity Health contributing $6.1 million in cash and assets for a 40% economic interest. For its contribution, RadNet transferred net assets of three wholly owned multi-modality imaging centers. Dignity Health contributed approximately $800,000 in assets to acquire 5% economic interest and paid RadNet $5.3 million for an additional 35% economic interest. RadNet maintains controlling economic interest in VCIG and fully consolidates the results into our financial statements.

Sale of joint venture interest

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Joint venture investment and financial information

The following table is a summary of our investment in joint ventures during the six months ended June 30, 2019 (in thousands):



Balance as of December 31, 2018	$	37,973
Equity in earnings in these joint ventures	4,117
Distribution of earnings	(3,438		)
Sale of ownership interest	(134		)
Equity contributions in existing joint ventures	103
Balance as of June 30, 2019	$	38,621

The following table is a summary of key balance sheet data for these joint ventures as of June 30, 2019 and December 31, 2018 and income statement data for the three months ended June 30, 2019 and 2018 (in thousands):



Balance Sheet Data:	June 30, 2019			December 31, 2018
Current assets	$	29,707		$	28,317
Noncurrent assets	67,608			45,912
Current liabilities	(9,038		)	(4,300		)
Noncurrent liabilities	(22,037		)	(4,898		)
Total net assets	$	66,240		$	65,031

Book value of RadNet joint venture interests	$	30,634		$	30,030
Cost in excess of book value of acquired joint venture interests	7,987			7,943
Total value of Radnet joint venture interests	$	38,621		$	37,973

Total book value of other joint venture partner interests	$	35,606		$	35,001



Income statement data for the six months ended June 30,	2019		2018
Net revenue	$	55,624	$	91,559
Net income	$	8,723	$	14,174

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, 2018 , we discuss our significant accounting policies, including those that

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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.

Revenues

Our revenues generally relate to net patient fees received from various payers 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 payer (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 payers. The payment arrangements with third-party payers 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 and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

Deferred Financing Costs

Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $1.8 million and $1.4 million , as of June 30, 2019 and December 31, 2018 , respectively and related to our line of credit. See Note 6, Revolving Credit Facility, Notes Payable and Capital Lease Obligations for more information.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years. Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred.

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.

Depreciation and Amortization of Long-Lived Assets

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We depreciate our long-lived assets over their estimated economic useful lives with the exception of leasehold improvements where we use the shorter of the assets useful lives or the lease term of the facility for which these assets are associated. We estimate the economic useful lives of assets, other than leasehold improvements, to be between 3 and 15 years depending on the type of asset.

Income Taxes

Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income, including tax planning strategies, in determining whether our net deferred tax assets are more likely than not to be realized.

Goodwill and Indefinite Lived Intangibles

Goodwill at June 30, 2019 totaled $437.9 million . Indefinite Lived Intangible Assets at June 30, 2019 were $10.2 million and are associated with the value of certain trade name intangibles. Goodwill and trade name intangibles 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 and should not exceed the total amount of goodwill allocated to that reporting unit. We tested goodwill for impairment on October 1, 2018. During the review we noted our Teleradiology unit, Imaging On Call, (IOC), experienced a reduction of professional medical group clients and a contract with a major local health provider during 2018. This affected its estimated fair value and resulted in impairment charges to our the reporting unit of $3.9 million for the twelve months ended December 31, 2018 , with goodwill representing $3.8 million of the total and the remainder being its trade name of approximately $100,000. We have not identified any indicators of impairment through June 30, 2019 .

Long-Lived Assets

We evaluate our long-lived assets (property and equipment) and intangibles, other than goodwill, for impairment whenever indicators of impairment exist. To evaluate the long-lived assets our management estimates the undiscounted future cash flows expected to be derived from the asset. The accounting standards require that if the sum of the undiscounted expected future cash flows from a long-lived asset or definite-lived intangible is less than the carrying value of that asset, an asset impairment charge must be recognized. The amount of the impairment charge is calculated as the excess of the asset’s carrying value over its fair value, which generally represents the discounted future cash flows from that asset or in the case of assets we expect to sell, at fair value less costs to sell. No indicators of impairment were identified with respect to our long-lived assets as of June 30, 2019 .

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our consolidated balance sheets. Finance leases are included in property and equipment, current finance lease liability, and long-term finance lease liability in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. See Note 5, Leases, for more information.

Equity Based Compensation

We have one long-term incentive plan that we adopted in 2006 and which we first amended and restated as of April 20, 2015, and again on March 9, 2017 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017. We have reserved for issuance under the Restated Plan 14,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan. Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations.

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Stock options and warrants generally vest over three to five years and expire five to ten years from date of grant. The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. See Note 7 Stock-Based Compensation for more information.

Commitments and Contingencies

We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. We believe that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.

Recent Accounting Standards

See Note 3, Recent Accounting and Reporting Standards, for further information.

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Results of Operations

The following table sets forth, for the three and six months ended June 30, 2019 and 2018 , the percentage that certain items in the statements of operations bears to total revenue, inclusive of revenue under capitation contracts.

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
REVENUE
Service fee revenue	89.3	%	89.8	%	89.3	%	89.0	%
Revenue under capitation arrangements	10.7	%	10.2	%	10.7	%	11.0	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%
OPERATING EXPENSES
Cost of operations, excluding depreciation and amortization	85.3	%	85.9	%	87.3	%	89.5	%
Depreciation and amortization	6.9	%	7.4	%	7.1	%	7.6	%
Loss (gain) on sale and disposal of equipment	—	%	—	%	0.2	%	(0.4	)%
Severance costs	0.1	%	0.1	%	0.2	%	0.2	%
Total operating expenses	92.4	%	93.5	%	94.8	%	96.9	%

INCOME FROM OPERATIONS	7.6	%	6.5	%	5.2	%	3.1	%

OTHER INCOME AND EXPENSES
Interest expense	4.3	%	4.4	%	4.4	%	4.3	%
Equity in earnings of joint ventures	(0.8	)%	(1.5	)%	(0.7	)%	(1.4	)%
Other (income) expenses	0.4	%	—	%	0.2	%	—	%
Total other expenses	4.0	%	2.8	%	3.9	%	2.9	%
INCOME BEFORE INCOME TAXES	3.7	%	3.7	%	1.3	%	0.2	%
Provision for income taxes	(1.0	)%	(1.0	)%	(0.3	)%	—	%
NET INCOME	2.6	%	2.6	%	1.0	%	0.2	%
Net income attributable to noncontrolling interests	0.9	%	0.4	%	0.8	%	0.6	%
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	1.7	%	2.2	%	0.2	%	(0.4	)%

We grow through a combination of organic growth as well as acquisitions and joint ventures. 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 June 30, 2019 and 2018 for our operations at a total company and same center level. Same centers are those centers that have been in continuous operation since April 1, 2018.

Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

Total Revenue

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In Thousands	Three Months Ended June 30,
Revenue	2019	2018	$ Increase/(Decrease)	% Change
Total Revenue	$289,097	$244,395	$44,702	18.3%
Same Center Revenue	$244,478	$239,504	$4,975	2.1%

The rise in same center revenue mainly resulted from increased MRI and CT procedure volumes which have higher reimbursement rates combined with increased capitation revenue over the same period last year. This comparison excludes revenue contributions from centers that were acquired or divested subsequent to April 1, 2018. For the three months ended June 30, 2019 , net service fee revenue from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $44.6 million . For the three months ended June 30, 2018 , net service fee revenue from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $4.9 million .

Operating Expenses

Total operating expenses for the three months ended June 30, 2019 increased approximately $38.6 million , or 16.9% , from $228.5 million for the three months ended June 30, 2018 to $267.1 million for the three months ended June 30, 2019 . The following table sets forth our cost of operations and total operating expenses for the three months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,
	2019		2018
Salaries and professional reading fees, excluding stock-based compensation	$	156,441	$	135,280
Stock-based compensation	1,044		1,146
Building and equipment rental	26,994		22,047
Medical supplies	11,562		8,249
Other operating expenses *	50,517		43,333
Cost of operations	246,558		210,055

Depreciation and amortization	20,083		18,086
Loss (gain) on sale and disposal of equipment	101		105
Severance costs	371		279
Total operating expenses	$	267,113	$	228,525

* 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	Three Months Ended June 30,
Salaries and Professional Fees	2019	2018	$ Increase/(Decrease)	% Change
Total Salaries	$156,441	$135,280	$21,161	15.6%
Same Center Salaries	$136,022	$132,263	$3,759	2.8%

Of the total rise in same center salaries and professional fees of 2.8%, 1.8% of the increase was precipitated by higher physician cost due to greater procedure volume and the remainder related to added personnel and existing employee wage and benefit increases in support of operations. This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2018. For the three months ended June 30, 2019 , salaries and professional reading fees from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $20.4 million . For the three months ended June 30, 2018 , salaries and professional reading fees from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was approximately $3.0 million .

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Stock-based compensation

Stock-based compensation decreased $101,200 , or 8.8% to approximately $1.0 million for the three months ended June 30, 2019 compared to $1.1 million for three months ended June 30, 2018 . This decrease was driven by the lower fair value of RSA’s awarded and vested in the second quarter of 2019 as compared to RSA’s awarded and vested in the prior year’s second quarter.

Building and equipment rental



In Thousands	Three Months Ended June 30,
Building & Equipment Rental	2019	2018	$ Increase/(Decrease)	% Change
Total	$26,994	$22,047	$4,947	22.4%
Same Center	$22,575	$20,957	$1,618	7.7%

The increase in same center building and equipment rental expenses was related to a combination of new imaging center and radiology equipment leases to meet market demand and improve patient care. This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2018. For the three months ended June 30, 2019 , building and equipment rental expenses from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $4.4 million . For the three months ended June 30, 2018 , building and equipment rental expenses from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was approximately $1.1 million .

Medical supplies



In Thousands	Three Months Ended June 30,
Medical Supplies Expense	2019	2018	$ Increase/(Decrease)	% Change
Total	$11,562	$8,249	$3,313	40.2%
Same Center	$9,414	$7,871	$1,542	19.6%

Same center medical supplies increases were attributable to increased procedure volumes for the period combined with higher-cost contracting agents that are employed in advanced imaging modalities. This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2018. For the three months ended June 30, 2019 , medical supplies expenses from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $2.1 million . For the three months ended June 30, 2018 , medical supplies expense from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $377,800 .

Other operating expenses



In Thousands	Three Months Ended June 30,
Other Operating Expenses	2019	2018	$ Increase/(Decrease)	% Change
Total	$50,517	$43,333	$7,184	16.6%
Same Center	$41,752	$42,391	$(640)	(1.5)%

This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2018. For the three months ended June 30, 2019 , other operating expense from centers that were acquired or divested subsequent January 1, 2018 and excluded from the above comparison was $8.8 million . For the three months ended June 30, 2018 , other operating expense from centers that were acquired or divested subsequent to April 1, 2018 was $0.9 million .

Depreciation and amortization

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In Thousands	Three Months Ended June 30,
Depreciation & Amortization	2019	2018	$ Increase/(Decrease)	% Change
Total	$20,083	$18,086	$1,997	11.0%
Same Center	$16,212	$17,625	$(1,413)	(8.0)%

The decrease in same center depreciation and amortization is primarily due to several of our assets completing their depreciation schedules subsequent to the end of the first quarter of 2019. This comparison excludes expenses from centers that were acquired or divested subsequent to April 1, 2019. For the three months ended June 30, 2019 , depreciation expense from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $3.9 million . For the three months ended June 30, 2018 , depreciation and amortization from centers that were acquired or divested subsequent to April 1, 2018 and excluded from the above comparison was $461,500 .

Gain on sale and disposal of equipment

We recorded a loss on the disposal of equipment of approximately $101,000 for the three months ended June 30, 2019 and approximately $104,700 for the three months ended June 30, 2018 .

Other Income/Expenses

We incurred other expenses of $1.3 million for the three months ended June 30, 2019 due to debt restructuring and legal charges.

Severance Costs

We incurred severance expenses of $371,200 for the three months ended June 30, 2019 and $278,900 for the three months ended June 30, 2018 .

Other Income/Expenses

We incurred other expenses of $1.3 million for the three months ended June 30, 2019 due to expenses in amending our term loan debt and legal contingency charges.

Interest expense



In Thousands	Three Months Ended June 30,
Interest Expense	2019	2018	$ Increase/(Decrease)	% Change
Total Interest Expense	$12,399	$10,641	$1,758	16.5%
Non Cash Interest*	$1,109	$976	$133	13.6%
Adjusted Interest Expense	$11,290	$9,665	$1,625	16.8%

*Includes combined non cash amortization of deferred loan costs, discount on issuance of debt and incidental financing charges.

Excluding the non cash interest amounts for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 , interest expense increased $1.6 million , or 16.8% . The main drivers behind the increase were the interest payments on assumed debt of the New Jersey Imaging Network and the additional term loan debt stemming from the Sixth Amendment to the First Lien Term Loan. See “Liquidity and Capital Resources” below for more details on our credit facilities.

Equity in earnings from unconsolidated joint ventures

For the three months ended June 30, 2019 we recognized equity in earnings from unconsolidated joint ventures in the amount of $2.2 million and for three months ended June 30, 2018 we recognized equity in earnings from unconsolidated joint ventures of $3.7 million , a decrease of $1.5 million or 40.1% . The decrease was a result of the New Jersey Imaging Networks becoming a fully consolidated entity in October of 2018.

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Provision for income taxes

We recorded an income tax expense of $3.0 million , or an effective tax rate of 28.1% , for three months ended June 30, 2019 compared to income tax expense for the three months ended June 30, 2018 of $2.5 million , or an effective tax rate of 27.9% . The income tax rates for the three months ended June 30, 2019 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; (iii) excess tax benefits attributable to share-based compensation; and adjustment associated with uncertain tax positions.

The discussion below shows a breakdown and analysis of revenue and expenses for the six months ended June 30, 2019 and 2018 for our operations at a total company and same center level. Same centers are those centers that have been in continuous operation since January 1, 2018.

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

Total Net Revenue



In Thousands	Six Months Ended June 30,
	2019	2018	$ Increase/(Decrease)	% Change
Total Revenue	$560,646	$475,787	$84,860	17.8%
Same Center Revenue	$475,375	$464,075	$11,300	2.4%

Higher revenue experienced for the period resulted from increased procedure volume of advanced radiology modalities, improvement of equipment utilization and increased capitation revenue over the same period last year. We benefited from better weather in the first quarter of 2019, compared to 2018 where inclement weather impacted our procedure volumes. This comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2018. For the six months ended June 30, 2019 , total net revenue from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $85.3 million . For the six months ended June 30, 2018 , revenue under capitation arrangements from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $11.7 million .

Operating Expenses

Cost of operations for the six months ended June 30, 2019 increased approximately $70.6 million , or 15.3% , from $460.8 million for the six months ended June 30, 2018 to $531.4 million for the six months ended June 30, 2019 . The following table sets forth our cost of operations and total operating expenses for the six months ended June 30, 2019 and 2018 (in thousands):



	Six Months Ended June 30,
	2019		2018
Salaries and professional reading fees, excluding stock-based compensation	$	311,036	$	270,266
Stock-based compensation	5,583		4,890
Building and equipment rental	52,260		43,231
Medical supplies	21,400		17,783
Other operating expenses *	99,336		89,519
Cost of operations	489,615		425,689

Depreciation and amortization	39,704		35,942
Loss (gain) on sale and disposal of equipment	1,072		(1,831		)
Severance costs	1,002		1,006
Total operating expenses	$	531,393	$	460,806

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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.

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



In Thousands	Six Months Ended June 30,
Salaries and Professional Fees	2019	2018	$ Increase/(Decrease)	% Change
Total Salaries	$311,036	$270,266	$40,769	15.1%
Same Center Salaries	$271,558	$263,296	$8,261	3.1%

Of the rise same center salaries and professional fees of 3.1%, 1.7% was precipitated by increased physician cost due to greater procedure volume and the remainder related to added personnel and existing employee wage and benefit increases in support of operations. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2018. For the six months ended June 30, 2019 , salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $39.5 million . For the six months ended June 30, 2018 , salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was approximately $7.0 million .

Stock-based compensation

Stock-based compensation increased $692,700 , or 13.4%, to approximately $5.6 million for the six months ended June 30, 2019 compared to $4.9 million for the six months ended June 30, 2018 . This increase was driven by the higher fair value of RSA’s awarded and vested in the first six months of 2019 as compared to RSA’s awarded and vested in the same period in 2018.

Building and equipment rental



In Thousands	Six Months Ended June 30,
Building & Equipment Rental	2019	2018	$ Increase/(Decrease)	% Change
Total	$52,260	$43,231	$9,030	20.9%
Same Center	$43,881	$41,057	$2,824	6.9%

The increase in same center building and equipment rental expenses relates to additional new imaging center and radiology equipment leases to support expanding operations. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2018. For the six months ended June 30, 2019 , building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $8.4 million . For the six months ended June 30, 2018 , building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was approximately $2.2 million .

Medical supplies



In Thousands	Six Months Ended June 30,
Medical Supplies Expense	2019	2018	$ Increase/(Decrease)	% Change
Total	$21,400	$17,783	$3,617	20.3%
Same Center	$17,665	$17,064	$601	3.5%

Same center medical supplies increases were attributable to purchases of higher cost contrasting imaging agents employed in advanced radiology modalities. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2018. For the six months ended June 30, 2019 , medical supplies expenses from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $3.7 million . For the six months ended June 30, 2018 ,

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medical supplies expense from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $718,500 .

Other operating expenses



In Thousands	Six Months Ended June 30,
Other Operating Expenses	2019	2018	$ Increase/(Decrease)	% Change
Total	$99,336	$89,519	$9,818	11.0%
Same Center	$82,067	$87,253	$(5,186)	(5.9)%

The decrease in other operating expenses was driven by across the board reductions in telecommunication, insurance, software and professional service expenses. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2018. For the six months ended June 30, 2019 , other operating expense from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $17.3 million . For the six months ended June 30, 2018 , other operating expense from centers that were acquired or divested subsequent to January 1, 2018 was $2.3 million .

Depreciation and amortization



In Thousands	Six Months Ended June 30,
Depreciation & Amortization	2019	2018	$ Increase/(Decrease)	% Change
Total	$39,704	$35,942	$3,761	10.5%
Same Center	$32,096	$34,959	$(2,864)	(8.2)%

The decrease in same center depreciation and amortization is primarily due to several of our assets completing their depreciation schedules subsequent to the end of our fourth quarter of 2018. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2018. For the six months ended June 30, 2019 , depreciation expense from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $7.6 million . For the six months ended June 30, 2018 , depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2018 and excluded from the above comparison was $983,200 .

Gain and loss on sale and disposal of equipment

We recorded a loss on sale of equipment of approximately $1.1 million for the six months ended June 30, 2019 and a gain on the sale of equipment of approximately $1.8 million for the six months ended June 30, 2018 .

Severance Costs

We incurred severance expenses of $1.0 million for each of the six months ended June 30, 2019 and June 30, 2018.

Other Income/Expenses

We incurred other expenses of $1.3 million for the six months ended June 30, 2019 due to expenses in amending our term loan debt and legal contingency charges.

Interest expense



In Thousands	Six Months Ended June 30,
Interest Expense	2019	2018	$ Increase/(Decrease)	% Change
Total Interest Expense	$24,694	$20,680	$4,014	19.4%
Non Cash Interest*	$2,021	$1,955	$66	3.4%
Adjusted Interest Expense	$22,673	$18,725	$3,948	21.1%

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*Includes combined non cash amortization of deferred loan costs, discount on issuance of debt and incidental financing charges.

Excluding the non cash interest amounts for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 , interest expense increased $3.9 million , or 21.1% . The main drivers behind the increase were the interest payments on assumed debt of the New Jersey Imaging Network and the additional term loan debt stemming from the Sixth Amendment to the First Lien Term Loan. See “Liquidity and Capital Resources” below for more details on our credit facilities.

To mitigate our future interest expense exposure the Company has entered into two forward interest rate cap agreements. See Derivative Instruments section of Note 2 to the consolidated condensed financial statements contained herein and ITEM 3. Quantitative and Qualitative Disclosure About Market Risk below for more details on our derivative transactions.

Equity in earnings from unconsolidated joint ventures

For the six months ended June 30, 2019 we recognized equity in earnings from unconsolidated joint ventures of $4.1 million versus $6.7 million for the six months ended June 30, 2018 , a decrease of $2.6 million or 38.8% , as a result of the New Jersey Imaging Networks becoming a fully consolidated entity in October of 2018.

Provision for income taxes

We had a tax provision for the six months ended June 30, 2019 of $1.7 million or 23.5% of income before income taxes, compared to a tax provision for the six months ended June 30, 2018 of $8,000 or 0.8% of income before income taxes. The effective tax rate was higher in the six months ended June 30, 2019 due to the effect of a windfall from restricted stock release.

Adjusted EBITDA

We use both GAAP and non-GAAP metrics to measure our financial results. We believe that, in addition to GAAP metrics, these non-GAAP metrics assist us in measuring our cash generated from operations and ability to service our debt obligations. We believe this information is useful to investors and other interested parties because we are highly leveraged and our non-GAAP metrics remove non-cash and certain other charges that occur in the affected period and provide a basis for measuring the Company's financial condition against other quarters.

One non-GAAP measure we believe assists us is Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and excluding losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, bargain purchase gains and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taking place during the period.

Adjusted EBITDA 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 the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity. As Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation, this metric, as presented, may not be comparable to other similarly titled measures of other companies.

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Adjusted EBITDA is most comparable to the GAAP financial measure, net income (loss) attributable to RadNet, Inc. common stockholders. The following is a reconciliation of GAAP net income (loss) attributable to RadNet, Inc. common stockholders to Adjusted EBITDA for the three and six months ended June 30, 2019 and 2018, respectively.



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income (loss) attributable to RadNet, Inc. common stockholders	$	4,899	$	5,406	$	1,165	$	(1,932	)
Provision for income taxes	2,969		2,505		1,740		8
Interest expense	12,399		10,641		24,694		20,680
Severance costs	371		279		1,002		1,005
Depreciation and amortization	20,083		18,086		39,703		35,942
Non-cash employee stock-based compensation	1,044		1,146		5,583		4,890
Loss (gain) on sale and disposal of equipment	101		105		1,072		(1,831		)
Other expenses	1,269		5		1,269		6
Gain on sale of equipment attributable to noncontrolling interest							440
Adjusted EBITDA	$	43,135	$	38,173	$	76,228	$	59,208

Liquidity and Capital Resources

The following table is a summary of key balance sheet data as of June 30, 2019 and December 31, 2018 and income statement data for the six months ended June 30, 2019 and 2018 (in thousands):



Balance Sheet Data:	June 30, 2019		December 31, 2018
Cash and cash equivalents	$	30,504	$	10,389
Accounts receivable	159,323		148,919
Working capital (exclusive of current operating lease liabilities)	6,686		(30,827		)
Stockholders' equity	212,430		200,253



Income statement data for the six months ended June 30,	2019		2018
Total net revenue	$	560,647	$	475,787
Net income (loss) attributable to RadNet common stockholders	1,165		(1,932		)

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 facilities, the acquisition of additional facilities 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.

Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings from our senior secured credit facilities, will be adequate to meet our liquidity needs. Our future liquidity requirements will be for working capital, capital expenditures, debt service and general corporate purposes. Our ability to meet our working capital and debt service requirements, however, is subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. If we are not able to meet such requirements, we may be required to seek additional financing. 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

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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 for the six months ended June 2019 and 2018:



Cash Flow Data	June 30, 2019			June 30, 2018
Cash provided by operating activities	$	44,535		$	46,948
Cash used in investing activities	(76,845		)	(61,103		)
Cash provided by (used in) financing activities	52,430			(20,846		)

Cash provided by operating activities for the six months ended June 30, 2019 was $44.5 million and $46.9 million for the six months ended June 30, 2018 .

Cash used in investing activities for the six months ended June 30, 2019 , included purchases of property and equipment for approximately $50.3 million and the acquisition of imaging facilities for $27.1 million .

Cash provided by financing activities for the six months ended June 30, 2019 , was mainly due to our additional term loan debt issuance of April 18, 2019, offset by payments on our term loan and revolving credit facility borrowings.

Senior Secured Credit Facilities

At June 30, 2019 , our credit facilities were comprised of one tranche of term loans (“First Lien Term Loans”) and a revolving credit facility of $137.5 million (the “Barclays Revolving Credit Facility”), both of which are provided pursuant to the Amended and Restated First Lien Credit and Guaranty Agreement dated as of July 1, 2016 (as amended, the “First Lien Credit Agreement”).

Included in our condensed consolidated balance sheets at June 30, 2019 are $727.0 million of total term loan debt (net of unamortized discounts of $15.5 million ) in thousands:



	Face Value	Discount		Total Carrying Value
First Lien Term Loans	669,222	(15,519	)	653,703
SunTrust Term Loan	57,750	—		57,750
Total Term Loans	726,972	(15,519	)	711,453

We had no balance under our $137.5 million Barclays Revolving Credit Facility at June 30, 2019 and have reserved against the borrowing capacity $5.9 million for certain letters of credit. The remaining $131.7 million of our Barclays Revolving

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Credit Facility was available to draw upon as of June 30, 2019 . We had no balance under our $30.0 million Suntrust Revolving Credit Facility at June 30, 2019 .

For more information on our secured credit facilities see Note 6 in our condensed consolidated financial statements in this quarterly report.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk: We receive payment for our 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 maintain research and development facilities in Prince Edward Island, Canada and Budapest, Hungary for which expenses are paid in the local currency. Accordingly, we do have currency risk resulting from fluctuations between such local currency and the United States Dollar. At the present time, we do not have any foreign currency exchange contracts to mitigate this risk. At June 30, 2019 , a hypothetical 1% decline in the currency exchange rates between the U.S. dollar against the Canadian dollar and the Hungarian Forint would have resulted in an annual increase of approximately $32,000 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 caps, described below, the effects of interest rate changes are limited.

Interest Rate Sensitivity Barclays First Lien Term Loans

At June 30, 2019 , we had $669.2 million outstanding subject to an adjusted Eurodollar election on First Lien Term Loans. We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the First Lien Term Loans.

To mitigate interest rate risk sensitivity, in the fourth quarter of 2016 we entered into two forward interest rate cap agreements (the “2016 Caps”) which were designated at inception as cash flow hedges of future cash interest payments. The 2016 Caps are designed to provide a hedge against interest rate increases. Under these arrangements, we purchased a cap on 3 month LIBOR at 2.0%. At June 30, 2019 , our effective 3 month LIBOR was 2.61% . The 2016 Caps have a notional amount of $150,000,000 and $350,000,000 and will mature in September and October 2020. We are liable for a $5.3 million premium to enter into the 2016 Caps which is being accrued over the life of the instrument. See Note 2, Significant Accounting Policies, for further information.

A hypothetical 1% increase in the adjusted Eurodollar rates under the First Lien Credit Agreement over the rates experienced in 2018 would, after considering the effects of the 2016 Caps, result in an increase of $1.7 million in annual interest expense and a corresponding decrease in income before taxes. At June 30, 2019 , an additional $9.7 million in debt instruments is tied to the prime rate. A hypothetical 1% increase in the prime rate would result in an annual increase in interest expense of approximately $96,990 and a corresponding decrease in income before taxes. These amounts are determined by considering the impact of the hypothetical interest rates on the borrowing costs and cap agreements.

Interest Rate Sensitivity SunTrust Term Loan

At June 30, 2019 , we had $57.8 million outstanding subject to an adjusted Eurodollar election on the SunTrust Restated Credit Agreement. We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the SunTrust Restated Credit Agreement.

At June 30, 2019 , our effective LIBOR rate plus applicable margin was 4.58% . A hypothetical 1% increase in the adjusted Eurodollar rates under the SunTrust Restated Credit Agreement would result in an increase of approximately $577,500 in annual

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interest expense and a corresponding decrease in income before taxes. No amounts are tied to the prime rate under the SunTrust Restated Agreement.

ITEM 4 . Controls and Procedures

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 are effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There has been no changes in our internal control over financial reporting during the three months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

We are engaged from time to time in the defense of lawsuits arising out of the ordinary course and conduct of our business. We do not believe that the outcome of any of our current litigation will have a material adverse impact on our business, financial condition and results of operations. However, we could be subsequently named as a defendant in other lawsuits that could adversely affect us.

ITEM 1A. Risk Factors

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, 2018. The risks described in our 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.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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INDEX TO EXHIBITS



Exhibit Number		Description

10.1		Amendment No. 6, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement dated as of April 18, 2019 by and among Radnet Management, Inc., RadNet, Inc., certain affiliates and subsidiaries of Radnet Management, Inc. and Barclays Bank Plc (incorporated by reference to exhibit filed with Form 8-K on April 19, 2019).

10.2		Amendment No. 7 to Credit and Guaranty Agreement dated as of April 18, 2019 by and among Radnet Management, Inc., RadNet, Inc., certain affiliates and subsidiaries of Radnet Management, Inc. and Barclays Bank Plc (incorporated by reference to exhibit filed with Form 8-K on April 19, 2019).

31.1		Certification of Howard G. Berger, M.D. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Mark D. Stolper pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Howard G. Berger, M.D. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification of Mark D. Stolper pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

101.DEF		XBRL Definition Linkbase Document


*	This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Exchange Act and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	RADNET, INC.
	(Registrant)

Date: August 9, 2019	By:	/s/ Howard G. Berger, M.D.
		Howard G. Berger, M.D., President and Chief Executive Officer (Principal Executive Officer)


Date: August 9, 2019	By:	/s/ Mark D. Stolper
		Mark D. Stolper, Chief Financial Officer (Principal Financial and Accounting Officer)

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Part I - Financial Information Item 1 Financial Statements Note 1 Nature Of Business and Basis Of Presentation Note 2 - Significant Accounting Policies Note 3 Recent Accounting and Reporting Standards Note 4 Facility Acquisitions and Assets Held For Sale Note 5 - Leases Note 6 Credit Facility, Notes Payable and Capital Lease Obligations Note 7 Stock-based Compensation Note 8 Subsequent Events Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information

Exhibits

10.1 Amendment No. 6, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement dated as of April 18, 2019 by and among Radnet Management, Inc., RadNet, Inc., certain affiliates and subsidiaries of Radnet Management, Inc. and Barclays Bank Plc (incorporated by reference to exhibit filed with Form 8-K on April 19, 2019). 10.2 Amendment No. 7 to Credit and Guaranty Agreement dated as of April 18, 2019 by and among Radnet Management, Inc., RadNet, Inc., certain affiliates and subsidiaries of Radnet Management, Inc. and Barclays Bank Plc (incorporated by reference to exhibit filed with Form 8-K on April 19, 2019). 31.1 Certification of Howard G. Berger, M.D. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Mark D. Stolper pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Howard G. Berger, M.D. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * 32.2 Certification of Mark D. Stolper pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

RDNT 10-Q Quarter ended June 30, 2019

Exhibits