0000790526-21-000025.txt : 20211109 0000790526-21-000025.hdr.sgml : 20211109 20211109154332 ACCESSION NUMBER: 0000790526-21-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 64 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211109 DATE AS OF CHANGE: 20211109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RadNet, Inc. CENTRAL INDEX KEY: 0000790526 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 133326724 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33307 FILM NUMBER: 211391826 BUSINESS ADDRESS: STREET 1: 1510 COTNER AVE CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3104787808 MAIL ADDRESS: STREET 1: 1510 COTNER AVE CITY: LOS ANGELES STATE: CA ZIP: 90025 FORMER COMPANY: FORMER CONFORMED NAME: PRIMEDEX HEALTH SYSTEMS INC DATE OF NAME CHANGE: 19930518 FORMER COMPANY: FORMER CONFORMED NAME: CCC FRANCHISING CORP DATE OF NAME CHANGE: 19920703 10-Q 1 rdnt-20210930.htm 10-Q rdnt-20210930
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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 September 30, 2021
or
     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)
Delaware13-3326724
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1510 Cotner Avenue 
Los Angeles,California90025
(Address of principal executive offices)(Zip Code)
(310) 478-7808
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Class TitleTrading SymbolRegistered Exchange
Common StockRDNTNASDAQ
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller 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
The number of shares of the registrant’s common stock outstanding on November 4, 2021 was 53,436,698 shares.


RADNET, INC.
TABLE OF CONTENTS
Page

ITEM 6.  Exhibits

i

PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
September 30,
2021
December 31,
2020
(unaudited) 
ASSETS  
CURRENT ASSETS  
   Cash and cash equivalents$151,253 $102,018 
   Accounts receivable152,409 129,585 
   Due from affiliates6,280 5,836 
   Prepaid expenses and other current assets30,054 32,985 
      Total current assets 339,996 270,424 
PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS
   Property and equipment, net452,145 399,335 
   Operating lease right-of-use assets577,712 483,661 
      Total property, equipment and right-of-use assets1,029,857 882,996 
OTHER ASSETS
   Goodwill502,710 472,879 
   Other intangible assets57,499 52,393 
   Deferred financing costs2,260 1,767 
   Investment in joint ventures44,228 34,528 
   Deferred tax assets24,563 34,687 
   Deposits and other41,250 36,983 
       Total assets$2,042,363 $1,786,657 
LIABILITIES AND EQUITY
CURRENT LIABILITIES
    Accounts payable, accrued expenses and other$240,837 $236,684 
    Due to affiliates29,261 14,010 
    Deferred revenue19,619 39,257 
    Current finance lease liability 2,578 
    Current operating lease liability70,613 65,794 
    Current portion of notes payable11,165 39,791 
        Total current liabilities371,495 398,114 
LONG-TERM LIABILITIES
    Long-term finance lease liability 743 
    Long-term operating lease liability553,173 463,096 
    Notes payable, net of current portion746,288 612,913 
    Other non-current liabilities32,028 53,488 
        Total liabilities1,702,984 1,528,354 
EQUITY
Common stock - $0.0001 par value, 200,000,000 shares authorized; 53,301,816 and 51,640,537 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
5 5 
    Additional paid-in-capital335,599 307,788 
    Accumulated other comprehensive loss(21,317)(24,051)
    Accumulated deficit(89,450)(117,999)
        Total RadNet, Inc.'s stockholders' equity224,837 165,743 
Noncontrolling interests114,542 92,560 
       Total equity339,379 258,303 
       Total liabilities and equity$2,042,363 $1,786,657 

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

1



RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
REVENUE    
     Service fee revenue$295,407 $256,730 $870,479 $660,760 
     Revenue under capitation arrangements37,283 35,046 111,449 103,145 
Total service revenue332,690 291,776 981,928 763,905 
     Provider relief funding 221 6,291 25,696 
OPERATING EXPENSES
     Cost of operations, excluding depreciation and amortization272,756 246,462 838,609 708,095 
     Depreciation and amortization24,606 21,247 71,272 64,536 
     Loss (gain) on sale and disposal of equipment and other2,595 342 (279)543 
     Severance costs163 571 715 1,647 
Total operating expenses300,120 268,622 910,317 774,821 
INCOME FROM OPERATIONS32,570 23,375 77,902 14,780 
OTHER INCOME AND EXPENSES
     Interest expense12,032 11,061 37,028 33,443 
     Equity in earnings of joint ventures(2,853)(2,276)(8,259)(5,176)
     Non-cash change in fair value of interest rate hedge(2,870)679 (14,149)4,523 
     Debt restructuring and extinguishment expenses  6,044  
     Other (income) expenses(167)(139)1,699 (247)
Total other expenses6,142 9,325 22,363 32,543 
INCOME (LOSS) BEFORE INCOME TAXES26,428 14,050 55,539 (17,763)
     (Provision for) benefit from income taxes(5,284)(3,825)(12,534)5,029 
NET INCOME (LOSS)21,144 10,225 43,005 (12,734)
     Net income attributable to noncontrolling interests4,924 4,069 14,455 8,063 
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$16,220 $6,156 $28,550 $(20,797)
BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$0.31 $0.12 $0.55 $(0.41)
DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$0.30 $0.12 $0.54 $(0.41)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic52,810,644 51,358,603 52,323,360 50,746,380 
Diluted53,817,840 51,955,815 53,249,698 50,746,380 
The accompanying notes are an integral part of these financial statements.
2

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
NET INCOME (LOSS)$21,144 $10,225 $43,005 $(12,734)
     Foreign currency translation adjustments(11)11 (32)6 
     Change in fair value of cash flow hedge, net of taxes2,870 195 14,149 (18,764)
     Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes920 969 2,765 1,861 
COMPREHENSIVE INCOME (LOSS)24,923 11,400 59,887 (29,631)
     Less comprehensive income attributable to noncontrolling interests4,924 4,069 14,455 8,063 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
RADNET, INC. COMMON STOCKHOLDERS$19,999 $7,331 $45,432 $(37,694)
The accompanying notes are an integral part of these financial statements.

3

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 September 30, 2021 and September 30, 2020.
4

Common StockAdditional Paid-In
Capital
Accumulated Other
Comprehensive
 Loss
Accumulated
Deficit
Total
Radnet, Inc.'s
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
BALANCE - JUNE 30, 202152,678,030 $5 $324,954 $(22,227)$(105,668)$197,064 $102,215 $299,279 
Issuance of common stock under the equity compensation plan94,638 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan464,855 — — — — — — — 
Stock-based compensation expense— — 4,463 — — 4,463 — 4,463 
Issuance of common stock for sale of unregistered securities for acquisition67,658 — 2,025 — — 2,025 — 2,025 
Forfeiture of restricted stock(3,365)— (42)— — (42)— (42)
Sale of economic interests in majority owned subsidiary, net of taxes— — 4,198 — — 4,198 7,404 11,602 
Change in cumulative foreign currency translation adjustment— — — (11)— (11)— (11)
Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes— — — 920 — 920 — 920 
Other— — 1 1 (2)— (1)(1)
Net income— — — — 16,220 16,220 4,924 21,144 
BALANCE-SEPTEMBER 30, 202153,301,816 $5 $335,599 $(21,317)$(89,450)$224,837 $114,542 $339,379 
BALANCE - JUNE 30, 202051,554,760 $5 $304,012 $(26,098)$(130,111)$147,808 $85,448 $233,256 
Issuance of common stock upon exercise of options— — — — — — —  
Issuance of common stock under the equity compensation plan37,000 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan4,338 — — — — — — — 
Stock-based compensation expense— — 2,067 — — 2,067 — 2,067 
Purchase of noncontrolling interests— — — — — — (601)(601)
Change in cumulative foreign currency translation adjustment— — — 11 — 11 — 11 
Change in fair value cash flow hedge, net of taxes— — — 195 — 195 — 195 
Change in fair value of cash flow hedge from prior periods reclassified to earnings— — — 969 — 969 969 
Other— — — — (1)(1)— (1)
Net income— — — — 6,156 6,156 4,069 10,225 
BALANCE-SEPTEMBER 30, 202051,596,098 $5 $306,079 $(24,923)$(123,956)$157,205 $88,916 $246,121 
The accompanying notes are an integral part of these financial statements.
5

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 nine months ended September 30, 2021 and September 30, 2020.
6

Common StockAdditional Paid-In
Capital
Accumulated Other
Comprehensive
Loss
Accumulated
Deficit
Total
Radnet, Inc.'s
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
BALANCE - DECEMBER 31, 202051,640,537 $5 $307,788 $(24,051)$(117,999)$165,743 $92,560 $258,303 
Issuance of common stock upon exercise of options2,500 — 26 — — 26 — 26 
Issuance of common stock under the equity compensation plan1,127,996 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan466,490 — — — — — — — 
Stock-based compensation expense— — 21,608 — — 21,608 — 21,608 
Issuance of common stock for sale of unregistered securities for acquisition67,658 — 2,025 — — 2,025 — 2,025 
Forfeiture of restricted stock(3,365)— (42)— — (42)— (42)
Purchase of noncontrolling interests by third party— — (4)— — (4) (4)
Contribution from noncontrolling partner— — — — — — 123 123 
Sale of economic interests in majority owned subsidiary, net of taxes— — 4,198 — — 4,198 7,404 11,602 
Change in cumulative foreign currency translation adjustment— — — (32)— (32)— (32)
Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes— — — 2,765 — 2,765 — 2,765 
Other— — — 1 (1)— —  
Net income— — — — 28,550 28,550 14,455 43,005 
BALANCE-SEPTEMBER 30, 202153,301,816 $5 $335,599 $(21,317)$(89,450)$224,837 $114,542 $339,379 
BALANCE - DECEMBER 31, 201950,314,328 $5 $262,865 $(8,026)$(103,159)$151,685 $81,454 $233,139 
Issuance of common stock under the equity compensation plan453,817 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan4,338 — — — — — — — 
Stock-based compensation expense— — 10,203 — — 10,203 — 10,203 
Issuance of common stock for sale of unregistered securities for the DeepHealth acquisition823,615 — 33,011 — — 33,011 — 33,011 
Distributions paid to noncontrolling interests— — — — — — (601)(601)
Change in cumulative foreign currency translation adjustment— — — 6 — 6 — 6 
Change in fair value cash flow hedge, net of taxes— — — (18,764)— (18,764)— (18,764)
Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes1,861 1,861 — 1,861 
Net (loss) income— — — — (20,797)(20,797)8,063 (12,734)
BALANCE-SEPTEMBER 30, 202051,596,098 $5 $306,079 $(24,923)$(123,956)$157,205 $88,916 $246,121 
Sale of noncontrolling interests, net of taxes
The accompanying notes are an integral part of these financial statements.
7

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
Nine Months Ended September 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income (loss)$43,005 $(12,734)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization71,272 64,536 
Amortization of operating lease right-of-use assets55,880 50,769 
Equity in earnings of joint ventures, net of dividends(8,259)530 
Amortization of deferred financing costs and loan discount2,608 3,266 
(Gain) loss on sale and disposal of equipment and other(279)543 
Loss on extinguishment of debt1,496  
Amortization of cash flow hedge, net of taxes2,765 2,204 
Non-cash change in fair value of interest rate hedge(14,149)4,523 
Stock-based compensation21,566 10,144 
Change in fair value of contingent consideration
891 (145)
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable(23,237)17,380 
Other current assets3,358 13,522 
Other assets(4,998)(700)
Deferred taxes10,124 (7,640)
Operating lease liability(55,035)(43,351)
Deferred revenue(19,438)44,530 
Accounts payable, accrued expenses and other12,725 22,966 
Net cash provided by operating activities100,295 170,343 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities and other acquisitions(70,108)(10,125)
Purchase of property and equipment(88,478)(77,303)
Proceeds from sale of equipment521 779 
Equity contributions in existing and purchase of interest in joint ventures(1,441)(1,631)
Net cash used in investing activities(159,506)(88,280)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable(3,302)(2,704)
Payments on term loan debt(616,217)(33,472)
Additional deferred finance costs on revolving loan amendment (741)
Proceeds from debt refinancing, net of issuing costs716,369  
Proceeds from sale of economic interest in majority owned subsidiary, net of taxes11,602  
Distributions paid to noncontrolling interests (601)
Proceeds from paycheck protection program loans 4,023 
Proceeds from revolving credit facility128,300 250,900 
Payments on revolving credit facility(128,300)(250,900)
Proceeds from issuance of common stock upon exercise of options26  
Net cash provided by (used in) financing activities108,478 (33,495)
EFFECT OF EXCHANGE RATE CHANGES ON CASH(32)6 
NET INCREASE IN CASH AND CASH EQUIVALENTS49,235 48,574 
CASH AND CASH EQUIVALENTS, beginning of period102,018 40,165 
CASH AND CASH EQUIVALENTS, end of period$151,253 $88,739 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest$21,408 $31,210 
Cash paid during the period for income taxes$1,913 $5,036 
The accompanying notes are an integral part of these financial statements.
8

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 $50.5 million and $28.1 million during the nine months ended September 30, 2021 and 2020, respectively, which were not paid for as of September 30, 2021 and 2020, respectively. The offsetting amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other.
On August 24, 2021, we completed our stock purchase of Tangent Associates LLC by issuing 67,658 shares of our common stock to complete the transaction. The shares were ascribed a value of $2.0 million.
On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, partnership agreement with Simi Valley Hospital and Health Services ("Simi Adventist"). Of the total combined assets of $0.4 million, RadNet transferred $0.3 million and Simi Adventist contributed the remaining $0.1 million.
On June 1, 2020, we completed our stock purchase of DeepHealth, Inc. by issuing 823,615 shares of our common stock to purchase all of Deep Health's shares and share equivalents. The shares were ascribed a value of $13.9 million.


9

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 with operations in seven U.S. states. At September 30, 2021, we operated, directly or indirectly through joint ventures with hospitals, 350 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. 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 the convenience of a single location to serve the needs of multiple procedures. In addition to our imaging services, we design and develop software applications, artificial intelligence tools and other computerized systems for the diagnostic imaging industry. Our operations comprise a single segment for financial reporting purposes.

The consolidated financial statements include the accounts of RadNet, Inc as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report.
Accounting regulations stipulate 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 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.

VIEs that we consolidate as the primary beneficiary consist of professional corporations which are owned or controlled by individuals within our senior management, namely Howard G. Berger, M.D., our President and Chief Executive Officer and a member of our Board of Directors, and John V. Crues, III, M.D., RadNet's Medical Director. Dr. Berger owns, indirectly, 99% of the equity interests in Beverly Radiology Medical Group III (BRMG) and a controlling interest in two professional corporations in New York City. BRMG is responsible for the professional medical services at nearly all of our facilities located in California. Dr. Crues owns six professional corporations which provide medical services in Delaware, Maryland, New Jersey and New York. Additionally, Dr. Crues is a 1% owner of BRMG. These VIEs are collectively referred to as the Group.
RadNet provides non-medical, technical and administrative services to the Group 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 and we determine the annual budget. The Group has insignificant operating assets and liabilities, and de minimis equity. Through management agreements with us, substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group.

The Group on a combined basis recognized $43.8 million and $38.3 million of revenue, net of management services fees to RadNet, for the three months ended September 30, 2021 and 2020, respectively and $43.8 million and $38.3 million of operating expenses for the three months ended September 30, 2021 and 2020, respectively. RadNet recognized $186.8 million and $169.0 million of total billed net service fee revenue for the three months ended September 30, 2021, and 2020, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue.

The Group on a combined basis recognized $135.0 million and $104.8 million of revenue, net of management services fees to RadNet, for the nine months ended September 30, 2021 and 2020, respectively and $135.0 million and $104.8 million of operating expenses for the nine months ended September 30, 2021 and 2020, respectively. RadNet recognized $556.4 million
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and $433.3 million of total billed net service fee revenue for the nine months ended September 30, 2021, and 2020, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue.

The cash flows of the Group are included in the accompanying condensed consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. In our condensed consolidated balance sheets at September 30, 2021 and December 31, 2020, we have included approximately $102.7 million and $82.3 million, respectively, of accounts receivable and approximately $19.2 million and $15.2 million of accounts payable and accrued liabilities related to the Group, respectively.

The creditors of the Group do not have recourse to our general credit and there are no other arrangements that could expose us to losses on their behalf. However, we 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 RadNet 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 not serviced by the Group we have entered into long-term contracts (typically up to 40 years) with independent radiology groups to provide physician services at those centers. 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. 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. 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 economic controlling interest in these radiology practices as such, the financial results of these practices are not consolidated in our financial statements.
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 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 September 30, 2021 and 2020 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, 2020.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
During the period covered in this report, 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, 2020. 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, 2020.
REVENUES - Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period when our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
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As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payors. 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 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 service revenues during the three and nine months ended September 30, 2021 and 2020 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
September 30,
Nine Months Ended
September 30,
2021202020212020
Commercial insurance$185,723 $160,524 $555,355 $412,415 
Medicare73,163 62,704 207,977 154,847 
Medicaid8,707 7,098 26,198 18,072 
Workers' compensation/personal injury11,554 7,183 32,507 25,705 
Other patient revenue4,800 8,328 14,766 17,211 
Management fee revenue5,255 2,675 16,007 8,574 
Teleradiology and Software revenue2,564 2,349 7,611 8,319 
Other3,641 5,869 10,058 15,617 
Service fee revenue295,407 256,730 870,479 660,760 
Revenue under capitation arrangements37,283 35,046 111,449 103,145 
Total service revenue$332,690 $291,776 $981,928 $763,905 

COVID-19 PANDEMIC AND CARES ACT FUNDING - On March 11, 2020 the World Health Organization (WHO) designated COVID-19 as a global pandemic. To aid businesses and stimulate the national economy, Congress passed The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was signed in to law on March 27, 2020.

Beginning in the second quarter of 2020 and through the nine months ended September 30, 2021, we received funding from the various programs established by the CARES Act as follows:

$39.5 million of accelerated Medicare payments through the twelve months ended December 31, 2020

$4.0 million from the Paycheck Protection Program through the twelve months ended December 31, 2020

$32.6 million total Provider Relief Funding, $26.3 million received for the twelve months ended December 31, 2020 and $6.3 million for the nine months ended September 30, 2021

In addition, we have received for the 12 months ended December 31, 2020, $5.0 million in advance payments from insurer Blue Shield.

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The accelerated Medicare and Blue Shield payments are recorded to Deferred Revenue in our condensed consolidated balance sheet and are being applied to revenue as services are performed beginning in 2021. For the nine months ended September 30, 2021, $21.2 million of the accelerated Medicare payments and the total advance of $5.0 million from Blue Shield have been applied to revenue.

The $4.0 million secured from the Paycheck Protection Program was accounted for as debt and in December 2020 we met the eligibility requirements under the government guidelines for forgiveness and the loans were written off to gain on extinguishment of debt.

The Provider Relief Funding is displayed as such on our condensed consolidated statements of operations.

The CARES Act also provides for a payment deferral of the employer portion of Social Security tax incurred during the pandemic, allowing half of such payroll taxes to be deferred until December 2021 and the remaining half until December 2022. At December 31, 2020, we had in total $16.3 million of deferred Social Security taxes and at September 30, 2021, we had $8.6 million. The reduction was related to a one time benefit of $7.7 million in federal payroll tax forgiveness. The current portion of payment deferrals are recorded as payroll tax liability under the caption “Accounts payable, accrued expenses and other”, while the long term portion is recorded to Other Long Term Liabilities in our condensed consolidated balance sheet.
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.

We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. 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. Proceeds on notes receivables are 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. Amounts remaining to be collected on these agreement were $18.3 million and $20.5 million at September 30, 2021 and December 31, 2020, respectively. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis.
DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $2.3 million and $1.8 million, as of September 30, 2021 and December 31, 2020, respectively and related to our Barclays Revolving Credit Facility. See Note 5, Credit Facilities and Notes Payable 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.
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 September 30, 2021 totaled $502.7 million. Indefinite lived intangible assets at September 30, 2021 were $7.1 million. Goodwill and Indefinite Lived Intangibles are recorded as a result of business combinations. When we determine the carrying value of reporting unit 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, 2020, noting no impairment. However, during 2020 we ceased employing certain indefinite lived trade names with a total value of $4.2 million and they were written
13

off in full. In addition to the annual impairment test, we regularly assess if an event has occurred which would require interim impairment testing. We considered the current and expected future economic and market conditions surrounding COVID-19 pandemic and did not identify an indication of goodwill impairment being more likely than not through September 30, 2021. Activity in goodwill for the nine months ended September 30, 2021 is provided below (in thousands):
Balance as of December 31, 2020$472,879 
Goodwill acquired through acquisitions29,754 
Goodwill attributable to formation of Simi Valley Imaging Group LLC105 
Other Adjustments(28)
Balance as of September 30, 2021$502,710 
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 income tax expense of $5.3 million, or an effective tax rate of 20.0%, for the three months ended September 30, 2021 compared to income tax expense of $3.8 million, or an effective tax rate of 27.2% for the three months ended September 30, 2020. We recorded income tax expense of $12.5 million, or an effective tax rate of 22.6%, for the nine months ended September 30, 2021 compared to a benefit from income taxes of $5.0 million, or an effective tax rate of 28.3% for the nine months ended September 30, 2020. The income tax rates for the three and nine months ended September 30, 2021 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; and (iii) excess tax benefits attributable to share-based compensation.
We believe no significant changes in the unrecognized tax benefits will occur within the next 12 months.
On March 27, 2020, the President of the United States signed into law the CARES Act, which among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company’s current tax provision.
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 determinabl