0001683168-17-001151.txt : 20170510 0001683168-17-001151.hdr.sgml : 20170510 20170510152412 ACCESSION NUMBER: 0001683168-17-001151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 57 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170510 DATE AS OF CHANGE: 20170510 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: 17829955 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 radnet_10q-033117.htm FORM 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2017

 

OR

 

o   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 x No o

 

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 x No o

 

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  o Accelerated filer  x
  Non-accelerated filer  o Smaller reporting company   o
  Emerging growth company  o  

 

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. o

 

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

 

The number of shares of the registrant’s common stock outstanding on May 4, 2017 was 47,216,929 shares.

 

 

 

 

   
 

 

RADNET, INC.

Table of Contents

  Page
   
PART I – FINANCIAL INFORMATION 3
   
ITEM 1.  Condensed Consolidated Financial Statements (unaudited) 3
   
Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016 3
   
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016 4
   
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016 5
   
Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2017 6
   
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 7
   
Notes to Condensed Consolidated Financial Statements 9
   
ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
   
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk 35
   
ITEM 4.  Controls and Procedures 36
   
PART II – OTHER INFORMATION 38
   
ITEM 1.  Legal Proceedings 38
   
ITEM 1A.  Risk Factors 38
   
ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds 38
   
ITEM 3.  Defaults Upon Senior Securities 38
   
ITEM 4.  Mine Safety Disclosures 38
   
ITEM 5.  Other Information 38
   
ITEM 6.  Exhibits 38
   
SIGNATURES 39
   
INDEX TO EXHIBITS 40

 

 

 

 

 

 2 
 

 

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

 

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

 

   March 31,   December 31, 
   2017   2016 
   (unaudited)     
ASSETS
CURRENT ASSETS          
Cash and cash equivalents  $8,294   $20,638 
Accounts receivable, net   169,538    164,210 
Due from affiliates   2,122    2,428 
Prepaid expenses and other current assets   23,635    28,435 
Assets held for sale   4,851    2,203 
Total current assets   208,440    217,914 
PROPERTY AND EQUIPMENT, NET   257,458    247,725 
OTHER ASSETS          
Goodwill   239,954    239,553 
Other intangible assets   42,132    42,682 
Deferred financing costs   1,919    2,004 
Investment in joint ventures   46,114    43,509 
Deferred tax assets, net of current portion   51,446    50,356 
Deposits and other   6,519    5,733 
Total assets  $853,982   $849,476 
LIABILITIES AND EQUITY          
CURRENT LIABILITIES          
Accounts payable, accrued expenses and other  $113,729   $111,166 
Due to affiliates   12,786    13,141 
Deferred revenue   1,574    1,516 
Current portion of deferred rent   2,997    2,961 
Current portion of notes payable   22,016    22,031 
Current portion of obligations under capital leases   5,826    4,526 
Total current liabilities   158,928    155,341 
LONG-TERM LIABILITIES          
Deferred rent, net of current portion   26,739    24,799 
Notes payable, net of current portion   603,404    609,445 
Obligations under capital lease, net of current portion   4,606    2,730 
Other non-current liabilities   7,197    5,108 
Total liabilities   800,874    797,423 
EQUITY          
RadNet, Inc. stockholders' equity:          
Common stock - $.0001 par value, 200,000,000 shares authorized; 47,216,929, and 46,574,904 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively  
 
 
 
 
4
 
 
 
 
 
 
 
4
 
 
Additional paid-in-capital   201,563    198,387 
Accumulated other comprehensive (loss) gain   (470)   306 
Accumulated deficit   (151,421)   (150,211)
Total RadNet, Inc.'s stockholders' equity   49,676    48,486 
Noncontrolling interests   3,432    3,567 
Total equity   53,108    52,053 
Total liabilities and equity  $853,982   $849,476 

 

 

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

 

 

 

 3 
 


RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

 

 

   Three Months Ended
March 31,
 
   2017   2016 
NET REVENUE          
Service fee revenue, net of contractual allowances and discounts  $212,750   $200,842 
Provision for bad debts   (11,646)   (10,304)
Net service fee revenue   201,104    190,538 
Revenue under capitation arrangements   27,909    25,850 
Total net revenue   229,013    216,388 
OPERATING EXPENSES          
Cost of operations, excluding depreciation and amortization   205,454    196,826 
Depreciation and amortization   16,654    16,412 
Gain on sale and disposal of equipment   (45)    
Severance costs   203    167 
Total operating expenses   222,266    213,405 
INCOME FROM OPERATIONS   6,747    2,983 
OTHER INCOME AND EXPENSES          
Interest expense   10,240    10,681 
Meaningful use incentive   (250)   (2,808)
Equity in earnings of joint ventures   (1,928)   (2,279)
Other expenses   3    2 
Total other expenses   8,065    5,596 
LOSS BEFORE INCOME TAXES   (1,318)   (2,613)
Benefit from income taxes   458    1,506 
NET LOSS   (860)   (1,107)
Net income attributable to noncontrolling interests   350    290 
           
NET LOSS ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS  $(1,210)  $(1,397)
           
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS  $(0.03)  $(0.03)
           
WEIGHTED AVERAGE SHARES OUTSTANDING          
Basic and Diluted   46,560,017    46,581,491 

 

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

 

 

 

 4 
 

 

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(unaudited)

 

 

  Three Months Ended March 31, 
   2017   2016 
NET LOSS  $(860)  $(1,107)
Foreign currency translation adjustments   2    4 
Change in fair value of cash flow hedge, net of taxes   (778)    
COMPREHENSIVE LOSS   (1,636)   (1,103)
Less comprehensive income attributable to non-controlling interests   350    290 
           
COMPREHENSIVE LOSS ATTRIBUTABLE TO RADNET, INC.          
COMMON STOCKHOLDERS  $(1,986)  $(1,393)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 5 
 

 

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

  

 

 

         Additional   Accumulated Other       Radnet, Inc.         
  Common Stock    Paid-in   Comprehensive   Accumulated   Stockholders’   Noncontrolling   Total 
  Shares   Amount   Capital   Gain (Loss)   Deficit   Equity   Interests   Equity 
BALANCE - JANUARY 1, 2017   46,574,904   $4   $198,387   $306   $(150,211)  $48,486   $3,567   $52,053 
Stock-based compensation           3,176            3,176        3,176 
Issuance of restricted stock and other awards   642,025                             
Distributions paid to noncontrolling interests                           (485)   (485)
Change in cumulative foreign currency translation adjustment               2        2        2 
Change in fair value cash flow hedge, net of taxes               (778)       (778)       (778)
Net loss                   (1,210)   (1,210)   350    (860)
BALANCE - MARCH 31, 2017   47,216,929   $4   $201,563   $(470)  $(151,421)  $49,676   $3,432   $53,108 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 6 
 

 

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(unaudited)

 

 

   Three Months Ended March 31, 
   2017   2016 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(860)  $(1,107)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   16,654    16,412 
Provision for bad debts   11,646    10,304 
Equity in earnings of joint ventures   (1,928)   (2,279)
Distributions from joint ventures   2,323    2,038 
Amortization of deferred financing costs and loan discount   814    1,368 
Gain on sale and disposal of equipment   (45)    
Stock-based compensation   3,276    2,733 
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:          
Accounts receivable   (16,974)   (25,291)
Other current assets   4,043    5,288 
Other assets   8    856 
Deferred taxes   (1,090)   (1,612)
Deferred rent   1,976    443 
Deferred revenue   58    (70)
Accounts payable, accrued expenses and other   10,995    11,880 
Net cash provided by operating activities   30,896    20,963 
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of imaging facilities   (3,154)   (5,007)
Investment at cost   (500)    
Purchase of property and equipment   (30,371)   (22,500)
Proceeds from sale of equipment   59     
Equity contributions in existing joint ventures       (294)
Net cash used in investing activities   (33,966)   (27,801)
CASH FLOWS FROM FINANCING ACTIVITIES          
Principal payments on notes and leases payable   (2,158)   (3,166)
Payments on Term Loan Debt/Senior Notes   (6,063)   (6,178)
Deferred financing costs and debt discount   (570)    
Proceeds on revolving credit facility   105,100    126,200 
Payments on revolving credit facility   (105,100)   (109,900)
Dividends paid to noncontrolling interests   (485)   (158)
Net cash (used in) provided by financing activities   (9,276)   6,798 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   2    4 
NET DECREASE IN CASH AND CASH EQUIVALENTS   (12,344)   (36)
CASH AND CASH EQUIVALENTS, beginning of period   20,638    446 
CASH AND CASH EQUIVALENTS, end of period  $8,294   $410 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the period for interest  $11,035   $9,085 

 

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

 

 

 

 7 
 

 

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 $19.0 million and $20.5 million during the three months ended March 31, 2017 and 2016, respectively, which were not paid for as of March 31, 2017 and 2016, respectively.  The offsetting amounts due were recorded in our consolidated balance sheet under accounts payable, accrued expenses and other. 

 

During the three months ended March 31, 2017 we added capital lease debt of approximately $5.2 million.

 

During the three months ended March 31, 2017 we recorded an investment in joint venture of $3.0 million to ScriptSender LLC representing our capital contribution to the venture. The offsetting amount was recorded on the due to affiliates account of ScriptSender, LLC. See Note 4, Facility Acquisitions for further information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 8 
 

 

RADNET, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

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 March 31, 2017, we operated directly or indirectly through joint ventures with hospitals, 303 centers located in California, Delaware, Florida, Maryland, New Jersey, New York, and Rhode Island. 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., Breastlink Medical Group, Inc. and Beverly Radiology 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. (“DIS”), 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.

 

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 for 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 provides 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 other 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. 

 

We contract with nine medical groups which provide professional medical services at all of our facilities in Manhattan and Brooklyn, New York. These contracts are similar to our contract with BRMG. Six of these groups are owned 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 these medical groups which provide professional medical services at one of our Manhattan facilities. 

 

RadNet provides non-medical, technical and administrative services to BRMG and the nine medical groups mentioned above (“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 the management agreement with us, all cash flows of BRMG and the NY Groups are transferred to us.  

 

 

 

 

 9 
 

 

We have determined that BRMG and the NY Groups are variable interest entities, and 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 $35.5 million and $34.0 million of revenue, net of management service fees to RadNet, for the three months ended March 31, 2017 and 2016, respectively, and $35.5 million and $34.0 million of operating expenses for the three months ended March 31, 2017 and 2016, respectively. RadNet recognized in its condensed consolidated statement of operations $113.3 million and $104.0 million of net revenues for the three months ended March 31, 2017, and 2016 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 March 31, 2017 and December 31, 2016, we have included approximately $106.1 million and $100.0 million, respectively, of accounts receivable and approximately $10.3 million and $9.0 million of accounts payable and accrued liabilities related to BRMG and the NY Groups.

 

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, both BRMG and the NY Groups are managed to recognize no net income or net loss and, therefore, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. 

 

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. Because of the controlling relationship of Dr. Berger and Dr. Crues in the California and New York City practices as stated in detail above, we consolidate the revenue and expenses.

 

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 March 31, 2017 and 2016 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, 2016, as amended.

 

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, 2016, as amended. 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, 2016, as amended.

 

 

 

 10 
 

  

RESTATEMENT DUE TO ADOPTION OF ACCOUNTING PRONOUNCEMENT - In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09”), Compensation—Stock Compensation, (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 requires excess tax benefits and tax deficiencies, which arise due to differences between the measure of compensation expense and the amount deductible for tax purposes, to be recorded directly through the statement of operations when awards vest or are settled. We elected to early adopt the new guidance for the year ended December 31, 2016. Upon adoption using the modified retrospective transition method, we recorded a cumulative effect adjustment to recognize previously unrecognized excess tax benefits which increased deferred tax assets and reduced accumulated deficit by $7.1 million. The current net tax benefit for 2016 resulting from adoption of the new guidance is approximately $400,000 and was reflected in our tax provision at December 31, 2016. The impact on our quarterly financial statements for the period ended March 31, 2016 is as follows (in thousands):

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS     
      
In thousands except per share data  As previously
reported
   Impact of
adoption
   As currently
reported
 
Benefit from income taxes  $1,180   $326   $1,506 
Net loss   (1,433)   326    (1,107)
Net loss attributable to Radnet Inc. common shareholders   (1,723)   326    (1,397)
Basic and diluted loss per share   (0.04)   0.01    (0.03)

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS           
            
In thousands   As previously
reported
    Impact of
adoption
    As currently
reported
 
Net loss  $(1,433)  $326   $(1,107)
Deferred taxes   (1,286)   (326)   (1,612)
Others   2,683        2,683 
Net decrease in cash and cash equivalents  $(36)  $   $(36)

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS      
       
In thousands   As previously
reported
    Impact of
adoption
    As currently
reported
 
Net loss  $(1,433)  $326   $(1,107)
Foreign currency translation adjustments   4        4 
Comprehensive loss   (1,429)   326    (1,103)
Less comprehensive income attributible to non-controlling interests   290        290 
Comprehensive loss attributable to Radnet Inc. common shareholders  $(1,719)  $326   $(1,393)

 

REVENUES -Service fee revenue, net of contractual allowances and discounts, consists of net patient fees received from various payors and patients themselves based mainly upon established contractual billing rates, less allowances for contractual adjustments and discounts. As it relates to BRMG and the NY Groups centers, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by BRMG and the NY Groups as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees from BRMG and the NY Groups. As it relates to non-BRMG and NY Groups centers, namely the affiliated physician groups, 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.

 

Service fee revenues are recorded during the period the services are provided based upon the estimated amounts due from the patients and third-party payors. Third-party payors include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances are based on historical collection rates of payor reimbursement contract agreements. We also record a provision for doubtful accounts based primarily on historical collection rates related to patient copayments and deductible amounts for patients who have health care coverage under one of our third-party payors.

 

 

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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 service fee revenue, net of contractual allowances and discounts, the provision for bad debts, and revenue under capitation arrangements are summarized in the following table (in thousands):

 

   Three Months Ended
March 31,
 
   2017   2016 
Commercial insurance  $140,995   $131,491 
Medicare   47,678    45,820 
Medicaid   6,733    7,023 
Workers' compensation/personal injury   9,057    9,514 
Other (1)   8,287    6,994 
Service fee revenue, net of contractual allowances and discounts   212,750    200,842 
Provision for bad debts   (11,646)   (10,304)
Net service fee revenue   201,104    190,538 
Revenue under capitation arrangements   27,909    25,850 
Total net revenue  $229,013   $216,388 

_____________________

(1) Other consists of revenue from teleradiology services, consulting fees and software revenue.

 

PROVISION FOR BAD DEBTS - We provide for an allowance against accounts receivable that could become uncollectible to reduce the carrying value of such receivables to their estimated net realizable value. We estimate this allowance based on the aging of our accounts receivable by the historical payment patterns of each type of payor, write-off trends, and other relevant factors. A significant portion of our provision for bad debt relates to co-payments and deductibles owed to us from patients with insurance. Although we attempt to collect deductibles and co-payments due from patients with insurance at the time of service, this attempt to collect at the time of service is not an assessment of the patient’s ability to pay nor are revenues recognized based on an assessment of the patient’s ability to pay. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on the increased burden of co-payments and deductibles to be made by patients with insurance. These factors continuously change and can have an impact on collection trends and our estimation process.

 

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.

 

MEANINGFUL USE INCENTIVE - Under the American Recovery and Reinvestment Act of 2009, a program was enacted that provides financial incentives for providers that successfully implement and utilize electronic health record technology to improve patient care. Our software development team in Canada established an objective to build a Radiology Information System (RIS) software platform that has been awarded Meaningful Use certification. As this certified RIS system is implemented throughout our imaging centers, the radiologists that utilize this software can be eligible for the available financial incentives. In order to receive such incentive payments providers must attest that they have demonstrated meaningful use of the certified RIS in each stage of the program. We account for this meaningful use incentive under the Gain Contingency Model outlined in ASC 450-30. Under this model, we record within non-operating income, meaningful use incentive only after Medicare accepts an attestation from the qualified eligible professional demonstrating meaningful use. We recorded approximately $250,000 and $2.8 million during the three months ended March 31, 2017 and 2016, respectively, relating to this incentive.

 

DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized on a straight-line basis over the life of the associated loan, which approximates the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $1.9 million and $2.0 million, as of March 31, 2017 and December 31, 2016, respectively and related to the Company’s line of credit. In conjunction with our Fourth Amendment, a net addition of approximately $27,000 was added to deferred financing costs. See Note 5, Revolving Credit Facility, Notes Payable, and Capital Leases 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.

 

 

 

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PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over the estimated useful lives, 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 30 years. Maintenance and repairs are charged to expense as incurred.

 

BUSINESS COMBINATION - Accounting for acquisitions 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- Goodwill at March 31, 2017 totaled $240.0 million. Goodwill is recorded as a result of business combinations. Management evaluates goodwill at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We tested both goodwill for impairment on October 1, 2016, noting no impairment, and have not identified any indicators of impairment through March 31, 2017. Activity in goodwill for the three months ended March 31, 2017 is provided below (in thousands):

 

Balance as of December 31, 2016  $239,553 
Goodwill acquired through the acquisition of Resolution Imaging Medical Corp   1,901 
Goodwill acquired through the acquisition of MRI Centers of Torrance   401 
Goodwill included in assets held for sale   (1,901)
Balance as of March 31, 2017  $239,954 

 

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. 

  

EQUITY BASED COMPENSATION – We have one long-term incentive plan which we refer to as the 2006 Plan, which we amended and restated as of April 20, 2015 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 11, 2015. As of March 31, 2017, we have reserved for issuance under the Restated Plan 12,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights 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 6 Stock-Based Compensation for more information.

 

COMPREHENSIVE INCOME - ASC 220, Comprehensive Income, establishes rules for reporting and displaying comprehensive income and its components. Our unrealized gains or losses on foreign currency translation adjustments are included in comprehensive income. For the quarter ended December 31, 2016, we entered into an interest rate cap agreement. Assuming perfect effectiveness, any unrealized gains or losses related to the cap agreement that qualify for cash flow hedge accounting are classified as a component of income. Any ineffectiveness is recognized in earnings. The components of comprehensive income for the three months in the period ended March 31, 2017 are included in the consolidated statements of comprehensive loss.

 

 

 

 

 13 
 

 

DERIVATIVE INSTRUMENTS - In the fourth quarter of 2016, the Company 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 the Company’s variable rate bank debt. Under these arrangements, the Company purchased a cap on 3 month LIBOR at 2.0%. The Company is liable for a $5.3 million premium to enter into the caps which is being accrued over the life of the agreements.

 

At inception, we designated our interest rate cap agreements 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 on the effective portion of the hedge (i.e., change in fair value) is initially reported as a component of accumulated other comprehensive income in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. As of March 31, 2017, the cash flow hedges were deemed to be effective. No amount is expected to be reclassified into earnings in the next twelve months.

 

Below represents as of March 31, 2017 the fair value of our interest rate caps and loss recognized:

 

The fair value of derivative instruments as of March 31, 2017 is as follows (amounts in thousands):

 

  Derivatives  Balance Sheet
Location
Fair Value – Asset Derivatives
  Interest rate contracts Current and other non-current liabilities ($435)

 

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

 

  Effective Interest Rate Cap Amount of Loss
Recognized on Derivative
Location of Loss
Recognized in Income
on Derivative
  Interest rate contracts ($778) Other Comprehensive Loss

 

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.

 

The table 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 March 31, 2017 
   Level 1   Level 2   Level 3   Total 
Current and other non-current liabilities                    
Interest Rate Contracts  $   $(435)  $   $(435)

 

   As of December 31, 2016 
   Level 1   Level 2   Level 3   Total 
Current assets                    
Interest Rate Contracts  $   $818   $   $818 

 

 

 

 

 14 
 

The estimated fair value of these contracts, which are discussed in Note 2, 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.

 

The table below summarizes the estimated fair value and carrying amount of our long-term debt as follows (in thousands):

 

   As of March 31, 2017 
   Level 1   Level 2   Level 3   Total Fair
Value
   Total Face
Value
 
First Lien Term Loans  $   $475,830   $   $475,830   $472,875 
Second Lien Term Loans  $    168,840   $    168,840   $168,000 

 

   As of December 31, 2016 
   Level 1   Level 2   Level 3   Total   Total Face
Value
 
First Lien Term Loans  $   $483,129   $   $483,129   $478,938 
Second Lien Term Loans       167,580        167,580    168,000 

 

Our revolving credit facility had no aggregate principal amount outstanding as of March 31, 2017.

 

The estimated fair value of our long-term debt, which is discussed in Note 5, 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.

 

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 March 31, 
   2017   2016 
         
Net loss attributable to RadNet, Inc. common stockholders  $(1,210)  $(1,397)
           
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS          
Weighted average number of common shares outstanding during the period   46,560,017    46,581,491 
Basic and diluted net loss per share attributable to RadNet, Inc. common stockholders  $(0.03)  $(0.03)

 

For the three months ended March 31, 2017 and 2016 we excluded all outstanding options and restricted stock awards in the calculation of diluted earnings per share because their effect would be antidilutive.

 

INVESTMENT AT COST - On March 24, 2017, we acquired a 12.5% equity interest in Medic Vision – Imaging Solutions Ltd for $1.0 million. We also have an option to acquire an additional 12.5% equity interest for $1.4 million exercisable within one year from the initial share purchase date. Medic Vision, based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. In accordance with ASC 325-20, Cost Method Investments, the investment is recorded at its cost of $1.0 million. No impairment in our investment was noted as of the quarter ended March 31, 2017.

 

INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35% 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 March 31, 2017.

 

 

 

 

 15 
 

 

Joint venture investment and financial information

 

The following table is a summary of our investment in joint ventures during the quarter ended March 31, 2017 (in thousands):

 

Balance as of December 31, 2016  $43,509 
Equity in earnings in these joint ventures   1,928 
Distribution of earnings   (2,323)
Contributions in a new joint venture   3,000 
Balance as of March 31, 2017  $46,114 

 

We received management service fees from the centers underlying these joint ventures of approximately $3.1 million and $2.9 million for the quarters ended March 31, 2017 and 2016, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures.

 

The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2017 and December 31, 2016 and income statement data for the three months ended March 2017 and 2016 (in thousands):

 

Balance Sheet Data:  March 31, 2017   December 31, 2016 
Current assets  $40,737   $40,093 
Noncurrent assets   101,423    100,146 
Current liabilities   (16,408)   (14,077)
Noncurrent liabilities   (42,304)   (44,405)
   Total net assets  $83,448   $81,757 
Book value of RadNet joint venture interests  $39,741   $38,538 
Cost in excess of book value of acquired joint venture interests   6,373    4,970 
   Total value of Radnet joint venture interests  $46,114   $43,509 
   Total book value of other joint venture partner interests  $43,707   $43,219 

 

Income statement data for the three months ended March 31,  2017   2016 
         
Net revenue  $41,251   $39,220 
Net income  $4,130   $5,614 

 

NOTE 3 – RECENT ACCOUNTING STANDARDS

  

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, with early adoption permitted. We are evaluating the effect of this guidance.

 

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Clarifying the Definition of a Business. ASU 2017-01 changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is considered a business. ASU 2017-01 is effective for annual periods beginning after December 31, 2017 including interim periods within those periods. We are evaluating the effect of this guidance.

 

 

 

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In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases, (Topic 842): Amendments to the FASB Accounting Standards Codification. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The amendments in this update are effective for fiscal years (and interim reporting periods within fiscal years) beginning after December 15, 2018. Early adoption of the amendments is permitted for all entities. We are currently evaluating the impact this guidance will have on our consolidated financial statements, but expect this adoption will result in a significant increase in the assets and liabilities related to our leased properties and equipment.

 

In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance will become effective for the Company on January 1, 2018. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures. We believe the most significant impact will be to the presentation of our statement of operations where the provision for bad debts will be recorded as a direct reduction to revenues and will not be presented as a separate line item. We expect to adopt the new standard using the full retrospective application.

  

NOTE 4 – FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE

 

Acquisitions

 

On January 13, 2017, we completed our acquisition of certain assets of Resolution Medical Imaging Corporation, consisting of two multi modality imaging centers located in Santa Monica, CA for total purchase consideration of $4.0 million including cash consideration of $2.1 million, the assumption of $1.6 million in equipment debt and a payoff of a small business administration loan of $241,000. We have made a preliminary fair value determination of the acquired assets and approximately $1.9 million of fixed assets, $31,000 of other assets, $100,000 covenant not to compete, and $1.9 million of goodwill were recorded. The purchase of Resolution was enacted to contribute its assets to a joint venture with Cedars Sinai Medical Corporation which was effective April 1, 2017. See Note 7, Subsequent Events for more information on the joint venture. The following table summarizes the major categories of assets classified as held for sale in the accompanying condensed consolidated balance sheets at March 31, 2017 (in thousands):

 

Property and equipment, net  $1,896 
Other assets   31 
Goodwill   1,901 
Intangible Assets   100 
Total assets held for sale  $3,928 
      
Notes payable   353 
Capital lease   1,220 
Total liabilities held for sale  $1,573 
Net Assets Held for Sale  $2,355 

 

On February 1, 2017, we completed our acquisition of certain assets of MRI Centers, Inc., consisting of one single-modality imaging center located in Torrance, CA providing MRI and sports medicine services, for cash consideration of $800,000 and the payoff of $81,000 in debt. We have made a fair value determination of the acquired assets and approximately $289,000 of fixed assets, $9,800 of other assets, $100,000 covenant not to compete and $401,000 of goodwill were recorded.

 

 

 

 17 
 

 

Sale of Healthcare Rhode Island:

 

On November 4, 2016, the Board of Directors resolved to sell the Company’s interest in five of its Rhode Island imaging centers operating under the name The Imaging Institute within the upcoming 12 months. The following table summarizes the major categories of assets classified as held for sale in the accompanying condensed consolidated balance sheets at March 31, 2017 (in thousands):

 

Property and equipment, net  $1,349 
Other assets   21 
Goodwill   1,126 
Total assets held for sale  $2,496 

 

As the sale of these assets does not represent a strategic shift that will have a major effect on the Company’s operations and financial results, it is not classified as a discontinued operation.

 

Formation of a joint venture:

 

On January 6, 2017, Image Medical Inc., a wholly owned subsidiary of RadNet, acquired a 49% economic interest ScriptSender, LLC, a partnership held by two individuals 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. Image Medical will contribute $3.0 million to the partnership for its 49% ownership stake over a three year period representing the maximum risk in the venture. As of March 31, 2017, the carrying amount of the investment is $2.8 million. We determined that ScriptSender, LLC is a Variable Interest Entity but we are not a primary beneficiary since RadNet does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance.

 

NOTE 5 – REVOLVING CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASES

 

Revolving credit facility, notes payable, and capital lease obligations:

 

As of the three months ended March 31, 2017 our debt obligations consist of the following (in thousands):

 

   March 31,   December 31, 
   2017   2016 
         
First Lien Term Loans   472,875    478,938 
           
Second Lien Term Loans   168,000    168,000 
           
Discounts on term loans   (16,624)   (16,783)
           
Promissory note payable to the former owner of a practice acquired at an interest rate of 1.5% due through 2019   883    980 
           
Equipment notes payable at interest rates ranging from 3.3% to 10.2%, due through 2021, collateralized by medical equipment   641    341 
           
Obligations under capital leases at interest rates ranging from 2.5% to 10.8%, due through 2022, collateralized by medical and office equipment   11,650    7,256 
Debt held for contribution to joint venture   (1,573)    
Total debt obligations   635,852    638,732 
Less: current portion   (27,842)   (26,557)
Long term portion debt obligations  $608,010   $612,175 

 

 

 

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Term Loans, Revolving Credit Facility and Financing Activity Information:

 

Included in our consolidated balance sheet at March 31, 2017 are $624.3 million of senior secured term loan debt (net of unamortized discounts of $16.6 million), broken down by loan agreement as follows (in thousands):

 

   As of March 31, 2017 
   Face
Value
   Discount   Total Carrying
Value
 
First Lien Term Loans  $472,875   $(14,676)  $458,199 
Second Lien Term Loans  $168,000   $(1,948)  $166,052 
Total  $640,875   $(16,624)  $624,251 

 

Our revolving credit facility had no aggregate principal amount outstanding as of March 31, 2017.

 

At March 31, 2017, our credit facilities were comprised of two tranches of term loans and a revolving credit facility of $117.5 million.

 

As of March 31, 2017, we were in compliance with all covenants under our credit facilities.

 

The following describes our 2017 financing activities:

 

Fourth Amendment to First Lien Credit Agreement

 

On February 2, 2017, we entered into Amendment No. 4 (the “Fourth Amendment”) to our Amended and Restated First Lien Credit and Guaranty Agreement dated July 1, 2016 (as amended from time to time, the “First Lien Credit Agreement”). Pursuant to the Fourth Amendment, the interest rate charged for the applicable margin on the first lien term loans and the revolving credit facility was reduced by 50 basis points, from 3.75% to 3.25%. The minimum LIBOR rate underlying the first lien term loans remains at 1.0%. Except for such reduction in the interest rate on credit extensions, the Fourth Amendment did not result in any other material modifications to First Lien Credit Agreement. RadNet incurred expenses for the transaction in the amount of $543,000, which was recorded to discount on debt and will be amortized over the remaining term of the agreement.

 

The following describes our prior applicable financing activities:

 

Restatement Amendment and the First Lien Credit Agreement

 

On July 1, 2016, (the “Restatement Effective Date”), we entered into Amendment No. 3 to Credit and Guaranty Agreement (the “Restatement Amendment”) pursuant to which we amended and restated our then existing First Lien Credit Agreement. Pursuant to the First Lien Credit Agreement, we have issued $485 million of senior secured term loans (the “First Lien Term Loans”) and established a $117.5 million senior secured revolving credit facility (the “Revolving Credit Facility”). Prior to the Restatement Effective Date, our first lien credit facilities consisted of a Credit and Guaranty Agreement that we entered into on October 10, 2012 (the “Original First Lien Credit Agreement”), as subsequently amended by a first amendment dated April 3, 2013 (the “2013 Amendment”), a second amendment dated March 25, 2014 (the “2014 Amendment”), and a joinder agreement dated April 30, 2015 (the “2015 Joinder” and collectively with the Original First Lien Credit Agreement, the 2013 Amendment and the 2014 Amendment, the “Prior First Lien Credit Agreement”). The First Lien Credit Agreement increased the aggregate principal amount of First Lien Term Loans to $485.0 million and increased the Revolving Credit Facility to $117.5 million. Proceeds from the First Lien Credit Agreement were used to repay the previously outstanding first lien loans under the Prior First Lien Credit Agreement, make a $12.0 million principal payment of the Second Lien Term Loans (as described below), pay costs and expenses related to the First Lien Credit Agreement and provide approximately $10.0 million for general corporate purposes.

 

Interest. The interest rates payable on the First Lien Term Loans (after giving effect to the Fourth Amendment described above) are (a) the Adjusted Eurodollar Rate (as defined in the First Lien Credit Agreement) plus 3.25% per annum or (b) the Base Rate (as defined in the First Lien Credit Agreement) plus 2.25% per annum. As applied to the First Lien Term Loans, the Adjusted Eurodollar Rate has a minimum floor of 1.0%. The three month Adjusted Eurodollar Rate at March 31, 2017 was 1.15%.

 

 

 

 19 
 

 

Payments. The scheduled quarterly principal payments of the First Lien Term Loans is approximately $6.1 million, with the balance due at maturity. Prior to the Restatement Amendment, the quarterly principal payments on the first lien term loans under the Prior First Lien Credit Agreement were approximately $6.2 million.

 

Maturity Date. The maturity date for the First Lien Term Loans shall be on the earliest to occur of (i) the seventh anniversary of the Restatement Effective Date, (ii) the date on which all First Lien Term Loans shall become due and payable in full under the First Lien Credit Agreement, whether by acceleration or otherwise, and (iii) September 25, 2020 if our indebtedness under the Second Lien Credit Agreement has not been repaid, refinanced or extended prior to such date.

 

Incremental Feature: Under the First Lien Credit Agreement, we can elect to request 1) an increase to the existing Revolving Credit Facility and/or 2) additional First Lien Term Loans, provided that the aggregate amount of such increases or additions does not exceed (A) an amount not in excess of $100.0 million minus any incremental loans requested under the similar provisions of the Second Lien Credit Agreement or (B) if the First Lien Leverage Ratio would not exceed 3.50:1.00 after giving effect to such incremental facilities, an uncapped amount, 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 any incremental commitment or loan.

 

Revolving Credit Facility: The First Lien Credit Agreement provides for a $117.5 million Revolving Credit Facility. The termination date of the Revolving Credit Facility is the earliest to occur of: (i) July 1, 2021, (ii) the date the Revolving Credit Facility is permanently reduced to zero pursuant to section 2.13(b) of the First Lien Credit Agreement, which addresses voluntary commitment reductions, (iii) the date of the termination of the Revolving Credit Facility due to specific events of default pursuant to section 8.01 of the First Lien Credit Agreement, and (iv) September 25, 2020 if our indebtedness under the Second Lien Credit Agreement has not been repaid, refinanced or extended prior to such date. Amounts borrowed under the Revolving Credit Facility bear interest based on types of borrowings as follows (after giving effect to the Fourth Amendment described above): (i) unpaid principal on loans under the Revolving Credit Facility at the Adjusted Eurodollar Rate (as defined in the First Lien Credit Agreement) plus 3.25% per annum or the Base Rate (as defined in the First Lien Credit Agreement) plus 2.25% per annum, (ii) letter of credit fees at 3.25% per annum and fronting fees for letters of credit 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, and (iii) commitment fee of 0.5% per annum on the unused revolver balance.

 

Second Lien Credit Agreement:

 

On March 25, 2014, we entered into a Second Lien Credit and Guaranty Agreement (as amended from time to time, the “Second Lien Credit Agreement”) pursuant to which we issued $180 million of secured term loans (the “Second Lien Term Loans”). The proceeds from the Second Lien Term Loans were used to redeem our 10 3/8% senior unsecured notes, due 2018, to pay the expenses related to the transaction and for general corporate purposes. On July 1, 2016, in conjunction with the Restatement Amendment, a $12.0 million principal payment was made on the Second Lien Term Loans.

 

The Second Lien Credit Agreement provides for the following:

 

Interest. The interest rates payable on the Second Lien Term Loans are (a) the Adjusted Eurodollar Rate (as defined in the Second Lien Credit Agreement) plus 7.0% or (b) the Base Rate (as defined in the Second Lien Credit Agreement) plus 6.0%. The Adjusted Eurodollar Rate has a minimum floor of 1.0% on the Second Lien Term Loans. The three month Adjusted Eurodollar Rate at March 31, 2017 was 1.15%. The rate paid on the Second Lien Term Loan at March 31, 2017 was 8.15%.

 

Payments. There is no scheduled amortization of the principal of the Second Lien Term Loans. Unless otherwise prepaid as a result of the occurrence of certain mandatory prepayment events, all principal will be due and payable on the termination date described below.

 

Termination. The maturity date for the Second Lien Term Loans is the earlier to occur of (i) March 25, 2021, and (ii) the date on which the Second Lien Term Loans shall otherwise become due and payable in full under the Second Lien Credit Agreement, whether by voluntary prepayment per section 2.13(a) of the Second Lien Credit Agreement or events of default per section 8.01 of the Second Lien Credit Agreement.

 

 

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NOTE 6 – STOCK-BASED COMPENSATION

 

Stock Incentive Plans

 

Options

 

We have one long-term equity incentive plan which we refer to as the 2006 Equity Incentive Plan, which we amended and restated as of April 20, 2015 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 11, 2015. As of March 31, 2017, we have reserved for issuance under the Restated Plan 12,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights 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 generally vest over three to five years and expire five to ten years from the date of grant.

 

As of March 31, 2017, we had outstanding options to acquire 560,149 shares of our Common Stock, of which options to acquire 205,000 shares were exercisable. During the three months ended March 31, 2017, we granted options to acquire 184,523 shares under our Restated Plan.

  

The following summarizes all of our option transactions for the three months ended March 31, 2017:

 

           Weighted Average     
       Weighted Average   Remaining   Aggregate 
Outstanding Options      Exercise price   Contractual Life   Intrinsic 
Under the 2006 Plan  Shares   Per Common Share   (in years)   Value 
                 
Balance, December 31, 2016   375,626   $6.82           
Granted   184,523    6.30           
Balance, March 31, 2017   560,149    6.65    6.04   $163,700 
Exercisable at March 31, 2017   205,000    7.51    0.68    154,400 

 

Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on March 31, 2017 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 March 31, 2017. No options were exercised during the three months ended March 31, 2017. As of March 31, 2017, total unrecognized stock-based compensation expense related to non-vested employee awards was $996,586, which is expected to be recognized over a weighted average period of approximately 3.3 years.

 

Restricted Stock Awards (“RSA’s”)

 

The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of March 31, 2017, we have issued a total of 4,896,036 RSA’s of which 539,993 were unvested at March 31, 2017.

 

The following summarizes all unvested RSA’s activities during the three months ended March 31, 2017:

 

   RSA's   Weighted-Average Remaining Contractual Term (Years)   Weighted-Average Fair Value 
RSA's unvested at December 31, 2016   573,145        $6.18 
Changes during the period               
             Granted   632,025        $6.05 
             Vested   (665,177)       $6.40 
RSA's unvested at March 31, 2017   539,993    0.96   $5.55 

 

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

 

 

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Other stock bonus awards

 

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 three months ended March 31, 2017 we issued 10,000 shares relating to these awards.

 

Plan summary

 

In sum, of the 12,000,000 shares of common stock reserved for issuance under the Restated Plan, at March 31, 2017, we had issued 12,994,935 total shares between options, RSA’s and other stock awards. With options cancelled and RSA’s forfeited amounting to 2,975,009 and 59,053 shares, respectively, there remain 2,039,137 shares available under the Restated Plan for future issuance.

 

NOTE 7 – SUBSEQUENT EVENTS

 

On April 1, 2017 we formed a majority owned subsidiary, West Valley Imaging Group LLC (“WVI”) with Cedars Sinai Medical Center (“CSMC”). RadNet contributed assets in four of its imaging centers with a total value of $18.2 million for a 75% economic interest and CSMC contributed $6.1 million, for a 25% economic interest. Located in Tarzana California, WVI will offer imaging and oncology services. On April 1, 2017 we completed a sale of 2 wholly owned oncology practices to Cedars Sinai Medical Center in connection with formation of the WVI subsidiary described above for approximately $500,000.

 

On April 1, 2017 we entered into a joint venture with CSMC, Santa Monica Imaging Group, LLC. Located in Santa Monica, California, the operation will offer multi-modality imaging services. Total agreed contribution is $2.6 million of cash and assets with RadNet contributing $1.0 million for a 40% economic interest and CSMC contributing $1.6 million for a 60% economic interest.

 

On May 1, 2017 we completed a sale of 5 wholly owned imaging centers located in Rhode Island. The sale was made to Rhode Island Medical Imaging, Inc. for approximately $5.0 million.

 

On May 3, 2017 we completed our purchase of a single multi-modality imaging center located in Silver Spring, MD for approximately $2.4 million.

 

 

 

 

 

 

 

 

 

 

 

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

 

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this quarterly report.

 

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 increased business from new equipment or operations and our ability to finance our operations and repay our outstanding indebtedness, including our increased amortization payments, 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, 2016, as amended 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 March 31, 2017, we operated directly or indirectly through joint ventures with hospitals, 303 centers located in California, Delaware, Florida, Maryland, New Jersey, New York, and Rhode Island. 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. 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. For the three months ended March 31, 2017 and 2016, we performed 1,534,243 and 1,496,909 diagnostic imaging procedures, respectively, and generated total net revenue of $229.0 million and $216.4 million, respectively.

 

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., Breastlink Medical Group, Inc. and Beverly Radiology 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. (“DIS”), 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.

 

 

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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 for 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 provides 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 other 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. 

 

We contract with nine medical groups which provide professional medical services at all of our facilities in Manhattan and Brooklyn, New York. These contracts are similar to our contract with BRMG. Six of these groups are owned 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 these medical groups which provide professional medical services at one of our Manhattan facilities. 

 

RadNet provides non-medical, technical and administrative services to BRMG and the nine medical groups mentioned above (“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 the management agreement with us, all cash flows of BRMG and the NY Groups are transferred to us.  

 

We have determined that BRMG and the NY Groups are variable interest entities, and 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 $35.5 million and $34.0 million of revenue, net of management service fees to RadNet, for the three months ended March 31, 2017 and 2016, respectively, and $35.5 million and $34.0 million of operating expenses for the three months ended March 31, 2017 and 2016, respectively. RadNet recognized in its condensed consolidated statement of operations $113.3 million and $104.0 million of net revenues for the three months ended March 31, 2017, and 2016 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 March 31, 2017 and December 31, 2016, we have included approximately $106.1 million and $100.0 million, respectively, of accounts receivable and approximately $10.3 million and $9.0 million of accounts payable and accrued liabilities related to BRMG and the NY Groups.

 

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, both BRMG and the NY Groups are managed to recognize no net income or net loss and, therefore, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. 

 

 

 

 

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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. Because of the controlling relationship of Dr. Berger and Dr. Crues in the California and New York City practices as stated in detail above, we consolidate the revenue and expenses.

 

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.

 

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 our annual report on Form 10-K for the year ended December 31, 2016, as amended, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates. The most significant areas involving management’s judgments and estimates are described below.

 

Use of Estimates

 

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements that were prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Management makes estimates and assumptions when preparing financial statements. These estimates and assumptions affect various matters, including:

 

  · our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements;
     
  · our disclosure of contingent assets and liabilities at the dates of the financial statements; and
     
  · our reported amounts of net revenue and expenses in our consolidated statements of operations during the reporting periods.

 

These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ materially from these estimates.

 

During the period covered in this report, there were no material changes to the critical accounting estimates we use, and have described in our annual report on Form 10-K for the fiscal year ended December 31, 2016, as amended.

 

Revenues

 

Service fee revenue, net of contractual allowances and discounts, consists of net patient fees received from various payors and patients themselves based mainly upon established contractual billing rates, less allowances for contractual adjustments and discounts. As it relates to BRMG and the NY Groups centers, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by BRMG and the NY Groups as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees from BRMG and the NY Groups. As it relates to non-BRMG and NY Groups centers, namely the affiliated physician groups, 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. 

 

 

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Service fee revenues are recorded during the period the services are provided based upon the estimated amounts due from the patients and third-party payors. Third-party payors include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances are based on historical collection rates of payor reimbursement contract agreements. We also record a provision for doubtful accounts based primarily on historical collection rates from related to patient copayments and deductible amounts for patients who have health care coverage under one of our third-party payors.

 

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 service fee revenue, net of contractual allowances and discounts, the provision for bad debts, and revenue under capitation arrangements are summarized in the following table (in thousands):

 

   Three Months Ended
March 31,
 
   2017   2016 
Commercial insurance  $140,995   $131,491 
Medicare   47,678    45,820 
Medicaid   6,733    7,023 
Workers' compensation/personal injury   9,057    9,514 
Other (1)   8,287    6,994 
Service fee revenue, net of contractual allowances and discounts   212,750    200,842 
Provision for bad debts   (11,646)   (10,304)
Net service fee revenue   201,104    190,538 
Revenue under capitation arrangements   27,909    25,850 
Total net revenue  $229,013   $216,388 

___________________________

(1) Other consists of revenue from teleradiology services, consulting fees and software revenue.

 

Provision for Bad Debts

 

We provide for an allowance against accounts receivable that could become uncollectible to reduce the carrying value of such receivables to their estimated net realizable value. We estimate this allowance based on the aging of our accounts receivable by the historical payment patterns of each type of payor, write-off trends, and other relevant factors. A significant portion of our provision for bad debt relates to co-payments and deductibles owed to us from patients with insurance. Although we attempt to collect deductibles and co-payments due from patients with insurance at the time of service, this attempt to collect at the time of service is not an assessment of the patient’s ability to pay nor are revenues recognized based on an assessment of the patient’s ability to pay. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on the increased burden of co-payments and deductibles to be made by patients with insurance. These factors continuously change and can have an impact on collection trends and our estimation process.

 

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

 

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.

 

 

 

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Deferred Tax Assets

 

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.

 

Valuation of Goodwill and Indefinite Lived Intangibles

 

Goodwill at March 31, 2017 totaled $240.0 million. Indefinite Lived Intangible Assets at March 31, 2017 totaled $7.9 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. Management evaluates goodwill and trade name intangibles, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of a reporting unit is estimated using a combination of the income or discounted cash flows approach and the market approach, which uses comparable market data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. Impairment of trade name intangibles is tested at the subsidiary level by comparing the subsidiary’s trade name carrying amount to its respective fair value. We tested both goodwill and trade name intangibles for impairment on October 1, 2016, noting no impairment, and have not identified any indicators of impairment through March 31, 2017.

 

Long-Lived Assets

 

We evaluate our long-lived assets (property and equipment) and intangibles, other than goodwill, for impairment whenever indicators of impairment exist. 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 March 31, 2017.

 

Recent Accounting Standards

 

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, with early adoption permitted. We are evaluating the effect of this guidance.

 

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Clarifying the Definition of a Business. ASU 2017-01 changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is considered a business. ASU 2017-01 is effective for annual periods beginning after December 31, 2017 including interim periods within those periods. We are evaluating the effect of this guidance.

 

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases, (Topic 842): Amendments to the FASB Accounting Standards Codification. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The amendments in this update are effective for fiscal years (and interim reporting periods within fiscal years) beginning after December 15, 2018. Early adoption of the amendments is permitted for all entities. We are currently evaluating the impact this guidance will have on our consolidated financial statements, but expect this adoption will result in a significant increase in the assets and liabilities related to our leased properties and equipment.

 

In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance will become effective for the Company on January 1, 2018. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures. We believe the most significant impact will be to the presentation of our statement of operations where the provision for bad debts will be recorded as a direct reduction to revenues and will not be presented as a separate line item. We expect to adopt the new standard using the full retrospective application.

 

 

 

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Results of Operations

 

The following table sets forth, for the periods indicated, the percentage that certain items in the statements of operations bears to revenue, net of contractual allowances and discounts and inclusive of revenue under capitation contracts.

 

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

 

   Three Months Ended 
   March 31, 
   2017   2016 
NET REVENUE          
Service fee revenue, net of contractual allowances and discounts   88.4%    88.6% 
Provision for bad debts   -4.8%    -4.5% 
Net service fee revenue   83.6%    84.1% 
Revenue under capitation arrangements   11.6%    11.4% 
Total net revenue   95.2%    95.5% 
OPERATING EXPENSES          
Cost of operations, excluding depreciation and amortization   85.4%    86.8% 
Depreciation and amortization   6.9%    7.2% 
Gain on sale and disposal of equipment   0.0%    0.0% 
Severance costs   0.1%    0.1% 
Total operating expenses   92.4%    94.1% 
           
INCOME FROM OPERATIONS   2.8%    1.3% 
           
OTHER INCOME AND EXPENSES          
Interest expense   4.3%    4.7% 
Meaningful use incentive   -0.1%    -1.2% 
Equity in earnings of joint ventures   -0.8%    -1.0% 
Other expenses   0.0%    0.0% 
Total other expenses   3.4%    2.5% 
LOSS BEFORE INCOME TAXES   -0.5%    -1.2% 
Benefit from income taxes   0.2%    0.7% 
NET LOSS   -0.4%    -0.5% 
Net income attributable to noncontrolling interests   0.1%    0.1% 
NET LOSS ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS   -0.5%    -0.6% 

 

Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016

 

Service Fee Revenue

 

Service fee revenue for the three months ended March 31, 2017 was $212.8 million compared to $200.8 million for the three months ended March 31, 2016, an increase of $11.9 million, or 5.9%.

 

Inclusive of only centers in operation over the first quarters of 2017 and 2016, service fee revenue increased $10.4 million or 5.3%. Increased reimbursement rates from the 2017 fee schedules combined with higher procedure volumes related to the new rates were primarily responsible for the 5.3% growth as same store volumes for MRI, CT, and PET scans rose 3.8% over the period ending March 31, 2017 as compared to March 31, 2016. This comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, service fee revenue from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $5.2 million. For the three months ended March 31, 2016, service fee revenue from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $3.7 million.

 

 

 

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Provision for Bad Debts

 

Provision for bad debts increased $1.3 million, or 13.0%, to approximately $11.6 million, or 5.5% of service fee revenue, for the three months ended March 31, 2017 compared to $10.3 million, or 5.1% of service fee revenue, for the three months ended March 31, 2016. This 13.0% increase was related to service fee revenue growth for the period ending March 31, 2017 over the period ending March 31, 2016. We review our provision by the application of judgment based on factors such as contractual reimbursement rates, payor mix, the age of receivables, historical cash collection experience and other relevant information.

 

Net Service Fee Revenue

 

Total net service fee revenue for the three months ended March 31, 2017 was $201.1 million compared to $190.5 million for the three months ended March 31, 2016, an increase of $10.6 million or 5.6%.

 

Total net service fee revenue, including only centers which were in operation throughout the first quarters of both 2017 and 2016 had an increase of $9.1 million, or 4.9%. This comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $5.0 million. For the three months ended March 31, 2016, net service fee revenue from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $3.5 million.

 

Revenue Under Capitation Arrangements

 

Revenue under capitation arrangements for the three months ended March 31, 2017 was $27.9 million compared to $25.9 million for the three months ended March 31, 2016, an increase of $2.1 million or 8.0%.

 

Revenue under capitation arrangements, limited to centers which were in operation throughout the first quarters of 2017 and 2016 increased $2.1 million, or 8.2%. The increase relates to revenues from 4% growth in insured members under existing capitation plans combined with a 4.2% annualized rise in reimbursement rates. This comparison excludes revenue contributions from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, no revenue under capitation arrangements from centers that were acquired or divested subsequent to January 1, 2016 was excluded from the above comparison. For the three months ended March 31, 2016, revenue under capitation arrangements from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $55,000.

 

Operating Expenses

 

Total operating expenses for the three months ended March 31, 2017 increased approximately $8.9 million, or 4.2%, from $213.4 million for the three months ended March 31, 2016 to $222.3 million for the three months ended March 31, 2017. The following table sets forth our cost of operations and total operating expenses for the three months ended March 31, 2017 and 2016 (in thousands):

 

   2017   2016 
         
Salaries and professional reading fees, excluding stock-based compensation  $107,996   $104,946 
Stock-based compensation   3,276    2,733 
Building and equipment rental   19,565    19,179 
Medical supplies   12,359    13,417 
Other operating expenses  *   62,258    56,551 
Cost of operations   205,454    196,826 
           
Depreciation and amortization   16,654    16,412 
(Gain) loss on sale and disposal of equipment   (45)    
Severance costs   203    167 
Total operating expenses  $222,266   $213,405 

_________________________

*     Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, utilities, marketing, travel and other expenses.

 

 

 

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

 

Salaries and professional reading fees increased $3.1 million, or 2.9%, to $108.0 million for the three months ended March 31, 2017 compared to $104.9 million for the three months ended March 31, 2016.

 

Salaries and professional reading fees, limited to only centers in operation throughout the first quarters of both 2017 and 2016, increased $2.4 million, or 2.4%. For the three months ended March 31, 2017, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $2.8 million. For the three months ended March 31, 2016, salaries and professional reading fees from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was approximately $2.1 million.

 

Stock-based compensation

 

Stock-based compensation increased $541,000, or 19.9%, to approximately $3.3 million for the three months ended March 31, 2017 compared to $2.7 million for the three months ended March 31, 2016. This increase was driven by the higher fair value of RSA’s awarded and vested in the first quarter of 2017 as compared to RSA’s awarded and vested in the prior year’s first quarter.

  

Building and equipment rental

 

Building and equipment rental expenses increased $386,000 or 2.0%, to $19.6 million for the three months ended March 31, 2017 compared to $19.2 million for the three months ended March 31, 2016.

 

Building and equipment rental expenses, including only centers which were in operation throughout the first quarters of 2017 and 2016, increased $257,000, or 1.4%. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $649,000. For the three months ended March 31, 2016, building and equipment rental expenses from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was approximately $520,000.

 

Medical supplies

 

Medical supplies expense decreased $1.1 million, or 7.9%, to $12.4 million for the three months ended March 31, 2017 compared to $13.4 million for the three months ended March 31, 2016.

 

Medical supplies expenses, including only those centers which were in operation throughout the first quarters of both 2017 and 2016, decreased $1.1 million, or 8.2%. This 8.2% decrease is primarily due to renegotiation of our medical supplier contracts and improved internal procedures to control inventory usage. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, medical supplies expenses from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $161,000. For the three months ended March 31, 2016, medical supplies expense from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $125,000.

 

Other operating expenses

 

Other operating expenses increased $5.7 million, or 10.1%, to $62.3 million for the three months ended March 31, 2017 compared to $56.6 million for the three months ended March 31, 2016.

 

Other operating expenses, limited to centers which were in operation throughout the first quarters of both 2017 and 2016, increased $4.8 million, or 8.6%. This 8.6% increase is primarily due to implementation costs for a new company wide billing system and outside services related to legal, temporary services, and collections. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, other operating expense from centers that were acquired or divested subsequent January 1, 2016 and excluded from the above comparison was $1.1 million. For the three months ended March 31, 2016, other operating expense from centers that were acquired or divested subsequent to January 1, 2016 was $244,000.

 

 

 

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Depreciation and amortization

 

Depreciation and amortization increased $242,000, or 1.5%, to $16.7 million for the three months ended March 31, 2017 compared to $16.4 million for the three months ended March 31, 2016.

 

Depreciation and amortization, inclusive of centers in operation during the first quarters of both 2017 and 2016 remained flat with no appreciable increase. This comparison excludes expenses from centers that were acquired or divested subsequent to January 1, 2016. For the three months ended March 31, 2017, depreciation expense from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $587,000. For the three months ended March 31, 2016, depreciation and amortization from centers that were acquired or divested subsequent to January 1, 2016 and excluded from the above comparison was $345,000.

 

Gain on sale and disposal of equipment

 

We recorded a gain on sale of equipment of approximately $45,000 for the three months ended March 31, 2017.

 

Severance costs

 

We incurred severance expenses of $203,000 for the three months ended March 31, 2017 and $167,000 for the three months ended March 31, 2016.

 

Interest expense

 

Interest expense for the three months ended March 31, 2017 decreased approximately $441,000, or 4.1%, to $10.2 million for the three months ended March 31, 2017 compared to $10.7 million for the three months ended March 31, 2016. Interest expense for the three months ended March 31, 2017 included $934,000 of combined amortization of deferred loan costs, discount on issuance of debt, derivatives, and incidental financing charges. Interest expense for the three months ended March 31, 2016 included $1.4 million of combined amortization of deferred loan costs, discount on issuance of debt, and incidental financing charges. Excluding these amounts for each period, interest expense remained flat with a mere $7,000 increase or 0.1%, for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. See “Liquidity and Capital Resources” below for more details on our credit facilities.

 

Meaningful use incentive

 

For the three months ended March 31, 2017 and March 31, 2016, we recognized other income from meaningful use incentive in the amount of $250,000 and $2.8 million, respectively. These amounts were earned under a Medicare program to promote the use of electronic health record technology. See Note 2 to the condensed consolidated financial statements contained herein for more detail regarding this meaningful use incentive.

 

Equity in earnings from unconsolidated joint ventures

 

For the period ending March 31, 2017 we recognized equity in earnings from unconsolidated joint ventures in the amount of $1.9 million. For the period ending March 31, 2016 we recognized equity in earnings from unconsolidated joint ventures of $2.3 million.

 

Benefit from income taxes

 

We had an income tax benefit for the three months ended March 31, 2017 of $458,000 or 34.7% of loss before income taxes, compared to the three months ended March 31, 2016 with income tax benefit of $1.5 million or 57.6% of loss before income taxes. The effective tax rate changed due to the restricted stock release, FIN 48 interest, and lack of ISO disqualifying dispositions in the current quarter.

 

Adjusted EBITDA

 

We use both GAAP and non-GAAP metrics to measure our financial results. One non-GAAP measure we believe assists us is Adjusted EBITDA. 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.

 

 

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We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and exclude losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling 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.

 

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 months ended March 31, 2017 and 2016, respectively:

 

   Three Months Ended March 31, 
   2017   2016 
         
Net loss attributable to RadNet, Inc. common stockholders  $(1,210)  $(1,397)
Less benefit from income taxes   (458)   (1,506)
Plus other expenses   3    2 
Plus interest expense   10,240    10,681 
Plus severance costs   203    167 
Less gain on sale and disposal of equipment   (45)    
Plus depreciation and amortization   16,654    16,412 
Plus non-cash employee stock-based compensation   3,276    2,733 
Adjusted EBITDA  $28,663   $27,092 

 

Liquidity and Capital Resources

 

We had cash and cash equivalents of $8.3 million and accounts receivable of $169.5 million at March 31, 2017, compared to cash and cash equivalents of $20.6 million and accounts receivable of $164.2 million at December 31, 2016. We had a working capital balance of $49.5 million and $62.6 million at March 31, 2017 and December 31, 2016, respectively. We had net loss attributable to RadNet, Inc. common stockholders for the three months ended March 31, 2017 and 2016 of $1.2 million and $1.4 million respectively. We also had stockholders’ equity of $53.1 million and $52.1 million at March 31, 2017 and December 31, 2016, respectively.

 

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.

   

Our $117.5 million revolving credit facility had no aggregate principal amount outstanding as of March 31, 2017. 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 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.

 

 

 

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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

 

Cash provided by operating activities was $30.9 million and $21.0 million for the three months ended March 31, 2017 and March 31, 2016, respectively.

 

Cash used in investing activities was $34.0 million and $27.8 million for the three months ended March 31, 2017 and 2016, respectively. For the three months ended March 31, 2017, we purchased property and equipment for approximately $30.4 million, acquired imaging facilities for $3.2 million and an investment at cost of $500,000.

 

Cash used in financing activities was $9.3 million for the three months ended March 31, 2017 and cash provided by financing activities was $6.8 million for the three months ended March 31, 2016. The cash used in financing activities for the three months ended March 31, 2017, was due to principal payments on our $472.9 million face value term loan, financing costs in regards to the Fourth Amendment to the Credit Agreement and pay down on equipment notes and capital leases. (See Note 5 to the condensed consolidated financial statements herein).

 

As of March 31, 2017, we were in compliance with all covenants under the Original Credit Agreement (as amended by the 2013 Amendment, the 2014 Amendment, the 2015 Joinder, the 2016 Amendment and the 2017 Amendment) and the Second Lien Credit Agreement.

 

Included in our condensed consolidated balance sheet at March 31, 2017 is $624.3 million of senior secured term loan debt (net of unamortized discounts of $16.6 million), broken down by loan agreement as follows (in thousands):

 

   As of March 31, 2017 
   Face Value   Discount   Total Carrying Value 
First Lien Term Loans  $472,875   $(14,676)  $458,199 
Second Lien Term Loans  $168,000   $(1,948)  $166,052 
Total  $640,875   $(16,624)  $624,251 

 

The following describes our 2017 financing activities:

 

Fourth Amendment to First Lien Credit Agreement

 

On February 2, 2017, we entered into Amendment No. 4 (the “Fourth Amendment”) to our Amended and Restated First Lien Credit and Guaranty Agreement dated July 1, 2016 (as amended from time to time, the “First Lien Credit Agreement”). Pursuant to the Fourth Amendment, the interest rate charged for the applicable margin on the first lien term loans and the revolving credit facility was reduced by 50 basis points, from 3.75% to 3.25%. The minimum LIBOR rate underlying the first lien term loans remains at 1.0%. Except for such reduction in the interest rate on credit extensions, the Fourth Amendment did not result in any other material modifications to First Lien Credit Agreement. RadNet incurred expenses for the transaction in the amount of $543,000, which was recorded to discount on debt and will be amortized over the remaining term of the agreement.

 

The following describes our prior applicable financing activities:

 

Restatement Amendment and the First Lien Credit Agreement

 

On July 1, 2016, (the “Restatement Effective Date”), we entered into Amendment No. 3 to Credit and Guaranty Agreement (the “Restatement Amendment”) pursuant to which we amended and restated our then existing First Lien Credit Agreement. Pursuant to the First Lien Credit Agreement, we have issued $485 million of senior secured term loans (the “First Lien Term Loans”) and established a $117.5 million senior secured revolving credit facility (the “Revolving Credit Facility”). Prior to the Restatement Effective Date, our first lien credit facilities consisted of a Credit and Guaranty Agreement that we entered into on October 10, 2012 (the “Original First Lien Credit Agreement”), as subsequently amended by a first amendment dated April 3, 2013 (the “2013 Amendment”), a second amendment dated March 25, 2014 (the “2014 Amendment”), and a joinder agreement dated April 30, 2015 (the “2015 Joinder” and collectively with the Original First Lien Credit Agreement, the 2013 Amendment and the 2014 Amendment, the “Prior First Lien Credit Agreement”). The First Lien Credit Agreement increased the aggregate principal amount of First Lien Term Loans to $485.0 million and increased the Revolving Credit Facility to $117.5 million. Proceeds from the First Lien Credit Agreement were used to repay the previously outstanding first lien loans under the Prior First Lien Credit Agreement, make a $12.0 million principal payment of the Second Lien Term Loans (as described below), pay costs and expenses related to the First Lien Credit Agreement and provide approximately $10.0 million for general corporate purposes.

 

 

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Interest. The interest rates payable on the First Lien Term Loans (after giving effect to the Fourth Amendment described above) are (a) the Adjusted Eurodollar Rate (as defined in the First Lien Credit Agreement) plus 3.25% per annum or (b) the Base Rate (as defined in the First Lien Credit Agreement) plus 2.25% per annum. As applied to the First Lien Term Loans, the Adjusted Eurodollar Rate has a minimum floor of 1.0%. The three month Adjusted Eurodollar Rate at March 31, 2017 was 1.15%.

 

Payments. The scheduled quarterly principal payments of the First Lien Term Loans is approximately $6.1 million, with the balance due at maturity. Prior to the Restatement Amendment, the quarterly principal payments on the first lien term loans under the Prior First Lien Credit Agreement were approximately $6.2 million.

 

Maturity Date. The maturity date for the First Lien Term Loans shall be on the earliest to occur of (i) the seventh anniversary of the Restatement Effective Date, (ii) the date on which all First Lien Term Loans shall become due and payable in full under the First Lien Credit Agreement, whether by acceleration or otherwise, and (iii) September 25, 2020 if our indebtedness under the Second Lien Credit Agreement has not been repaid, refinanced or extended prior to such date.

 

Incremental Feature: Under the First Lien Credit Agreement, we can elect to request 1) an increase to the existing Revolving Credit Facility and/or 2) additional First Lien Term Loans, provided that the aggregate amount of such increases or additions does not exceed (A) an amount not in excess of $100.0 million minus any incremental loans requested under the similar provisions of the Second Lien Credit Agreement or (B) if the First Lien Leverage Ratio would not exceed 3.50:1.00 after giving effect to such incremental facilities, an uncapped amount, 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 any incremental commitment or loan.

 

Revolving Credit Facility: The First Lien Credit Agreement provides for a $117.5 million Revolving Credit Facility. The termination date of the Revolving Credit Facility is the earliest to occur of: (i) July 1, 2021, (ii) the date the Revolving Credit Facility is permanently reduced to zero pursuant to section 2.13(b) of the First Lien Credit Agreement, which addresses voluntary commitment reductions, (iii) the date of the termination of the Revolving Credit Facility due to specific events of default pursuant to section 8.01 of the First Lien Credit Agreement, and (iv) September 25, 2020 if our indebtedness under the Second Lien Credit Agreement has not been repaid, refinanced or extended prior to such date. Amounts borrowed under the Revolving Credit Facility bear interest based on types of borrowings as follows (after giving effect to the Fourth Amendment described above): (i) unpaid principal on loans under the Revolving Credit Facility at the Adjusted Eurodollar Rate (as defined in the First Lien Credit Agreement) plus 3.25% per annum or the Base Rate (as defined in the First Lien Credit Agreement) plus 2.25% per annum, (ii) letter of credit fees at 3.25% per annum and fronting fees for letters of credit 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, and (iii) commitment fee of 0.5% per annum on the unused revolver balance.

 

Second Lien Credit Agreement:

 

On March 25, 2014, we entered into a Second Lien Credit and Guaranty Agreement (as amended from time to time, the “Second Lien Credit Agreement”) pursuant to which we issued $180 million of secured term loans (the “Second Lien Term Loans”). The proceeds from the Second Lien Term Loans were used to redeem our 10 3/8% senior unsecured notes, due 2018, to pay the expenses related to the transaction and for general corporate purposes. On July 1, 2016, in conjunction with the Restatement Amendment, a $12.0 million principal payment was made on the Second Lien Term Loans.

 

The Second Lien Credit Agreement provides for the following:

 

Interest. The interest rates payable on the Second Lien Term Loans are (a) the Adjusted Eurodollar Rate (as defined in the Second Lien Credit Agreement) plus 7.0% or (b) the Base Rate (as defined in the Second Lien Credit Agreement) plus 6.0%. The Adjusted Eurodollar Rate has a minimum floor of 1.0% on the Second Lien Term Loans. The three month Adjusted Eurodollar Rate at March 31, 2017 was 1.15%. The rate paid on the Second Lien Term Loan at March 31, 2017 was 8.15%.

 

Payments. There is no scheduled amortization of the principal of the Second Lien Term Loans. Unless otherwise prepaid as a result of the occurrence of certain mandatory prepayment events, all principal will be due and payable on the termination date described below.

 

Termination. The maturity date for the Second Lien Term Loans is the earlier to occur of (i) March 25, 2021, and (ii) the date on which the Second Lien Term Loans shall otherwise become due and payable in full under the Second Lien Credit Agreement, whether by voluntary prepayment per section 2.13(a) of the Second Lien Credit Agreement or events of default per section 8.01 of the Second Lien Credit Agreement.

 

 

 

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Subsequent Events

 

On April1, 2017 we formed a majority owned subsidiary, West Valley Imaging Group LLC (“WVI”) in conjunction with Cedars Sinai Medical Center (“CSMC”). RadNet contributed $18.2 million for a 75% economic interest and CSMC contributed $6.1 million, for a 25% economic interest. Located in Tarzana California, WVI will offer imaging and oncology services.

 

On April 1, 2017 we also entered into a joint venture with CSMC, Santa Monica Imaging Group, LLC. Located in Santa Monica, California, the operation will offer multi-modality imaging services. Total agreed contribution is $2.6 million of cash and assets with RadNet contributing $1.0 million for a 40% economic interest and CSMC contributing $1.6 million for a 60% economic interest.

 

On April 1, 2017 we completed a sale of 2 wholly owned oncology practices to Cedars Sinai Medical Center in connection with formation of the WVI subsidiary described above for approximately $500,000.

 

On May 1, 2017 we completed a sale of 5 wholly owned imaging centers from our Rhode Island reporting unit, Healthcare Rhode Island. The sale was made to Rhode Island Medical Imaging, Inc. for approximately $5.0 million.

 

On May 3, 2017 we completed our purchase of a single multi-modality imaging center located in Silver Spring, MD for approximately $2.4 million.

  

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 March 31, 2017, 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.

 

At March 31, 2017, we had $466.8 million outstanding subject to an adjusted Eurodollar election on First Lien Term Loans under the First Lien Credit Agreement and $168.0 million on Second Lien Term Loans under the Second Lien Credit Agreement. We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the First Lien Term Loans and the Second Lien Credit Agreement.

 

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. Under these arrangements, we purchased a cap on 3 month LIBOR at 2.0%. At March 31, 2017, 3 month LIBOR was 1.15%. The 2016 Caps are designed to provide a hedge against interest rate increases. 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 caps which is being accrued over the life of the 2016 Caps. See Note 2 to the consolidated financial statements contained herein.

 

A hypothetical 1% increase in the adjusted Eurodollar rates under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement over the rates experienced in 2016 would, after considering the effects of the 2016 Caps, result in an increase of $6.2 million in annual interest expense and a corresponding decrease in income before taxes.  At March 31, 2017, an additional $6.1 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 $61,000 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. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, our management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

 

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of March 31, 2017. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2017 because deficiencies in the design and operating effectiveness of several information technology dependent manual controls and certain information technology general controls (“ITGC’s”) related to the revenue and accounts receivable process caused a material weakness in our internal control over financial reporting as described in more detail below.

 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are transacted in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of its internal control over financial reporting as of March 31, 2017 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concluded that our internal control over financial reporting was not effective as of March 31, 2017 because of the material weakness described below.

 

A material weakness is defined as “a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.”

 

Our management initially identified certain control deficiencies in connection with the review of our controls at December 31, 2016 and concluded that, as of March 31, 2017, the following control deficiencies related to the Company’s revenue and accounts receivable process continue to aggregate to a material weakness in the Company’s internal control over financial reporting:

 

  · Certain information technology dependent manual controls which are (i) designed to ensure the completeness of revenue transaction processing, and (ii) designed to ensure a reasonable valuation of the Company’s accounts receivable balance were not performed timely, accurately or reviewed with sufficient precision

 

  · Certain user access, program change and operations control components of ITGCs pertaining to multiple systems which capture and bill revenue transactions were not operating effectively

 

The ineffective design and operation of these information technology dependent manual controls and ITGCs impacts a material portion of our revenue transactions. Our management is not aware of any material misstatement or inaccuracy in the financial statements included in this report.

 

 

 

 36 
 

 

Remediation Plan for Material Weakness

 

Our management, with oversight of our Audit Committee, has been actively engaged in developing a remediation plan to address the material weakness reported. During the quarter ended March 31, 2017, the Company began to implement remediation efforts as follows:

 

  · Ensure that all revenue-related IT dependent manual controls are performed on a timely basis with a sufficient level of precision.

 

  · Continue our plan to streamline the number of systems with enhanced quality and functionality utilized by the Company  for the capture and billing of revenue transactions

 

  · Implement effective user access controls across all revenue related systems to ensure proper user access and timely removal of terminated users, and improve documentation surrounding program change and information technology operations controls.

 

If the remedial measures described above are insufficient to address the material weakness described above, or are not implemented timely, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future and could have the effects described in “Item 1A. Risk Factors” in Part II of this Form 10-Q. 

 

Changes in Internal Control over Financial Reporting

 

Except for the remediation efforts described above, management did not identify any change in internal control over financial reporting occurring during the quarter ended March 31, 2017 that materially affected, or was reasonably likely to materially affect, the Company’s internal control over financial reporting. 

  

Inherent Limitations on Internal Control

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations. 

 

 

 

 

 

 

 

 37 
 

 

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, 2016, as amended. The risks described in our Form 10-K, as amended, 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

 

None.

 

ITEM 3.  Defaults Upon Senior Securities

 

None.

 

ITEM 4.  Mine Safety Disclosures

 

Not applicable.

 

ITEM 5.  Other Information

 

None.

 

ITEM 6.  Exhibits

 

Reference is made to the Exhibit Index immediately following the signature page of this report on Form 10-Q.

 

 

 

 

 

 

 

 

 

 38 
 

 

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: May 10, 2017 By: /s/ Howard G. Berger, M.D.
    Howard G. Berger, M.D., President and Chief Executive Officer
(Principal Executive Officer)
   
   
Date: May 10, 2017 By: /s/ Mark D. Stolper
    Mark D. Stolper, Chief Financial Officer
(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 39 
 

 

INDEX TO EXHIBITS

 

  Exhibit
Number
  Description
       
  10.1   Employment Agreement dated as of January 1, 2009 with Stephen M. Forthuber.
       
  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.DEF   XBRL Definition Linkbase Document
       
  101.LAB   XBRL Label Linkbase Document
       
  101.PRE   XBRL Presentation 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.

  

 

 

 

 40 

EX-10.1 2 radnet_ex1001.htm EMPLOYMENT AGREEMENT

EXHIBIT 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement ("Agreement") is entered into as of January 1, 2009, by and between RADNET MANAGEMENT, INC., a Delaware corporation (the "Company"), and STEPHEN M. FORTHUBER (the "Employee").

 

In consideration of the mutual covenants and conditions set forth herein, and other good and valuable consideration, the parties hereby agree as follows:

 

1. Employment. The Company hereby employs Employee in the capacity of Executive Vice President and Chief Operations Officer — Eastern Operations. Employee accepts such employment and agrees to perform such services as are customary to such office and as shall from time to time be assigned to him by the Company.

 

2. Term. Employee's employment hereunder shall commence on January 1, 2009 (the "Commencement Date") and shall continue until terminated as provided in Section 5. Employee's employment will be on a full-time basis requiring the devotion of such amount of his professional time as is necessary for the efficient operation of the business of the Company. Notwithstanding the above, employee shall be permitted to hold directorships in companies not in competition with RadNet, positions with charitable organizations, passive business interests and personal investments.

 

3.  Compensation and Benefits.

 

3.1. Salary. For the performance of Employee's duties hereunder, the Company shall pay Employee an annual salary of Three Hundred Fifty Thousand Dollars ($350,000), payable (after deducting required withholdings) in accordance with the Company's ordinary payroll practices.

 

3.2. Bonus. Employee will be a participant in all Company bonus or incentive compensation plans that are generally available to the Company's corporate officers.

 

3.3. Benefits. Employee shall be entitled to such medical, disability and life insurance coverage and such vacation, sick leave and holiday benefits, if any, and any other benefits as are made available to the Company's corporate officers, all in accordance with the Company's benefits program in effect from time to time.

 

3.4. Reimbursement of Expenses. Employee shall be entitled to be reimbursed for all reasonable expenses, including but not limited to expenses for travel, meals and entertainment, incurred by Employee in con nection with and reasonably related to the furtherance of the Company's business; provided, however, that the Company requires as a condition to such reimbursements, that Employee comply with the Company's expense reimbursement policies.

 

 

 

 

 1 
 

 

3.5. Annual Review. The Company's Board of Directors (or, if delegated by the Board of Directors, the Company's Compensation Committee or Chief Executive Officer) will, on an annual basis, review Employee's performance and compensation hereunder (including salary, bonus and stock options and/or other equity incentives).

 

4. Change of Control.

 

4.1. In the event of a Change of Control of the Company (as defined below), all options, warrants and any other deferred equity compensation then granted to Employee which are unvested at the date of the Change of Control will vest.

 

4.2. Definition. As used herein, a "Change of Control" of the Company shall be deemed to have occurred when:

 

(a) The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this Section 4, the following acquisitions shall not constitute a Change of Control: (w) any acquisition by the Company; (x) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; or (y) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (c) below; or

 

(b) During any period of two consecutive years (not including any period prior to the Effective Date) individuals who constitute the Board on the Effective Date (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

 

(c) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, thirty-five percent (35%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

 

 

 

 2 
 

 

(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

For purposes of this section, (i) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a "group" as defined in Section 13(d) thereof, (ii) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto, and (iii) "Effective Date" means the effective date of this Agreement; provided, however, that with respect to the treatment of stock options or other stock-based awards, "Effective Date" shall mean the effective date of the plan under which such options or awards are granted, to the extent that the existence of a Change in Control is measured by reference to such effective date.

 

5. Termination.

 

5.1. Termination Events. Employee's employment hereunder will terminate upon the occurrence of any of the following events:

 

(a) Employee dies;

 

(b) the Company, by written notice to Employee or his personal representative, discharges Employee due to Employee's Disability (as defined below);

 

As used in this Agreement, the term "Disability" shall mean that for a period of at least 120 days during any twelve consecutive month period on account of a mental or physical condition, Employee is unable to perform the essential functions of his job for the Company, with or without reasonable accommodation. The determination of Employee's Disability shall be made (a) by a medical physician selected or agreed to by the Company or (b) upon mutual agreement of the Company and Employee or his personal representative. All costs relating to the determination of whether Employee has incurred a Disability shall be paid by the Company. Employee shall submit to any examination that is reasonably required by an examining physician for purposes of determining whether a Disability exists.

 

(c) Employee is discharged by the Company for Cause (as defined below):

 

As used in this Agreement, the term "Cause" shall mean:

 

(i) Employee's conviction of (or plea of guilty or nolo contendere to) (A) any felony or (13) any misdemeanor involving fraud or dishonesty in connection with the performance of his duties hereunder or moral turpitude; or

 

(ii) the willful and continued failure of Employee for a total of 10 days (which need not be consecutive days) within any fiscal year of the Company to substantially perform his duties with the Company (other than any such failure resulting from illness or Disability) after a written demand for substantial performance from the Company is delivered to Employee, which demand specifically identifies the manner in which it is claimed Employee has not substantially performed his duties, or

 

 

 

 

 3 
 

 

(iii) Employee has willfully engaged in misconduct which has, or can reasonably be expected to have, a direct and material adverse monetary effect on the Company.

 

For purposes of this Section, no act or failure to act on Employee's part shall be considered "willful" unless Employee acted in bad faith or without a reasonable belief that Employee's action or omission was in the best interest of the Company.

 

(d) Employee is discharged by the Company for any reason, other than for Cause or Disability, which the Company may do at any time;

 

(e) Employee voluntarily terminates his employment due to either (i) a material default by the Company in the performance of any of its obligations hereunder, or (ii) an Adverse Change in Duties (as defined below), which default or Adverse Change in Duties remains unremedied by the Company for a period of ten days following its receipt of written notice thereof from Employee (which notice must reasonably describe the facts claimed by Employee to constitute the default or Adverse Change in Duties) (the reasons described in items (i) and (ii) of this paragraph being referred to herein as "Good Reason"); or

 

(f) Employee voluntarily terminates his employment for any reason other than Good Reason, which Employee may do at any time with at least 30 days' advance notice.

 

As used in this Agreement, "Adverse Change in Duties" means an action or series of actions taken by the Company and/or the Board of Directors of the Company, without Employee's prior written consent, which results in:

 

(i) A change in Employee's reporting structure, titles, job duties or job functions which results in a material diminution of his status, control, authority or level of responsibility; or

 

(ii) The assignment to Employee of any positions, duties or responsibilities which are materially inconsistent with Employee's positions, duties and responsibilities or status with the Company; or

 

(iii) A requirement by the Company that Employee be based or perform his duties anywhere other than (i) where they are currently performed, or (ii) at the Company's corporate office location on the date of this Agreement.

 

5.2. Effects of Termination.

 

(a) Upon termination of Employee's employment hereunder for any reason, the Company will promptly pay Employee all compensation owed to Employee and unpaid through the effective date of termination (including without limitation salary and Employee's properly documented expense reimbursements).

 

 

 

 

 4 
 

 

(b) In addition, if Employee's employment is terminated under Sections 5.1 (d) or (e), and there has been a Change of Control within twelve (12) months prior to the termination, then the Company shall also pay Employee, not later than the fifteenth day after the effective date of such termination of employment, a lump sum severance payment in an amount equal to the sum of the product of Employee's annual salary at the time this Agreement is entered into multiplied by two (the "Severance Pay"). If there has not been a Change of Control within twelve (12) months prior to the termination, Employee shall receive the Severance Pay over a twenty-four (24) month period commencing with the first month after termination. In addition, all options, warrants and any other deferred equity compensation then granted to Employee which are unvested at the date the Employee's employment is terminated under Sections 5.1 (d) or (e) will immediately vest.

 

In addition, the Company shall continue to provide Employee with medical and life insurance coverage in accordance with the Company's benefits program described in Section 3.3 until the earlier of (i) the two-year anniversary of the effective date of Employee's termination of employment or (ii) the date on which Employee obtains substantially equivalent benefits from another party.

 

5.3. Confidentiality After Termination. Immediately upon Employee's execution of this Agreement and on an on-going basis, the Company agrees that it shall provide to Employee confidential information and trade secrets of the Company and its business ("Confidential Information"). In consideration of, among other things, the Company's obligation to disclose confidential information to Employee and his receipt of that confidential information, Employee agrees that during his employment with the Company and for the one year period following the termination of Employee's employment hereunder, Employee will not, directly or indirectly, whether as an individual, employee, director, consultant, investor, stockholder, partner, agent, principal, lender or advisor, or in any other capacity whatsoever, and whether personally or through other persons:

 

(a) provide services, to the extent any such services require his use of Confidential Information, to any person, firm, corporation or other business enterprise whose primary business involves (i) owning or operating diagnostic imaging centers or the provision of diagnostic imaging services, (ii) providing administrative, management or other information services to radiology practices or (iii) providing management services in the area of radiology, in each case unless he obtains the prior written consent of the Company.

 

(b) solicit, or attempt to encourage or solicit, any individual to leave the Company's employ for any reason or interfere in any other manner with the employment relationships between the Company and its current or prospective employees or any employee who has been employed by the Company within ninety days preceding Employee's termination.

 

(c) utilize Confidential Information to directly or indirectly induce or attempt to induce any provider, payor, customer, supplier, distributor, licensee or other business relation of the Company to cease doing, or curtail, business with the Company or in any way interfere with the existing business relationship between any such customer, supplier, distributor, licensee or other business relation and the Company.

 

If any restriction set forth in this paragraph is held to be unreasonable and/or unenforceable as written, Employee and the Company agree that the restriction may be reformed to make it enforceable, and the restriction shall remain in full force and effect as reformed.

 

 

 

 

 5 
 

 

Employee acknowledges that the restrictions contained in this paragraph in view of the nature of the Company's business, are reasonable and necessary to protect the Company's legitimate business interests and that any violation of this paragraph would result in irreparable injury to the Company, and that monetary damages may not be sufficient to compensate the Company for any economic loss which may be incurred by reason of breach of the foregoing restrictive covenants. In the event of a breach or a threatened breach by Employee of any provision in this paragraph, the Company shall be entitled to cease making any and all payments otherwise payable to Employee on termination under this Agreement and to seek a temporary restraining order and injunctive relief restraining Employee from the commission of any breach, and to recover the Company's attorneys' fees, costs and expenses related to the breach or threatened breach. Nothing contained in this paragraph shall be construed as prohibiting the Company from pursuing any other remedies available to it for any breach or threatened breach, including, without limitation, the recovery of money damages, attorneys' fees, and costs. The restrictions in this paragraph shall each be construed as independent of any other provisions in this Agreement, and the existence of any claim or cause of action by Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this Agreement.

 

If Employee violates any of the restrictions contained in this paragraph, the restrictive period will be suspended and will not run in favor of Employee from the time of the commencement of any violation until the time when Employee cures the violation to the Company's satisfaction.

 

Upon Termination, Employee shall return to the Company any and all Confidential Information relating to the Company and its Business.

 

6. General Provisions.

 

6.1. Assignment. Employee shall not assign or delegate any of his rights or obligations under this Agreement without the prior written consent of the Company, and any attempted assignment without the Company's consent shall be void ab initio. The Company may assign this Agreement to any successor of the Company or any purchaser of all or substantially all of the assets of the Company.

 

6.2. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior agreements between the parties relating to such subject matter. In the case of any conflict between the terms of this Agreement and any option agreement or similar instrument, the terms of this Agreement shall control.

 

6.3. Modifications. This Agreement may be changed or modified only by an agreement in writing signed by both parties hereto.

 

6.4. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and permitted assigns and Employee and Employee's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join and be bound by the terms and conditions hereof

 

6.5. Governing Law. This Agreement is performable in whole or in part in Los Angeles County, California wherein exclusive venue shall lie for any proceeding, claim or controversy, and shall be governed by, and construed in accordance with, the laws of the State of California, without giving effect to any conflict-of-laws principles.

 

 

 

 

 6 
 

 

6.6. Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect.

 

6.7. Further Assurances. The parties will execute such further instruments and take such further actions as may be reasonably necessary to carry out the intent of this Agreement.

 

6.8. Notices. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed received by the recipient when delivered personally or, if mailed, five days after the date of deposit in the United States mail, certified or registered, postage prepaid and addressed, in the case of the Company, to Radnet Management, Inc., 1510 Cotner Ave., Los Angeles, CA 900253303, attention: General Counsel; and in the case of Employee, to the address shown for Employee on the signature page hereof.

 

6.9. No Waiver. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver of that provision, nor prevent that party thereafter from enforcing that provision of any other provision of this Agreement.

 

6.10. Legal Fees and Expenses. In the event of any disputes under this Agreement, each party shall be responsible for its own legal fees and expenses which it may incur in resolving such dispute, unless otherwise prohibited by applicable law or a court of competent jurisdiction.

 

6.11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

 

6.12. Arbitration. Any controversy, dispute or claim ("Claim") whatsoever between Employee, on the one hand, and Company, or any of its employees, directors, officers, and agents (collectively "Company Parties"), on the other hand, shall be settled by binding arbitration, at the request of either party, in accordance with the Employment Dispute Resolution Procedures of the American Arbitration Association or other similar organization agreed to by the parties. The claims covered by this Agreement include, but are not limited to, claims for wages and other compensation, claims for breach of contract (express or implied) tort claims, claims for discrimination (including, but not limited to, race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), and claims for violation of any federal, state, or other government law, statute, regulation or ordinance, except for claims for worker's compensation or unemployment insurance benefits. Nothing contained in this Agreement shall prohibit Employee from filing a charge of discrimination with the Equal Employment Opportunity Commission and/or the Department of Fair Employment and Housing, and cooperating in the investigation of such.

 

 

 

 

 7 
 

 

The chosen arbitration administrator shall give each party a list of names drawn from its panel of employment arbitrators. The arbitrator shall apply California substantive law and the California Evidence Code to the proceeding. The demand for arbitration must be in writing and made within the applicable statute of limitations period. The arbitration shall take place in Los Angeles County, California. The parties shall be entitled to conduct reasonable discovery, including, without limitation, conducting depositions, requesting documents and propounding interrogatories. The arbitrator shall have the authority to resolve discovery disputes, including but not limited to determining what constitutes reasonable discovery. The arbitrator shall prepare in writing and provide to the parties a decision and award, which shall include factual findings and the reasons upon which a decision is based.

 

Except as otherwise required by law, the decision of the arbitrator shall be binding and conclusive on the parties. Judgment upon the award rendered by the arbitrator may be entered in any court having proper jurisdiction. The fees for the arbitrator shall be paid by Company. Each party shall bear its or his own fees and costs incurred in connection with the arbitration except for any attorneys' fees or costs which are awarded to a party by the Arbitrator pursuant to a statute or contract which provides for recovery of such fees and/or costs from the other party.

 

Both Company and the Employee understand and agree that by using arbitration to resolve any Claims between Employee and Company or any or all the Company Parties they are giving up any right that they may have to a judge or jury trial with regard to those Claims.

 

IN WITNESS WHEREOF, the Company and Employee have executed this Agreement, effective as of the day and year first above written.

 

COMPANY:   EMPLOYEE:
RADNET MANAGEMENT, INC.    
       
By: /s/ Howard G. Berger   /s/ Stephen M. Forthuber
  Howard G. Berger, M.D., President   Stephen M. Forthuber

 

 

 

 

 

 8 

EX-31.1 3 radnet_ex3101.htm CERTIFICATION

 

EXHIBIT 31.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Howard G. Berger, M.D., certify that:

 

1.       I have reviewed this quarterly report on Form 10-Q of RadNet, Inc.;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d –15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 10, 2017 /s/ Howard G. Berger, M.D.                
  Howard G. Berger, M.D.
  President, Chief Executive Officer and Chairman of the Board of Directors
  (Principal Executive Officer)
   

 

 

EX-31.2 4 radnet_ex3102.htm CERTIFICATION

EXHIBIT 31.2

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Mark D. Stolper, certify that:

 

1.       I have reviewed this quarterly report on Form 10-Q of RadNet, Inc.;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d –15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 10, 2017 /s/ Mark D. Stolper                   
  Mark D. Stolper
  Executive Vice President and Chief Financial Officer
  (Principal Financial Officer)
   

 

 

EX-32.1 5 radnet_ex3201.htm CERTIFICATION

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of RadNet, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on May 10, 2017 (the “Report”), I, Howard G. Berger, M.D., Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2.       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report.

 

  /s/ Howard G. Berger, M.D.                   
  Howard G. Berger, M.D.
  Chairman, President and Chief Executive Officer
  (Principal Executive Officer)
  May 10, 2017

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be furnished to the Securities and Exchange Commission or its staff upon request.

 

EX-32.2 6 radnet_ex3202.htm CERTIFICATION

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of RadNet, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on May 10, 2017 (the “Report”), I, Mark D. Stolper, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2.       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report.

 

 

  /s/ Mark D. Stolper                    
  Mark D. Stolper
  Chief Financial Officer
  (Principal Financial Officer)
  May 10, 2017

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be furnished to the Securities and Exchange Commission or its staff upon request.

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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2017
May 04, 2017
Document and Entity Information    
Entity Registrant Name RadNet, Inc.  
Entity Central Index Key 0000790526  
Document Type 10-Q  
Document Period End Date Mar. 31, 2017  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer No  
Is Entity a Voluntary Filer No  
Is Entity's Reporting Status Current Yes  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   47,216,929
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2017  
XML 14 R2.htm IDEA: XBRL DOCUMENT v3.7.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
CURRENT ASSETS    
Cash and cash equivalents $ 8,294 $ 20,638
Accounts receivable, net 169,538 164,210
Due from affiliates 2,122 2,428
Prepaid expenses and other current assets 23,635 28,435
Assets held for sale 4,851 2,203
Total current assets 208,440 217,914
PROPERTY AND EQUIPMENT, NET 257,458 247,725
OTHER ASSETS    
Goodwill 239,954 239,553
Other intangible assets 42,132 42,682
Deferred financing costs 1,919 2,004
Investment in joint ventures 46,114 43,509
Deferred tax assets, net of current portion 51,446 50,356
Deposits and other 6,519 5,733
Total assets 853,982 849,476
CURRENT LIABILITIES    
Accounts payable, accrued expenses and other 113,729 111,166
Due to affiliates 12,786 13,141
Deferred revenue 1,574 1,516
Current portion of deferred rent 2,997 2,961
Current portion of notes payable 22,016 22,031
Current portion of obligations under capital leases 5,826 4,526
Total current liabilities 158,928 155,341
LONG-TERM LIABILITIES    
Deferred rent, net of current portion 26,739 24,799
Notes payable, net of current portion 603,404 609,445
Obligations under capital lease, net of current portion 4,606 2,730
Other non-current liabilities 7,197 5,108
Total liabilities 800,874 797,423
STOCKHOLDERS' EQUITY    
Common stock - $.0001 par value, 200,000,000 shares authorized; 47,216,929, and 46,574,904 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively 4 4
Additional Paid-in-capital 201,563 198,387
Accumulated other comprehensive (loss) gain (470) 306
Accumulated deficit (151,421) (150,211)
Total RadNet, Inc.'s stockholders' equity 49,676 48,486
Noncontrolling interests 3,432 3,567
Total equity 53,108 52,053
Total liabilities and equity $ 853,982 $ 849,476
XML 15 R3.htm IDEA: XBRL DOCUMENT v3.7.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Mar. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]    
Common stock - par value (in Dollars per share) $ 0.0001 $ .0001
Common stock - shares authorized 200,000,000 200,000,000
Common stock - shares issued 47,216,929 46,574,904
Common stock - shares outstanding 47,216,929 46,574,904
XML 16 R4.htm IDEA: XBRL DOCUMENT v3.7.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
NET REVENUE    
Service fee revenue, net of contractual allowances and discounts $ 212,750 $ 200,842
Provision for bad debts (11,646) (10,304)
Net service fee revenue 201,104 190,538
Revenue under capitation arrangements 27,909 25,850
Total net revenue 229,013 216,388
OPERATING EXPENSES    
Cost of operations, excluding depreciation and amortization 205,454 196,826
Depreciation and amortization 16,654 16,412
Gain on sale and disposal of equipment (45) 0
Severance costs 203 167
Total operating expenses 222,266 213,405
INCOME FROM OPERATIONS 6,747 2,983
OTHER INCOME AND EXPENSES    
Interest expense 10,240 10,681
Meaningful use incentive (250) (2,808)
Equity in earnings of joint ventures (1,928) (2,279)
Other expenses 3 2
Total other expenses 8,065 5,596
LOSS BEFORE INCOME TAXES (1,318) (2,613)
Benefit from income taxes 458 1,506
NET LOSS (860) (1,107)
Net income attributable to noncontrolling interests 350 290
NET LOSS ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ (1,210) $ (1,397)
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ (0.03) $ (0.03)
WEIGHTED AVERAGE SHARES OUTSTANDING - Basic and Diluted 46,560,017 46,581,491
XML 17 R5.htm IDEA: XBRL DOCUMENT v3.7.0.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Statement of Comprehensive Income [Abstract]    
NET LOSS $ (860) $ (1,107)
Foreign currency translation adjustments 2 4
Change in fair value of cash flow hedge, net of taxes (778) 0
COMPREHENSIVE LOSS (1,636) (1,103)
Less comprehensive income attributable to non-controlling interests 350 290
COMPREHENSIVE LOSS ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ (1,986) $ (1,393)
XML 18 R6.htm IDEA: XBRL DOCUMENT v3.7.0.1
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($)
$ in Thousands
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Gain (Loss)
Accumulated Deficit
Radnet, Inc. Stockholders' Equity
Noncontrolling Interest
Total
Beginning balance, shares at Dec. 31, 2016 46,574,904            
Beginning balance, value at Dec. 31, 2016 $ 4 $ 198,387 $ 306 $ (150,211) $ 48,486 $ 3,567 $ 52,053
Stock-based compensation   3,176     3,176   3,176
Issuance of restricted stock and other awards, shares 642,025            
Distributions paid to noncontrolling interest           (485) (485)
Change in cumulative foreign currency translation adjustment     2   2   2
Change in fair value of cash flow hedge, net of taxes     (778)   (778)   (778)
Net (loss) income       (1,210) (1,210) 350 (860)
Ending balance, shares at Mar. 31, 2017 47,216,929            
Ending balance, value at Mar. 31, 2017 $ 4 $ 201,563 $ (470) $ (151,421) $ 49,676 $ 3,432 $ 53,108
XML 19 R7.htm IDEA: XBRL DOCUMENT v3.7.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (860) $ (1,107)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 16,654 16,412
Provision for bad debts 11,646 10,304
Equity in earnings of joint ventures (1,928) (2,279)
Distributions from joint ventures 2,323 2,038
Amortization of deferred financing costs and loan discount 814 1,368
Gain on sale and disposal of equipment (45) 0
Stock-based compensation 3,276 2,733
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:    
Accounts receivable (16,974) (25,291)
Other current assets 4,043 5,288
Other assets 8 856
Deferred taxes (1,090) (1,612)
Deferred rent 1,976 443
Deferred revenue 58 (70)
Accounts payable, accrued expenses and other 10,995 11,880
Net cash provided by operating activities 30,896 20,963
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchase of imaging facilities (3,154) (5,007)
Investment at cost (500) 0
Purchase of property and equipment (30,371) (22,500)
Proceeds from sale of equipment 59 0
Equity contributions in existing joint ventures 0 (294)
Net cash used in investing activities (33,966) (27,801)
CASH FLOWS FROM FINANCING ACTIVITIES    
Principal payments on notes and leases payable (2,158) (3,166)
Payments on Term Loan Debt/Senior Notes (6,063) (6,178)
Deferred financing costs and debt discount (570) 0
Proceeds on revolving credit facility 105,100 126,200
Payments on revolving credit facility (105,100) (109,900)
Dividends paid to noncontrolling interests (485) (158)
Net cash (used in) provided by financing activities (9,276) 6,798
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2 4
NET DECREASE IN CASH AND CASH EQUIVALENTS (12,344) (36)
CASH AND CASH EQUIVALENTS, beginning of period 20,638 446
CASH AND CASH EQUIVALENTS, end of period 8,294 410
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION    
Cash paid during the period for interest 11,035 9,085
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES    
Purchase of equipment and leasehold improvements not yet paid for 19,000 20,500
Capital lease debt related to radiology equipment 5,200 0
Transfer of fixed assets to new joint venture $ 3,000 $ 0
XML 20 R8.htm IDEA: XBRL DOCUMENT v3.7.0.1
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
3 Months Ended
Mar. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF BUSINESS AND BASIS OF PRESENTATION

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 March 31, 2017, we operated directly or indirectly through joint ventures with hospitals, 303 centers located in California, Delaware, Florida, Maryland, New Jersey, New York, and Rhode Island. 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., Breastlink Medical Group, Inc. and Beverly Radiology 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. (“DIS”), 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.

 

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 for 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 provides 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 other 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. 

 

We contract with nine medical groups which provide professional medical services at all of our facilities in Manhattan and Brooklyn, New York. These contracts are similar to our contract with BRMG. Six of these groups are owned 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 these medical groups which provide professional medical services at one of our Manhattan facilities. 

 

RadNet provides non-medical, technical and administrative services to BRMG and the nine medical groups mentioned above (“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 the management agreement with us, all cash flows of BRMG and the NY Groups are transferred to us.  

 

We have determined that BRMG and the NY Groups are variable interest entities, and 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 $35.5 million and $34.0 million of revenue, net of management service fees to RadNet, for the three months ended March 31, 2017 and 2016, respectively, and $35.5 million and $34.0 million of operating expenses for the three months ended March 31, 2017 and 2016, respectively. RadNet recognized in its condensed consolidated statement of operations $113.3 million and $104.0 million of net revenues for the three months ended March 31, 2017, and 2016 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 March 31, 2017 and December 31, 2016, we have included approximately $106.1 million and $100.0 million, respectively, of accounts receivable and approximately $10.3 million and $9.0 million of accounts payable and accrued liabilities related to BRMG and the NY Groups.

 

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, both BRMG and the NY Groups are managed to recognize no net income or net loss and, therefore, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. 

 

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. Because of the controlling relationship of Dr. Berger and Dr. Crues in the California and New York City practices as stated in detail above, we consolidate the revenue and expenses.

 

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 March 31, 2017 and 2016 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, 2016, as amended.

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2. SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2017
Accounting Policies [Abstract]  
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, 2016, as amended. 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, 2016, as amended.

 

  

RESTATEMENT DUE TO ADOPTION OF ACCOUNTING PRONOUNCEMENT - In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09”), Compensation—Stock Compensation, (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 requires excess tax benefits and tax deficiencies, which arise due to differences between the measure of compensation expense and the amount deductible for tax purposes, to be recorded directly through the statement of operations when awards vest or are settled. We elected to early adopt the new guidance for the year ended December 31, 2016. Upon adoption using the modified retrospective transition method, we recorded a cumulative effect adjustment to recognize previously unrecognized excess tax benefits which increased deferred tax assets and reduced accumulated deficit by $7.1 million. The current net tax benefit for 2016 resulting from adoption of the new guidance is approximately $400,000 and was reflected in our tax provision at December 31, 2016. The impact on our quarterly financial statements for the period ended March 31, 2016 is as follows (in thousands):

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS        
         
In thousands except per share data   As previously reported     Impact of adoption     As currently
reported
 
Benefit from income taxes   $ 1,180     $ 326     $ 1,506  
Net loss     (1,433 )     326       (1,107 )
Net loss attributable to Radnet Inc. common shareholders     (1,723 )     326       (1,397 )
Basic and diluted loss per share     (0.04 )     0.01       (0.03 )

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                  
                   
In thousands     As previously reported       Impact of adoption       As currently reported  
Net loss   $ (1,433 )   $ 326     $ (1,107 )
Deferred taxes     (1,286 )     (326 )     (1,612 )
Others     2,683             2,683  
Net decrease in cash and cash equivalents   $ (36 )   $     $ (36 )

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS          
           
In thousands     As previously reported       Impact of adoption       As currently reported  
Net loss   $ (1,433 )   $ 326     $ (1,107 )
Foreign currency translation adjustments     4             4  
Comprehensive loss     (1,429 )     326       (1,103 )
Less comprehensive income attributible to non-controlling interests     290             290  
Comprehensive loss attributable to Radnet Inc. common shareholders   $ (1,719 )   $ 326     $ (1,393 )

 

REVENUES -Service fee revenue, net of contractual allowances and discounts, consists of net patient fees received from various payors and patients themselves based mainly upon established contractual billing rates, less allowances for contractual adjustments and discounts. As it relates to BRMG and the NY Groups centers, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by BRMG and the NY Groups as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees from BRMG and the NY Groups. As it relates to non-BRMG and NY Groups centers, namely the affiliated physician groups, 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.

 

Service fee revenues are recorded during the period the services are provided based upon the estimated amounts due from the patients and third-party payors. Third-party payors include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances are based on historical collection rates of payor reimbursement contract agreements. We also record a provision for doubtful accounts based primarily on historical collection rates related to patient copayments and deductible amounts for patients who have health care coverage under one of our third-party payors.

 

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 service fee revenue, net of contractual allowances and discounts, the provision for bad debts, and revenue under capitation arrangements are summarized in the following table (in thousands):

 

    Three Months Ended
March 31,
 
    2017     2016  
Commercial insurance   $ 140,995     $ 131,491  
Medicare     47,678       45,820  
Medicaid     6,733       7,023  
Workers' compensation/personal injury     9,057       9,514  
Other (1)     8,287       6,994  
Service fee revenue, net of contractual allowances and discounts     212,750       200,842  
Provision for bad debts     (11,646 )     (10,304 )
Net service fee revenue     201,104       190,538  
Revenue under capitation arrangements     27,909       25,850  
Total net revenue   $ 229,013     $ 216,388  

_____________________

(1) Other consists of revenue from teleradiology services, consulting fees and software revenue.

 

PROVISION FOR BAD DEBTS - We provide for an allowance against accounts receivable that could become uncollectible to reduce the carrying value of such receivables to their estimated net realizable value. We estimate this allowance based on the aging of our accounts receivable by the historical payment patterns of each type of payor, write-off trends, and other relevant factors. A significant portion of our provision for bad debt relates to co-payments and deductibles owed to us from patients with insurance. Although we attempt to collect deductibles and co-payments due from patients with insurance at the time of service, this attempt to collect at the time of service is not an assessment of the patient’s ability to pay nor are revenues recognized based on an assessment of the patient’s ability to pay. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on the increased burden of co-payments and deductibles to be made by patients with insurance. These factors continuously change and can have an impact on collection trends and our estimation process.

 

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.

 

MEANINGFUL USE INCENTIVE - Under the American Recovery and Reinvestment Act of 2009, a program was enacted that provides financial incentives for providers that successfully implement and utilize electronic health record technology to improve patient care. Our software development team in Canada established an objective to build a Radiology Information System (RIS) software platform that has been awarded Meaningful Use certification. As this certified RIS system is implemented throughout our imaging centers, the radiologists that utilize this software can be eligible for the available financial incentives. In order to receive such incentive payments providers must attest that they have demonstrated meaningful use of the certified RIS in each stage of the program. We account for this meaningful use incentive under the Gain Contingency Model outlined in ASC 450-30. Under this model, we record within non-operating income, meaningful use incentive only after Medicare accepts an attestation from the qualified eligible professional demonstrating meaningful use. We recorded approximately $250,000 and $2.8 million during the three months ended March 31, 2017 and 2016, respectively, relating to this incentive.

 

DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized on a straight-line basis over the life of the associated loan, which approximates the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $1.9 million and $2.0 million, as of March 31, 2017 and December 31, 2016, respectively and related to the Company’s line of credit. In conjunction with our Fourth Amendment, a net addition of approximately $27,000 was added to deferred financing costs. See Note 5, Revolving Credit Facility, Notes Payable, and Capital Leases 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 and amortization of property and equipment are provided using the straight-line method over the estimated useful lives, 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 30 years. Maintenance and repairs are charged to expense as incurred.

 

BUSINESS COMBINATION - Accounting for acquisitions 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- Goodwill at March 31, 2017 totaled $240.0 million. Goodwill is recorded as a result of business combinations. Management evaluates goodwill at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We tested both goodwill for impairment on October 1, 2016, noting no impairment, and have not identified any indicators of impairment through March 31, 2017. Activity in goodwill for the three months ended March 31, 2017 is provided below (in thousands):

 

Balance as of December 31, 2016   $ 239,553  
Goodwill acquired through the acquisition of Resolution Imaging Medical Corp     1,901  
Goodwill acquired through the acquisition of MRI Centers of Torrance     401  
Goodwill included in assets held for sale     (1,901 )
Balance as of March 31, 2017   $ 239,954  

 

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. 

  

EQUITY BASED COMPENSATION – We have one long-term incentive plan which we refer to as the 2006 Plan, which we amended and restated as of April 20, 2015 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 11, 2015. As of March 31, 2017, we have reserved for issuance under the Restated Plan 12,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights 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 6 Stock-Based Compensation for more information.

 

COMPREHENSIVE INCOME - ASC 220, Comprehensive Income, establishes rules for reporting and displaying comprehensive income and its components. Our unrealized gains or losses on foreign currency translation adjustments are included in comprehensive income. For the quarter ended December 31, 2016, we entered into an interest rate cap agreement. Assuming perfect effectiveness, any unrealized gains or losses related to the cap agreement that qualify for cash flow hedge accounting are classified as a component of income. Any ineffectiveness is recognized in earnings. The components of comprehensive income for the three months in the period ended March 31, 2017 are included in the consolidated statements of comprehensive loss.

 

DERIVATIVE INSTRUMENTS - In the fourth quarter of 2016, the Company 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 the Company’s variable rate bank debt. Under these arrangements, the Company purchased a cap on 3 month LIBOR at 2.0%. The Company is liable for a $5.3 million premium to enter into the caps which is being accrued over the life of the agreements.

 

At inception, we designated our interest rate cap agreements 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 on the effective portion of the hedge (i.e., change in fair value) is initially reported as a component of accumulated other comprehensive income in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. As of March 31, 2017, the cash flow hedges were deemed to be effective. No amount is expected to be reclassified into earnings in the next twelve months.

 

Below represents as of March 31, 2017 the fair value of our interest rate caps and loss recognized:

 

The fair value of derivative instruments as of March 31, 2017 is as follows (amounts in thousands):

 

  Derivatives  Balance Sheet Location Fair Value – Asset Derivatives
  Interest rate contracts Current and other non-current liabilities ($435)

 

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

 

  Effective Interest Rate Cap Amount of Loss Recognized on Derivative Location of Loss Recognized in Income on Derivative
  Interest rate contracts ($778) Other Comprehensive Loss

 

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.

 

The table 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 March 31, 2017  
    Level 1     Level 2     Level 3     Total  
Current and other non-current liabilities                                
Interest Rate Contracts   $     $ (435 )   $     $ (435 )

 

    As of December 31, 2016  
    Level 1     Level 2     Level 3     Total  
Current assets                                
Interest Rate Contracts   $     $ 818     $     $ 818  

 

The estimated fair value of these contracts, which are discussed in Note 2, 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.

 

The table below summarizes the estimated fair value and carrying amount of our long-term debt as follows (in thousands):

 

    As of March 31, 2017  
    Level 1     Level 2     Level 3     Total Fair Value     Total Face Value  
First Lien Term Loans   $     $ 475,830     $     $ 475,830     $ 472,875  
Second Lien Term Loans   $       168,840     $       168,840     $ 168,000  

 

    As of December 31, 2016  
    Level 1     Level 2     Level 3     Total     Total Face Value  
First Lien Term Loans   $     $ 483,129     $     $ 483,129     $ 478,938  
Second Lien Term Loans           167,580             167,580       168,000  

 

Our revolving credit facility had no aggregate principal amount outstanding as of March 31, 2017.

 

The estimated fair value of our long-term debt, which is discussed in Note 5, 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.

 

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 March 31,  
    2017     2016  
             
Net loss attributable to RadNet, Inc. common stockholders   $ (1,210 )   $ (1,397 )
                 
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS                
Weighted average number of common shares outstanding during the period     46,560,017       46,581,491  
Basic and diluted net loss per share attributable to RadNet, Inc. common stockholders   $ (0.03 )   $ (0.03 )

 

For the three months ended March 31, 2017 and 2016 we excluded all outstanding options and restricted stock awards in the calculation of diluted earnings per share because their effect would be antidilutive.

 

INVESTMENT AT COST - On March 24, 2017, we acquired a 12.5% equity interest in Medic Vision – Imaging Solutions Ltd for $1.0 million. We also have an option to acquire an additional 12.5% equity interest for $1.4 million exercisable within one year from the initial share purchase date. Medic Vision, based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. In accordance with ASC 325-20, Cost Method Investments, the investment is recorded at its cost of $1.0 million. No impairment in our investment was noted as of the quarter ended March 31, 2017.

 

INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35% 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 March 31, 2017.

 

Joint venture investment and financial information

 

The following table is a summary of our investment in joint ventures during the quarters ended March 31, 2017 (in thousands):

 

Balance as of December 31, 2016   $ 43,509  
Equity in earnings in these joint ventures     1,928  
Distribution of earnings     (2,323 )
Contributions in a new joint venture     3,000  
Balance as of March 31, 2017   $ 46,114  

 

We received management service fees from the centers underlying these joint ventures of approximately $3.1 million and $2.9 million for the quarters ended March 31, 2017 and 2016, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures.

 

The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2017 and December 31, 2016 and income statement data for the three months ended March 2017 and 2016 (in thousands):

 

Balance Sheet Data:   March 31, 2017     December 31, 2016  
Current assets   $ 40,737     $ 40,093    
Noncurrent assets     101,423       100,146    
Current liabilities     (16,408 )     (14,077 )  
Noncurrent liabilities     (42,304 )     (44,405 )  
   Total net assets   $ 83,448     $ 81,757    
                   
Book value of RadNet joint venture interests   $ 39,741     $ 38,538    
Cost in excess of book value of acquired joint venture interests     6,373       4,970    
   Total value of Radnet joint venture interests   $ 46,114     $ 43,509    
                   
   Total book value of other joint venture partner interests   $ 43,707     $ 43,219    

 

Income statement data for the three months ended March 31,   2017     2016  
             
Net revenue   $ 41,251     $ 39,220  
Net income   $ 4,130     $ 5,614  
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3. RECENT ACCOUNTING STANDARDS
3 Months Ended
Mar. 31, 2017
Notes to Financial Statements  
RECENT ACCOUNTING STANDARDS

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, with early adoption permitted. We are evaluating the effect of this guidance.

 

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Clarifying the Definition of a Business. ASU 2017-01 changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is considered a business. ASU 2017-01 is effective for annual periods beginning after December 31, 2017 including interim periods within those periods. We are evaluating the effect of this guidance.

 

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases, (Topic 842): Amendments to the FASB Accounting Standards Codification. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The amendments in this update are effective for fiscal years (and interim reporting periods within fiscal years) beginning after December 15, 2018. Early adoption of the amendments is permitted for all entities. We are currently evaluating the impact this guidance will have on our consolidated financial statements, but expect this adoption will result in a significant increase in the assets and liabilities related to our leased properties and equipment.

 

In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance will become effective for the Company on January 1, 2018. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures. We believe the most significant impact will be to the presentation of our statement of operations where the provision for bad debts will be recorded as a direct reduction to revenues and will not be presented as a separate line item. We expect to adopt the new standard using the full retrospective application.

 

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4. FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE
3 Months Ended
Mar. 31, 2017
Business Combinations [Abstract]  
FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE

Acquisitions

 

On January 13, 2017, we completed our acquisition of certain assets of Resolution Medical Imaging Corporation, consisting of two multi modality imaging centers located in Santa Monica, CA for total purchase consideration of $4.0 million including cash consideration of $2.1 million, the assumption of $1.6 million in equipment debt and a payoff of a small business administration loan of $241,000. We have made a preliminary fair value determination of the acquired assets and approximately $1.9 million of fixed assets, $31,000 of other assets, $100,000 covenant not to compete, and $1.9 million of goodwill were recorded. The purchase of Resolution was enacted to contribute its assets to a joint venture with Cedars Sinai Medical Corporation which was effective April 1, 2017. See Note 7, Subsequent Events for more information on the joint venture. The following table summarizes the major categories of assets classified as held for sale in the accompanying condensed consolidated balance sheets at March 31, 2017 (in thousands):

 

Property and equipment, net  $1,896 
Other assets   31 
Goodwill   1,901 
Intangible Assets   100 
Total assets held for sale  $3,928 
      
Notes payable   353 
Capital lease   1,220 
Total liabilities held for sale  $1,573 
Net Assets Held for Sale  $2,355 

 

On February 1, 2017, we completed our acquisition of certain assets of MRI Centers, Inc., consisting of one single-modality imaging center located in Torrance, CA providing MRI and sports medicine services, for cash consideration of $800,000 and the payoff of $81,000 in debt. We have made a fair value determination of the acquired assets and approximately $289,000 of fixed assets, $9,800 of other assets, $100,000 covenant not to compete and $401,000 of goodwill were recorded.

 

Sale of Healthcare Rhode Island:

 

On November 4, 2016, the Board of Directors resolved to sell the Company’s interest in five of its Rhode Island imaging centers operating under the name The Imaging Institute within the upcoming 12 months. The following table summarizes the major categories of assets classified as held for sale in the accompanying condensed consolidated balance sheets at March 31, 2017 (in thousands):

 

Property and equipment, net  $1,349 
Other assets   21 
Goodwill   1,126 
Total assets held for sale  $2,496 

 

As the sale of these assets does not represent a strategic shift that will have a major effect on the Company’s operations and financial results, it is not classified as a discontinued operation.

 

Formation of a joint venture:

 

On January 6, 2017, Image Medical Inc., a wholly owned subsidiary of RadNet, acquired a 49% economic interest ScriptSender, LLC, a partnership held by two individuals 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. Image Medical will contribute $3.0 million to the partnership for its 49% ownership stake over a three year period representing the maximum risk in the venture. As of March 31, 2017, the carrying amount of the investment is $2.8 million. We determined that ScriptSender, LLC is a Variable Interest Entity but we are not a primary beneficiary since RadNet does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance.

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5. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASES
3 Months Ended
Mar. 31, 2017
Debt Disclosure [Abstract]  
REVOLVING CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASES

Revolving credit facility, notes payable, and capital lease obligations:

 

As of the three months ended March 31, 2017 our debt obligations consist of the following (in thousands):

 

   March 31,   December 31, 
   2017   2016 
         
First Lien Term Loans   472,875    478,938 
           
Second Lien Term Loans   168,000    168,000 
           
Discounts on term loans   (16,624)   (16,783)
           
Promissory note payable to the former owner of a practice acquired at an interest rate of 1.5% due through 2019   883    980 
           
Equipment notes payable at interest rates ranging from 3.3% to 10.2%, due through 2021, collateralized by medical equipment   641    341 
           
Obligations under capital leases at interest rates ranging from 2.5% to 10.8%, due through 2022, collateralized by medical and office equipment   11,650    7,256 
Debt held for contribution to joint venture   (1,573)    
Total debt obligations   635,852    638,732 
Less: current portion   (27,842)   (26,557)
Long term portion debt obligations  $608,010   $612,175 

 

Term Loans, Revolving Credit Facility and Financing Activity Information:

 

Included in our consolidated balance sheet at March 31, 2017 are $624.3 million of senior secured term loan debt (net of unamortized discounts of $ 16.6 million), broken down by loan agreement as follows (in thousands):

 

   As of March 31, 2017 
   Face Value   Discount   Total Carrying Value 
First Lien Term Loans  $472,875   $(14,676)  $458,199 
Second Lien Term Loans  $168,000   $(1,948)  $166,052 
Total  $640,875   $(16,624)  $624,251 

 

Our revolving credit facility had no aggregate principal amount outstanding as of March 31, 2017.

 

At March 31, 2017, our credit facilities were comprised of two tranches of term loans and a revolving credit facility of $117.5 million.

 

As of March 31, 2017, we were in compliance with all covenants under our credit facilities.

 

The following describes our 2017 financing activities:

 

Fourth Amendment to First Lien Credit Agreement

 

On February 2, 2017, we entered into Amendment No. 4 (the “Fourth Amendment”) to our Amended and Restated First Lien Credit and Guaranty Agreement dated July 1, 2016 (as amended from time to time, the “First Lien Credit Agreement”). Pursuant to the Fourth Amendment, the interest rate charged for the applicable margin on the first lien term loans and the revolving credit facility was reduced by 50 basis points, from 3.75% to 3.25%. The minimum LIBOR rate underlying the first lien term loans remains at 1.0%. Except for such reduction in the interest rate on credit extensions, the Fourth Amendment did not result in any other material modifications to First Lien Credit Agreement. Radnet incurred expenses for the transaction in the amount of $543,000, which was recorded to discount on debt and will be amortized over the remaining term of the agreement.

 

The following describes our prior applicable financing activities:

 

Restatement Amendment and the First Lien Credit Agreement

 

On July 1, 2016, (the “Restatement Effective Date”), we entered into Amendment No. 3 to Credit and Guaranty Agreement (the “Restatement Amendment”) pursuant to which we amended and restated our then existing First Lien Credit Agreement. Pursuant to the First Lien Credit Agreement, we have issued $485 million of senior secured term loans (the “First Lien Term Loans”) and established a $117.5 million senior secured revolving credit facility (the “Revolving Credit Facility”). Prior to the Restatement Effective Date, our first lien credit facilities consisted of a Credit and Guaranty Agreement that we entered into on October 10, 2012 (the “Original First Lien Credit Agreement”), as subsequently amended by a first amendment dated April 3, 2013 (the “2013 Amendment”), a second amendment dated March 25, 2014 (the “2014 Amendment”), and a joinder agreement dated April 30, 2015 (the “2015 Joinder” and collectively with the Original First Lien Credit Agreement, the 2013 Amendment and the 2014 Amendment, the “Prior First Lien Credit Agreement”). The First Lien Credit Agreement increased the aggregate principal amount of First Lien Term Loans to $485.0 million and increased the Revolving Credit Facility to $117.5 million. Proceeds from the First Lien Credit Agreement were used to repay the previously outstanding first lien loans under the Prior First Lien Credit Agreement, make a $12.0 million principal payment of the Second Lien Term Loans (as described below), pay costs and expenses related to the First Lien Credit Agreement and provide approximately $10.0 million for general corporate purposes.

 

Interest. The interest rates payable on the First Lien Term Loans (after giving effect to the Fourth Amendment described above) are (a) the Adjusted Eurodollar Rate (as defined in the First Lien Credit Agreement) plus 3.25% per annum or (b) the Base Rate (as defined in the First Lien Credit Agreement) plus 2.25% per annum. As applied to the First Lien Term Loans, the Adjusted Eurodollar Rate has a minimum floor of 1.0%. The three month Adjusted Eurodollar Rate at March 31, 2017 was 1.15%.

 

Payments. The scheduled quarterly principal payments of the First Lien Term Loans is approximately $6.1 million, with the balance due at maturity. Prior to the Restatement Amendment, the quarterly principal payments on the first lien term loans under the Prior First Lien Credit Agreement were approximately $6.2 million.

 

Maturity Date. The maturity date for the First Lien Term Loans shall be on the earliest to occur of (i) the seventh anniversary of the Restatement Effective Date, (ii) the date on which all First Lien Term Loans shall become due and payable in full under the First Lien Credit Agreement, whether by acceleration or otherwise, and (iii) September 25, 2020 if our indebtedness under the Second Lien Credit Agreement has not been repaid, refinanced or extended prior to such date.

 

Incremental Feature: Under the First Lien Credit Agreement, we can elect to request 1) an increase to the existing Revolving Credit Facility and/or 2) additional First Lien Term Loans, provided that the aggregate amount of such increases or additions does not exceed (A) an amount not in excess of $100.0 million minus any incremental loans requested under the similar provisions of the Second Lien Credit Agreement or (B) if the First Lien Leverage Ratio would not exceed 3.50:1.00 after giving effect to such incremental facilities, an uncapped amount, 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 any incremental commitment or loan.

 

Revolving Credit Facility: The First Lien Credit Agreement provides for a $117.5 million Revolving Credit Facility. The termination date of the Revolving Credit Facility is the earliest to occur of: (i) July 1, 2021, (ii) the date the Revolving Credit Facility is permanently reduced to zero pursuant to section 2.13(b) of the First Lien Credit Agreement, which addresses voluntary commitment reductions, (iii) the date of the termination of the Revolving Credit Facility due to specific events of default pursuant to section 8.01 of the First Lien Credit Agreement, and (iv) September 25, 2020 if our indebtedness under the Second Lien Credit Agreement has not been repaid, refinanced or extended prior to such date. Amounts borrowed under the Revolving Credit Facility bear interest based on types of borrowings as follows (after giving effect to the Fourth Amendment described above): (i) unpaid principal on loans under the Revolving Credit Facility at the Adjusted Eurodollar Rate (as defined in the First Lien Credit Agreement) plus 3.25% per annum or the Base Rate (as defined in the First Lien Credit Agreement) plus 2.25% per annum, (ii) letter of credit fees at 3.25% per annum and fronting fees for letters of credit 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, and (iii) commitment fee of 0.5% per annum on the unused revolver balance.

 

Second Lien Credit Agreement:

 

On March 25, 2014, we entered into a Second Lien Credit and Guaranty Agreement (as amended from time to time, the “Second Lien Credit Agreement”) pursuant to which we issued $180 million of secured term loans (the “Second Lien Term Loans”). The proceeds from the Second Lien Term Loans were used to redeem our 10 3/8% senior unsecured notes, due 2018, to pay the expenses related to the transaction and for general corporate purposes. On July 1, 2016, in conjunction with the Restatement Amendment, a $12.0 million principal payment was made on the Second Lien Term Loans.

 

The Second Lien Credit Agreement provides for the following:

 

Interest. The interest rates payable on the Second Lien Term Loans are (a) the Adjusted Eurodollar Rate (as defined in the Second Lien Credit Agreement) plus 7.0% or (b) the Base Rate (as defined in the Second Lien Credit Agreement) plus 6.0%. The Adjusted Eurodollar Rate has a minimum floor of 1.0% on the Second Lien Term Loans. The three month Adjusted Eurodollar Rate at March 31, 2017 was 1.15%. The rate paid on the Second Lien Term Loan at March 31, 2017 was 8.15%.

 

Payments. There is no scheduled amortization of the principal of the Second Lien Term Loans. Unless otherwise prepaid as a result of the occurrence of certain mandatory prepayment events, all principal will be due and payable on the termination date described below.

 

Termination. The maturity date for the Second Lien Term Loans is the earlier to occur of (i) March 25, 2021, and (ii) the date on which the Second Lien Term Loans shall otherwise become due and payable in full under the Second Lien Credit Agreement, whether by voluntary prepayment per section 2.13(a) of the Second Lien Credit Agreement or events of default per section 8.01 of the Second Lien Credit Agreement.

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6. STOCK-BASED COMPENSATION
3 Months Ended
Mar. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION

Stock Incentive Plans

 

Options

 

We have one long-term equity incentive plan which we refer to as the 2006 Equity Incentive Plan, which we amended and restated as of April 20, 2015 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 11, 2015. As of March 31, 2017, we have reserved for issuance under the Restated Plan 12,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights 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 generally vest over three to five years and expire five to ten years from the date of grant.

 

As of March 31, 2017, we had outstanding options to acquire 560,149 shares of our Common Stock, of which options to acquire 205,000 shares were exercisable. During the three months ended March 31, 2017, we granted options to acquire 184,523 shares under our Restated Plan.

  

The following summarizes all of our option transactions for the three months ended March 31, 2017:

 

                Weighted Average        
          Weighted Average     Remaining     Aggregate  
Outstanding Options         Exercise price     Contractual Life     Intrinsic  
Under the 2006 Plan   Shares     Per Common Share     (in years)     Value  
                         
Balance, December 31, 2016     375,626     $ 6.82                  
Granted     184,523       6.30                  
Balance, March 31, 2017     560,149       6.65       6.04     $ 163,700  
Exercisable at March 31, 2017     205,000       7.51       0.68       154,400  

 

Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on March 31, 2017 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 March 31, 2017. No options were exercised during the three months ended March 31, 2017. As of March 31, 2017, total unrecognized stock-based compensation expense related to non-vested employee awards was $996,586, which is expected to be recognized over a weighted average period of approximately 3.3 years.

 

Restricted Stock Awards (“RSA’s”)

 

The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of March 31, 2017, we have issued a total of 4,896,036 RSA’s of which 539,993 were unvested at March 31, 2017.

 

The following summarizes all unvested RSA’s activities during the three months ended March 31, 2017:

 

          Weighted-Average        
          Remaining        
          Contractual     Weighted-Average  
    RSA's     Term (Years)     Fair Value  
RSA's unvested at December 31, 2016     573,145             $ 6.18  
Changes during the period                        
             Granted     632,025             $ 6.05  
             Vested     (665,177 )           $ 6.40  
RSA's unvested at March 31, 2017     539,993       0.96     $ 5.55  

 

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

 

Other stock bonus awards

 

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 three months ended March 31, 2017 we issued 10,000 shares relating to these awards.

 

Plan summary

 

In sum, of the 12,000,000 shares of common stock reserved for issuance under the Restated Plan, at March 31, 2017, we had issued 12,994,935 total shares between options, RSA’s and other stock awards. With options cancelled and RSA’s forfeited amounting to 2,975,009 and 59,053 shares, respectively, there remain 2,039,137 shares available under the Restated Plan for future issuance.

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7. SUBSEQUENT EVENTS
3 Months Ended
Mar. 31, 2017
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

On April 1, 2017 we formed a majority owned subsidiary, West Valley Imaging Group LLC (“WVI”) with Cedars Sinai Medical Center (“CSMC”). RadNet contributed assets in four of its imaging centers with a total value of $18.2 million for a 75% economic interest and CSMC contributed $6.1 million, for a 25% economic interest. Located in Tarzana California, WVI will offer imaging and oncology services. On April 1, 2017 we completed a sale of 2 wholly owned oncology practices to Cedars Sinai Medical Center in connection with formation of the WVI subsidiary described above for approximately $500,000.

 

On April 1, 2017 we entered into a joint venture with CSMC, Santa Monica Imaging Group, LLC. Located in Santa Monica, California, the operation will offer multi-modality imaging services. Total agreed contribution is $2.6 million of cash and assets with RadNet contributing $1.0 million for a 40% economic interest and CSMC contributing $1.6 million for a 60% economic interest.

 

On May 1, 2017 we completed a sale of 5 wholly owned imaging centers located in Rhode Island. The sale was made to Rhode Island Medical Imaging, Inc. for approximately $5.0 million.

 

On May 3, 2017 we completed our purchase of a single multi-modality imaging center located in Silver Spring, MD for approximately $2.4 million.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended
Mar. 31, 2017
Accounting Policies [Abstract]  
RESTATEMENT DUE TO ADOPTION OF ACCOUNTING PRONOUNCEMENT

RESTATEMENT DUE TO ADOPTION OF ACCOUNTING PRONOUNCEMENT - In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09”), Compensation—Stock Compensation, (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 requires excess tax benefits and tax deficiencies, which arise due to differences between the measure of compensation expense and the amount deductible for tax purposes, to be recorded directly through the statement of operations when awards vest or are settled. We elected to early adopt the new guidance for the year ended December 31, 2016. Upon adoption using the modified retrospective transition method, we recorded a cumulative effect adjustment to recognize previously unrecognized excess tax benefits which increased deferred tax assets and reduced accumulated deficit by $7.1 million. The current net tax benefit for 2016 resulting from adoption of the new guidance is approximately $400,000 and was reflected in our tax provision at December 31, 2016. The impact on our quarterly financial statements for the period ended March 31, 2016 is as follows (in thousands):

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS        
         
In thousands except per share data   As previously reported     Impact of adoption     As currently
reported
 
Benefit from income taxes   $ 1,180     $ 326     $ 1,506  
Net loss     (1,433 )     326       (1,107 )
Net loss attributable to Radnet Inc. common shareholders     (1,723 )     326       (1,397 )
Basic and diluted loss per share     (0.04 )     0.01       (0.03 )

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                  
                   
In thousands     As previously reported       Impact of adoption       As currently reported  
Net loss   $ (1,433 )   $ 326     $ (1,107 )
Deferred taxes     (1,286 )     (326 )     (1,612 )
Others     2,683             2,683  
Net decrease in cash and cash equivalents   $ (36 )   $     $ (36 )

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS          
           
In thousands     As previously reported       Impact of adoption       As currently reported  
Net loss   $ (1,433 )   $ 326     $ (1,107 )
Foreign currency translation adjustments     4             4  
Comprehensive loss     (1,429 )     326       (1,103 )
Less comprehensive income attributible to non-controlling interests     290             290  
Comprehensive loss attributable to Radnet Inc. common shareholders   $ (1,719 )   $ 326     $ (1,393 )
REVENUES

REVENUES -Service fee revenue, net of contractual allowances and discounts, consists of net patient fees received from various payors and patients themselves based mainly upon established contractual billing rates, less allowances for contractual adjustments and discounts. As it relates to BRMG and the NY Groups centers, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by BRMG and the NY Groups as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees from BRMG and the NY Groups. As it relates to non-BRMG and NY Groups centers, namely the affiliated physician groups, 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.

 

Service fee revenues are recorded during the period the services are provided based upon the estimated amounts due from the patients and third-party payors. Third-party payors include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances are based on historical collection rates of payor reimbursement contract agreements. We also record a provision for doubtful accounts based primarily on historical collection rates related to patient copayments and deductible amounts for patients who have health care coverage under one of our third-party payors.

 

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 service fee revenue, net of contractual allowances and discounts, the provision for bad debts, and revenue under capitation arrangements are summarized in the following table (in thousands):

 

    Three Months Ended
March 31,
 
    2017     2016  
Commercial insurance   $ 140,995     $ 131,491  
Medicare     47,678       45,820  
Medicaid     6,733       7,023  
Workers' compensation/personal injury     9,057       9,514  
Other (1)     8,287       6,994  
Service fee revenue, net of contractual allowances and discounts     212,750       200,842  
Provision for bad debts     (11,646 )     (10,304 )
Net service fee revenue     201,104       190,538  
Revenue under capitation arrangements     27,909       25,850  
Total net revenue   $ 229,013     $ 216,388  

_____________________

(1) Other consists of revenue from teleradiology services, consulting fees and software revenue.

PROVISION FOR BAD DEBTS

PROVISION FOR BAD DEBTS - We provide for an allowance against accounts receivable that could become uncollectible to reduce the carrying value of such receivables to their estimated net realizable value. We estimate this allowance based on the aging of our accounts receivable by the historical payment patterns of each type of payor, write-off trends, and other relevant factors. A significant portion of our provision for bad debt relates to co-payments and deductibles owed to us from patients with insurance. Although we attempt to collect deductibles and co-payments due from patients with insurance at the time of service, this attempt to collect at the time of service is not an assessment of the patient’s ability to pay nor are revenues recognized based on an assessment of the patient’s ability to pay. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on the increased burden of co-payments and deductibles to be made by patients with insurance. These factors continuously change and can have an impact on collection trends and our estimation process.

ACCOUNTS RECEIVABLE

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.

MEANINGFUL USE INCENTIVE

MEANINGFUL USE INCENTIVE - Under the American Recovery and Reinvestment Act of 2009, a program was enacted that provides financial incentives for providers that successfully implement and utilize electronic health record technology to improve patient care. Our software development team in Canada established an objective to build a Radiology Information System (RIS) software platform that has been awarded Meaningful Use certification. As this certified RIS system is implemented throughout our imaging centers, the radiologists that utilize this software can be eligible for the available financial incentives. In order to receive such incentive payments providers must attest that they have demonstrated meaningful use of the certified RIS in each stage of the program. We account for this meaningful use incentive under the Gain Contingency Model outlined in ASC 450-30. Under this model, we record within non-operating income, meaningful use incentive only after Medicare accepts an attestation from the qualified eligible professional demonstrating meaningful use. We recorded approximately $250,000 and $2.8 million during the three months ended March 31, 2017 and 2016, respectively, relating to this incentive.

DEFERRED FINANCING COSTS

DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized on a straight-line basis over the life of the associated loan, which approximates the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $1.9 million and $2.0 million, as of March 31, 2017 and December 31, 2016, respectively and related to the Company’s line of credit. In conjunction with our Fourth Amendment, a net addition of approximately $27,000 was added to deferred financing costs. See Note 5, Revolving Credit Facility, Notes Payable, and Capital Leases for more information.

INVENTORIES

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 - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over the estimated useful lives, 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 30 years. Maintenance and repairs are charged to expense as incurred.

BUSINESS COMBINATION

BUSINESS COMBINATION - Accounting for acquisitions 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

GOODWILL- Goodwill at March 31, 2017 totaled $240.0 million. Goodwill is recorded as a result of business combinations. Management evaluates goodwill at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We tested both goodwill for impairment on October 1, 2016, noting no impairment, and have not identified any indicators of impairment through March 31, 2017. Activity in goodwill for the three months ended March 31, 2017 is provided below (in thousands):

 

Balance as of December 31, 2016   $ 239,553  
Goodwill acquired through the acquisition of Resolution Imaging Medical Corp     1,901  
Goodwill acquired through the acquisition of MRI Centers of Torrance     401  
Goodwill included in assets held for sale     (1,901 )
Balance as of March 31, 2017   $ 239,954  
INCOME TAXES

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. 

EQUITY BASED COMPENSATION

EQUITY BASED COMPENSATION – We have one long-term incentive plan which we refer to as the 2006 Plan, which we amended and restated as of April 20, 2015 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 11, 2015. As of March 31, 2017, we have reserved for issuance under the Restated Plan 12,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights 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 6 Stock-Based Compensation for more information.

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME - ASC 220, Comprehensive Income, establishes rules for reporting and displaying comprehensive income and its components. Our unrealized gains or losses on foreign currency translation adjustments are included in comprehensive income. For the quarter ended December 31, 2016, we entered into an interest rate cap agreement. Assuming perfect effectiveness, any unrealized gains or losses related to the cap agreement that qualify for cash flow hedge accounting are classified as a component of income. Any ineffectiveness is recognized in earnings. The components of comprehensive income for the three months in the period ended March 31, 2017 are included in the consolidated statements of comprehensive loss.

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS - In the fourth quarter of 2016, the Company 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 the Company’s variable rate bank debt. Under these arrangements, the Company purchased a cap on 3 month LIBOR at 2.0%. The Company is liable for a $5.3 million premium to enter into the caps which is being accrued over the life of the agreements.

 

At inception, we designated our interest rate cap agreements 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 on the effective portion of the hedge (i.e., change in fair value) is initially reported as a component of accumulated other comprehensive income in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. As of March 31, 2017, the cash flow hedges were deemed to be effective. No amount is expected to be reclassified into earnings in the next twelve months.

 

Below represents as of March 31, 2017 the fair value of our interest rate caps and loss recognized:

 

The fair value of derivative instruments as of March 31, 2017 is as follows (amounts in thousands):

 

  Derivatives  Balance Sheet Location Fair Value – Asset Derivatives
  Interest rate contracts Current and other non-current liabilities ($435)

 

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

 

  Effective Interest Rate Cap Amount of Loss Recognized on Derivative Location of Loss Recognized in Income on Derivative
  Interest rate contracts ($778) Other Comprehensive Loss
FAIR VALUE MEASUREMENTS

 

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.

 

The table 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 March 31, 2017  
    Level 1     Level 2     Level 3     Total  
Current and other non-current liabilities                                
Interest Rate Contracts   $     $ (435 )   $     $ (435 )

 

    As of December 31, 2016  
    Level 1     Level 2     Level 3     Total  
Current assets                                
Interest Rate Contracts   $     $ 818     $     $ 818  

 

The estimated fair value of these contracts, which are discussed in Note 2, 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.

 

The table below summarizes the estimated fair value and carrying amount of our long-term debt as follows (in thousands):

 

    As of March 31, 2017  
    Level 1     Level 2     Level 3     Total Fair Value     Total Face Value  
First Lien Term Loans   $     $ 475,830     $     $ 475,830     $ 472,875  
Second Lien Term Loans   $       168,840     $       168,840     $ 168,000  

 

    As of December 31, 2016  
    Level 1     Level 2     Level 3     Total     Total Face Value  
First Lien Term Loans   $     $ 483,129     $     $ 483,129     $ 478,938  
Second Lien Term Loans           167,580             167,580       168,000  

 

Our revolving credit facility had no aggregate principal amount outstanding as of March 31, 2017.

 

The estimated fair value of our long-term debt, which is discussed in Note 5, 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.

EARNINGS PER SHARE

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 March 31,  
    2017     2016  
             
Net loss attributable to RadNet, Inc. common stockholders   $ (1,210 )   $ (1,397 )
                 
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS                
Weighted average number of common shares outstanding during the period     46,560,017       46,581,491  
Basic and diluted net loss per share attributable to RadNet, Inc. common stockholders   $ (0.03 )   $ (0.03 )

 

For the three months ended March 31, 2017 and 2016 we excluded all outstanding options and restricted stock awards in the calculation of diluted earnings per share because their effect would be antidilutive.

INVESTMENT AT COST

INVESTMENT AT COST - On March 24, 2017, we acquired a 12.5% equity interest in Medic Vision – Imaging Solutions Ltd for $1.0 million. We also have an option to acquire an additional 12.5% equity interest for $1.4 million exercisable within one year from the initial share purchase date. Medic Vision, based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. In accordance with ASC 325-20, Cost Method Investments, the investment is recorded at its cost of $1.0 million. No impairment in our investment was noted as of the quarter ended March 31, 2017.

INVESTMENT IN JOINT VENTURES

INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35% 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 March 31, 2017.

 

Joint venture investment and financial information

 

The following table is a summary of our investment in joint ventures during the quarters ended March 31, 2017 (in thousands):

 

Balance as of December 31, 2016  $43,509 
Equity in earnings in these joint ventures   1,928 
Distribution of earnings   (2,323)
Contributions in a new joint venture   3,000 
Balance as of March 31, 2017  $46,114 

 

We received management service fees from the centers underlying these joint ventures of approximately $3.1 million and $2.9 million for the quarters ended March 31, 2017 and 2016, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures.

 

The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2017 and December 31, 2016 and income statement data for the three months ended March 2017 and 2016 (in thousands):

 

Balance Sheet Data:  March 31, 2017   December 31, 2016 
Current assets  $40,737   $40,093 
Noncurrent assets   101,423    100,146 
Current liabilities   (16,408)   (14,077)
Noncurrent liabilities   (42,304)   (44,405)
   Total net assets  $83,448   $81,757 
           
Book value of RadNet joint venture interests  $39,741   $38,538 
Cost in excess of book value of acquired joint venture interests   6,373    4,970 
   Total value of Radnet joint venture interests  $46,114   $43,509 
           
   Total book value of other joint venture partner interests  $43,707   $43,219 

 

Income statement data for the three months ended March 31,  2017   2016 
         
Net revenue  $41,251   $39,220 
Net income  $4,130   $5,614 

 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
3 Months Ended
Mar. 31, 2017
Accounting Policies [Abstract]  
Impact of recent accounting standards change
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS        
         
In thousands except per share data   As previously reported     Impact of adoption     As currently
reported
 
Benefit from income taxes   $ 1,180     $ 326     $ 1,506  
Net loss     (1,433 )     326       (1,107 )
Net loss attributable to Radnet Inc. common shareholders     (1,723 )     326       (1,397 )
Basic and diluted loss per share     (0.04 )     0.01       (0.03 )

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                  
                   
In thousands     As previously reported       Impact of adoption       As currently reported  
Net loss   $ (1,433 )   $ 326     $ (1,107 )
Deferred taxes     (1,286 )     (326 )     (1,612 )
Others     2,683             2,683  
Net decrease in cash and cash equivalents   $ (36 )   $     $ (36 )

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS          
           
In thousands     As previously reported       Impact of adoption       As currently reported  
Net loss   $ (1,433 )   $ 326     $ (1,107 )
Foreign currency translation adjustments     4             4  
Comprehensive loss     (1,429 )     326       (1,103 )
Less comprehensive income attributible to non-controlling interests     290             290  
Comprehensive loss attributable to Radnet Inc. common shareholders   $ (1,719 )   $ 326     $ (1,393 )
Service Fee Revenue

    Three Months Ended
March 31,
 
    2017     2016  
Commercial insurance   $ 140,995     $ 131,491  
Medicare     47,678       45,820  
Medicaid     6,733       7,023  
Workers' compensation/personal injury     9,057       9,514  
Other (1)     8,287       6,994  
Service fee revenue, net of contractual allowances and discounts     212,750       200,842  
Provision for bad debts     (11,646 )     (10,304 )
Net service fee revenue     201,104       190,538  
Revenue under capitation arrangements     27,909       25,850  
Total net revenue   $ 229,013     $ 216,388  

_____________________

(1) Other consists of revenue from teleradiology services, consulting fees and software revenue.

Schedule of goodwill and other intangible assets
Balance as of December 31, 2016   $ 239,553  
Goodwill acquired through the acquisition of Resolution Imaging Medical Corp     1,901  
Goodwill acquired through the acquisition of MRI Centers of Torrance     401  
Goodwill included in assets held for sale     (1,901 )
Balance as of March 31, 2017   $ 239,954  
Fair value of derivatives
  Derivatives  Balance Sheet Location Fair Value – Asset Derivatives
  Interest rate contracts Current and other non-current liabilities ($435)
Effect of derivative instruments on comprehensive income
  Effective Interest Rate Cap Amount of Loss Recognized on Derivative Location of Loss Recognized in Income on Derivative
  Interest rate contracts ($778) Other Comprehensive Loss
Schedule of fair value of assets and liabilities
    As of March 31, 2017  
    Level 1     Level 2     Level 3     Total  
Current and other non-current liabilities                                
Interest Rate Contracts   $     $ (435 )   $     $ (435 )

 

    As of December 31, 2016  
    Level 1     Level 2     Level 3     Total  
Current assets                                
Interest Rate Contracts   $     $ 818     $     $ 818  

 

    As of March 31, 2017  
    Level 1     Level 2     Level 3     Total  
Current and other non-current liabilities                                
Interest Rate Contracts   $     $ (435 )   $     $ (435 )

 

    As of December 31, 2016  
    Level 1     Level 2     Level 3     Total  
Current assets                                
Interest Rate Contracts   $     $ 818     $     $ 818  

Earnings per share
    Three Months Ended March 31,  
    2017     2016  
             
Net loss attributable to RadNet, Inc. common stockholders   $ (1,210 )   $ (1,397 )
                 
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS                
Weighted average number of common shares outstanding during the period     46,560,017       46,581,491  
Basic and diluted net loss per share attributable to RadNet, Inc. common stockholders   $ (0.03 )   $ (0.03 )
Investment in joint ventures
Balance as of December 31, 2016   $ 43,509  
Equity in earnings in these joint ventures     1,928  
Distribution of earnings     (2,323 )
Contributions in a new joint venture     3,000  
Balance as of March 31, 2017   $ 46,114  
Joint venture investment and financial information
Balance Sheet Data:   March 31, 2017     December 31, 2016  
Current assets   $ 40,737     $ 40,093    
Noncurrent assets     101,423       100,146    
Current liabilities     (16,408 )     (14,077 )  
Noncurrent liabilities     (42,304 )     (44,405 )  
   Total net assets   $ 83,448     $ 81,757    
                   
Book value of RadNet joint venture interests   $ 39,741     $ 38,538    
Cost in excess of book value of acquired joint venture interests     6,373       4,970    
   Total value of Radnet joint venture interests   $ 46,114     $ 43,509    
                   
   Total book value of other joint venture partner interests   $ 43,707     $ 43,219    

 

Income statement data for the three months ended March 31,   2017     2016  
             
Net revenue   $ 41,251     $ 39,220  
Net income   $ 4,130     $ 5,614  
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4. FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE (Tables)
3 Months Ended
Mar. 31, 2017
Sale of Healthcare Rhode Island [Member]  
Assets held for sale
Property and equipment, net   $ 1,349  
Other assets     21  
Goodwill     1,126  
Total assets held for sale   $ 2,496  
Resolution Medical Imaging [Member]  
Assets held for contribution
Property and equipment, net   $ 1,896  
Other assets     31  
Goodwill     1,901  
Intangible Assets     100  
Total assets held for sale   $ 3,928  
         
Notes payable     353  
Capital lease     1,220  
Total liabilities held for sale   $ 1,573  
         
Net Assets Held for Sale   $ 2,355  
XML 30 R18.htm IDEA: XBRL DOCUMENT v3.7.0.1
5. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASES (Tables)
3 Months Ended
Mar. 31, 2017
Debt Disclosure [Abstract]  
Schedule of notes payable, line of credit and capital lease obligations
    March 31,     December 31,  
    2017     2016  
             
First Lien Term Loans     472,875       478,938  
                 
Second Lien Term Loans     168,000       168,000  
                 
Discounts on term loans     (16,624 )     (16,783 )
                 
Promissory note payable to the former owner of a practice acquired at an interest rate of 1.5% due through 2019     883       980  
                 
Equipment notes payable at interest rates ranging from 3.3% to 10.2%, due through 2021, collateralized by medical equipment     641       341  
                 
Obligations under capital leases at interest rates ranging from 2.5% to 10.8%, due through 2022, collateralized by medical and office equipment     11,650       7,256  
Debt held for contribution to joint venture     (1,573 )      
Total debt obligations     635,852       638,732  
Less: current portion     (27,842 )     (26,557 )
Long term portion debt obligations   $ 608,010     $ 612,175  
Term loans and financing activity
    As of March 31, 2017  
    Face Value     Discount     Total Carrying Value  
First Lien Term Loans   $ 472,875     $ (14,676 )   $ 458,199  
Second Lien Term Loans   $ 168,000     $ (1,948 )   $ 166,052  
Total   $ 640,875     $ (16,624 )   $ 624,251  
XML 31 R19.htm IDEA: XBRL DOCUMENT v3.7.0.1
6. STOCK-BASED COMPENSATION (Tables)
3 Months Ended
Mar. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock option activity
                Weighted Average        
          Weighted Average     Remaining     Aggregate  
Outstanding Options         Exercise price     Contractual Life     Intrinsic  
Under the 2006 Plan   Shares     Per Common Share     (in years)     Value  
                         
Balance, December 31, 2016     375,626     $ 6.82                  
Granted     184,523       6.30                  
Balance, March 31, 2017     560,149       6.65       6.04     $ 163,700  
Exercisable at March 31, 2017     205,000       7.51       0.68       154,400  
Restricted Stock Awards activity
          Weighted-Average        
          Remaining        
          Contractual     Weighted-Average  
    RSA's     Term (Years)     Fair Value  
RSA's unvested at December 31, 2016     573,145             $ 6.18  
Changes during the period                        
             Granted     632,025             $ 6.05  
             Vested     (665,177 )           $ 6.40  
RSA's unvested at March 31, 2017     539,993       0.96     $ 5.55  
XML 32 R20.htm IDEA: XBRL DOCUMENT v3.7.0.1
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]      
BRMG and NY Groupls revenues $ 35,500 $ 34,000  
BRMG and NY Groups operating expenses 35,500 34,000  
Total billed net service fee revenue 113,300 104,000  
Management services provided to BRMG and NY Groups 113,300 $ 104,000  
BRMG and NY Groups accounts receivable 106,100   $ 100,000
BRMG and NY Groups accounts payable $ 10,300   $ 9,000
XML 33 R21.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Benefit from income taxes $ (458) $ (1,506)
Net loss (860) (1,107)
Net loss attributable to Radnet Inc. common shareholders $ (1,210) $ (1,397)
Basic and diluted loss per share $ (0.03) $ (0.03)
Scenario, Previously Reported [Member]    
Benefit from income taxes   $ 1,180
Net loss   (1,433)
Net loss attributable to Radnet Inc. common shareholders   $ (1,723)
Basic and diluted loss per share   $ (0.04)
Impact of Adoption [Member]    
Benefit from income taxes   $ 326
Net loss   326
Net loss attributable to Radnet Inc. common shareholders   $ 326
Basic and diluted loss per share   $ 0.01
XML 34 R22.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Net loss $ (860) $ (1,107)
Deferred taxes (1,090) (1,612)
Others   2,683
Net decrease in cash and cash equivalents $ (12,344) (36)
Scenario, Previously Reported [Member]    
Net loss   (1,433)
Deferred taxes   (1,286)
Others   2,683
Net decrease in cash and cash equivalents   (36)
Impact of Adoption [Member]    
Net loss   326
Deferred taxes   (326)
Others   0
Net decrease in cash and cash equivalents   $ 0
XML 35 R23.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Net loss $ (860) $ (1,107)
Foreign currency translation adjustments 2 4
Comprehensive loss (1,636) (1,103)
Less comprehensive income attributible to non-controlling interests 350 290
Comprehensive loss attributable to Radnet Inc. common shareholders $ (1,986) (1,393)
Scenario, Previously Reported [Member]    
Net loss   (1,433)
Foreign currency translation adjustments   4
Comprehensive loss   (1,429)
Less comprehensive income attributible to non-controlling interests   290
Comprehensive loss attributable to Radnet Inc. common shareholders   (1,719)
Impact of Adoption [Member]    
Net loss   326
Foreign currency translation adjustments   0
Comprehensive loss   326
Less comprehensive income attributible to non-controlling interests   0
Comprehensive loss attributable to Radnet Inc. common shareholders   $ 326
XML 36 R24.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - Revenue) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Commercial Insurance $ 140,995 $ 131,491
Medicare 47,678 45,820
Medicaid 6,733 7,023
Workers Compensation/Personal Injury 9,057 9,514
Other [1] 8,287 6,994
Service fee revenue, net of contractual allowances and discounts 212,750 200,842
Provision for bad debts (11,646) (10,304)
Net service fee revenue 201,104 190,538
Revenue under capitation arrangements 27,909 25,850
Total net revenue $ 229,013 $ 216,388
[1] Other consists of revenue from teleradiology services, consulting fees and software revenue.
XML 37 R25.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - Goodwill)
$ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
Goodwill, beginning balance $ 239,553
Goodwill included in assets held for sale (1,901)
Goodwill, ending balance 239,954
Resolution Imaging Medical Corp [Member]  
Goodwill acquired through acquisitions 1,901
Goodwill, ending balance 1,901
MRI Centers of Torrance [Member]  
Goodwill acquired through acquisitions $ 401
XML 38 R26.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - Fair Value Derivatives)
$ in Thousands
Mar. 31, 2017
USD ($)
Interest Rate Contract [Member]  
Derivative asset fair value $ (435)
XML 39 R27.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SIGNIFICANT ACCOUNTING POLICIES (Details - Gain on Derivative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Amount of loss recognized on derivative $ (778) $ 0
Interest Rate Contract [Member]    
Amount of loss recognized on derivative $ (778)  
XML 40 R28.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SUMMARY OF ACCOUNTING POLICIES (Details - Fair Value Measurements) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Total Fair Value [Member]    
FAIR VALUE MEASUREMENTS    
Interest rate contracts $ (435) $ 818
Total Fair Value [Member] | First Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 475,830 483,129
Total Fair Value [Member] | Second Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 168,840 167,580
Total Face Value [Member] | First Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 472,875 478,938
Total Face Value [Member] | Second Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 168,000 168,000
Level 1 [Member]    
FAIR VALUE MEASUREMENTS    
Interest rate contracts 0 0
Level 1 [Member] | First Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 0 0
Level 1 [Member] | Second Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 0 0
Level 2 [Member]    
FAIR VALUE MEASUREMENTS    
Interest rate contracts (435) 818
Level 2 [Member] | First Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 475,830 483,129
Level 2 [Member] | Second Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 168,840 167,580
Level 3 [Member]    
FAIR VALUE MEASUREMENTS    
Interest rate contracts 0 0
Level 3 [Member] | First Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans 0 0
Level 3 [Member] | Second Lien Term Loans [Member]    
FAIR VALUE MEASUREMENTS    
Term Loans $ 0 $ 0
XML 41 R29.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SUMMARY OF ACCOUNTING POLICIES (Details - Earnings Per Share) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Earnings Per Share [Abstract]    
Net loss attributable to Radnet, Inc. common stockholders $ (1,210) $ (1,397)
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS    
Weighted average shares outstanding - Basic and Diluted 46,560,017 46,581,491
Basic and diluted net loss per share attributable to Radnet, Inc. common stockholders $ (0.03) $ (0.03)
XML 42 R30.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SUMMARY OF ACCOUNTING POLICIES (Details - Investment in Joint Ventures) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]    
Beginning balance $ 43,509  
Equity in earnings in these joint ventures 1,928 $ 2,279
Distribution of earnings (2,323) $ (2,038)
Contributions in a new joint venture 3,000  
Ending balance $ 46,114  
XML 43 R31.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SUMMARY OF ACCOUNTING POLICIES (Details - Key Financial Data on Joint Ventures) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Key financial data for joint ventures      
Current assets $ 40,737   $ 40,093
Noncurrent assets 101,423   100,146
Current liabilities (16,408)   (14,077)
Noncurrent liabilities (42,304)   (44,405)
Total net assets 83,448   81,757
Book value of Radnet joint venture interests 39,741   38,538
Cost in excess of book value of acquired joint venture interests 6,373   4,970
Total value of Radnet joint venture interests 46,114   43,509
Total book value of other joint venture partner interests 43,707   $ 43,219
Net revenue 41,251 $ 39,220  
Net income $ 4,130 $ 5,614  
XML 44 R32.htm IDEA: XBRL DOCUMENT v3.7.0.1
2. SUMMARY OF ACCOUNTING POLICIES (Details Narrative)
$ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
Integer
shares
Mar. 31, 2016
USD ($)
Dec. 31, 2016
USD ($)
Meaningful use incentive income $ 250 $ 2,808  
Deferred financing costs, net of accumulated amortization 1,900   $ 2,000
Increase in deferred financing costs 27    
Premium liability for 2016 Caps $ 5,300    
Number of unconsolidated joint ventures | Integer 13    
Ownership percentage ranges 35% to 55%    
Management service fees $ 3,100 $ 2,900  
Medic Vision [Member]      
Investment recorded at cost 1,000    
Impairment of investment $ 0    
Ownership interest 12.50%    
September 2020 [Member]      
Notional amounts $ 150,000    
October 2020 [Member]      
Notional amounts $ 350,000    
Restated Plan [Member]      
Common stock reserved for issuance | shares 12,000,000    
Propery and equipment, net [Member]      
Property and equipment useful lives 3 to 15 years    
Leasehold Improvements [Member]      
Property and equipment useful lives 3 to 30 years    
XML 45 R33.htm IDEA: XBRL DOCUMENT v3.7.0.1
4. FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE (Details - Acquisitions) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Goodwill acquired $ 239,954 $ 239,553
Resolution Imaging Medical Corp [Member]    
Purchase consideration 4,000  
Cash paid for acquisition 2,100  
Equipment debt assumed 1,600  
Payoff of debt 241  
Property and equipment acquired 1,896  
Other assets acquired 31  
Goodwill acquired 1,901  
Intangible assets acquired 100  
Total assets acquired 3,928  
Notes payable 353  
Capital lease 1,220  
Total liabilities assumed 1,573  
Net assets acquired $ 2,355  
XML 46 R34.htm IDEA: XBRL DOCUMENT v3.7.0.1
4. FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE (Details - Assets held for sale) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Assets held for sale $ 4,851 $ 2,203
Imaging Institute [Member]    
Assets held for sale 2,496  
Imaging Institute [Member] | Property and Equipment [Member]    
Assets held for sale 1,349  
Imaging Institute [Member] | Other Assets [Member]    
Assets held for sale 21  
Imaging Institute [Member] | Goodwill [Member]    
Assets held for sale $ 1,126  
XML 47 R35.htm IDEA: XBRL DOCUMENT v3.7.0.1
4. FACILITY ACQUISITIONS AND ASSETS HELD FOR SALE (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Transfer of fixed assets to new joint venture $ 3,000,000 $ 0
MRI Centers, Inc. [Member]    
Purchase consideration 800,000  
Payoff of debt 81,000  
Fixed assets acquired 289,000  
Other assets acquired 9,800  
Goodwill acquired 401,000  
Intangible assets acquired 100,000  
ScriptSender LLC [Member]    
Transfer of fixed assets to new joint venture $ 3,000,000  
Equity Method Investment, Ownership Percentage 49.00%  
Carrying amount of investment $ 2,800,000  
XML 48 R36.htm IDEA: XBRL DOCUMENT v3.7.0.1
5. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASES (Details - Schedule of debt) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Discounts on term loan and notes $ (16,624) $ (16,783)
Promissory notes payable 883 980
Equipment notes payable 641 341
Obligations under capital leases 11,650 7,256
Debt held for contribution to joint venture (1,573) 0
Total notes payable, line of credit and capital lease obligations 635,852 638,732
Less: current portion (27,842) (26,557)
Total notes payable, line of credit and capital lease obligations, long-term 608,010 612,175
First Lien Term Loans [Member]    
Term loans 472,875  
Second Lien Term Loans [Member]    
Term loans $ 168,000 168,000
First Lien Term Loan [Member]    
Term loans   $ 478,938
XML 49 R37.htm IDEA: XBRL DOCUMENT v3.7.0.1
5. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND CAPITAL LEASES (Details - Term Loans)
$ in Thousands
Mar. 31, 2017
USD ($)
Term loans face value $ 640,875
Term loans discount (16,624)
Term loan carrying value 624,251
First Lien Term Loans [Member]  
Term loans face value 472,875
Term loans discount (14,676)
Term loan carrying value 458,199
Second Lien Term Loans [Member]  
Term loans face value 168,000
Term loans discount (1,948)
Term loan carrying value $ 166,052
XML 50 R38.htm IDEA: XBRL DOCUMENT v3.7.0.1
6. STOCK-BASED COMPENSATION (Details-Outstanding options and warrants) - Options [Member]
3 Months Ended
Mar. 31, 2017
USD ($)
$ / shares
shares
STOCK BASED COMPENSATION  
Begining Balance | shares 375,626
Granted | shares 184,523
Ending Balance | shares 560,149
Exercisable at the end | shares 205,000
Weighted Average Exercise price Per Common Share  
Begining Balance | $ / shares $ 6.82
Granted | $ / shares 6.30
Ending Balance | $ / shares 6.65
Exercisable at the end | $ / shares $ 7.51
Weighted Average Remaining Contractual Life  
Ending Balance 6 years 15 days
Exercisable at the end 8 months 5 days
Aggregate Intrinsic Value  
Aggregate value outstanding | $ $ 163,700
Aggregate value exercisable | $ $ 154,400
XML 51 R39.htm IDEA: XBRL DOCUMENT v3.7.0.1
6. STOCK-BASED COMPENSATION (Details - RSU's) - Restricted Stock [Member]
3 Months Ended
Mar. 31, 2017
$ / shares
shares
RSA's outstanding, beginning balance | shares 573,145
RSA's granted | shares 632,025
RSA's vested | shares (665,177)
RSA's outstanding, ending balance | shares 539,993
Weighted-Average Remaining Contractual Term 11 months 16 days
Weighted-average fair value, beginning balance | $ / shares $ 6.18
Weighted-average fair value, granted | $ / shares 6.05
Weighted-average fair value, vested | $ / shares 6.40
Weighted-average fair value, ending balance | $ / shares $ 5.55
XML 52 R40.htm IDEA: XBRL DOCUMENT v3.7.0.1
6. STOCK-BASED COMPENSATION (Details Narrative)
$ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
shares
Unrecognized stock-based compensation expense | $ $ 996,586
Unrecognized expense weighted average period 3 years 3 months 18 days
Restated Plan [Member]  
Shares authorized 12,000,000
Shares available for future issuance, options, warrants, shares of restricted stock and other bonus awards 2,039,137
Awards issued to date 12,994,935
Options cancelled 2,975,009
RSA's forfeited 59,053
Future Service [Member]  
Options granted 10,000
Options [Member]  
Options exercised 0
Options granted 184,523
Restricted Stock [Member]  
Awards issued to date 4,896,036
RSA's unvested 539,993
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