8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported November 9, 2017)

RADNET, Inc.

(Exact name of registrant as specified in its Charter)

Delaware	001-33307	13-3326724
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS 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)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b) )

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c) )

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company   ☐

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

Item 2.02        RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On November 9, 2017 RadNet, Inc. (“RadNet”) issued a press release and held a conference call regarding our financial results for the quarter ended September 30, 2017. A copy of the press release is furnished as Exhibit 99.1 and a copy of the transcript of the conference call is furnished as Exhibit 99.2 to this Current Report.

The information in this Current Report, including Exhibit 99.1 and Exhibit 99.2 is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. The information in this Current Report, including Exhibit 99.1 and Exhibit 99.2 shall not be incorporated by reference into any registration statement or other document filed with the Commission.

Item 9.01        FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits

Exhibit Number	Description of Exhibit
99.1	Press Release dated November 9, 2017 relating to RadNet, Inc.’s financial results for the quarter ended September 30, 2017.
99.2	Transcript of conference call.

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  November 10, 2017	RADNET, INC.
	By: /s/ Jeffrey L. Linden Name: Jeffrey L. Linden Title: Executive Vice President and General Counsel

3

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated November 9, 2017
99.2	Transcript of conference call.

4

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

RadNet Reports Third Quarter Financial Results and Reaffirms Previously Announced 2017 Guidance Levels

· Total Net Revenue (“Revenue”) increased 1.3% to $227.6 million in the third quarter of 2017 from $224.6 million in the third quarter of 2016: Adjusting for the sale of the Rhode Island facilities, Revenue increased 1.9% as compared with last year’s third quarter

· Adjusted EBITDA⁽¹⁾ increased 0.5% to $36.1 million in the third quarter of 2017 from $35.9 million in the third quarter of 2016; Adjusting for the sale of the Rhode Island facilities, Adjusted EBITDA⁽¹⁾ increased 1.3% as compared with last year’s third quarter

· Earnings Per Share adjusted for non-recurring events taken place in the quarters (“Adjusted Earnings Per Share”) is $0.12 per share in the third quarter of 2017 as compared with $0.11 from the third quarter of 2016

· Aggregate procedural volumes increased 2.4% (adjusting for the sale of the Rhode Island centers); same center procedural volumes increased 1.5%

· A successful refinancing transaction was completed during the quarter, retiring the second lien term loan, simplifying the capital structure, increasing financial flexibility and reducing interest expense

LOS ANGELES, California, November 9, 2017 – RadNet, Inc. (NASDAQ: RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 298 owned and/or operated outpatient imaging centers, today reported financial results for its third quarter of 2017.

Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented, “I am pleased with our results this quarter. We compared favorably in all metrics relative to last year’s third quarter despite having divested our Rhode Island assets in the second quarter, having one less workday in this year’s third quarter and having overcome a difficult hurricane season. We demonstrated Revenue, Adjusted EBITDA⁽¹⁾ and earnings growth as well as positive same center revenue and procedural increases. Our consistently improving financial metrics have contributed to material deleveraging since year end 2015.”

Dr. Berger continued, “I believe we are making great strides by executing on a focused multifaceted strategy. First, we are streamlining our business through divesting non-core or lower margin operations. For instance, we exited Breastlink and our other oncology assets in California as well as our imaging centers in Rhode Island. Second, we are continuing to invest in expanding our core markets. As an example, we doubled the size of our Delaware operating region through acquiring our principal outpatient competitor, Diagnostic Imaging Associates. Third, we are continuing to pursue our health system joint venture strategy. We’ve both expanded existing joint ventures and established new joint ventures, most notably on the West Coast with Cedars Sinai. And finally, we continue to grow our information technology platform, or eRAD, through acquiring more customers and purchasing or developing additional software capabilities.”

1

“During the third quarter, on August 22nd, we completed an amendment to our senior secured first lien credit agreement and raised an additional $170 million of first lien term loans, the proceeds of which were used to repay and retire RadNet’s second lien term loan. By completing this transaction, we were able to initially reduce our annual cash interest expense by almost $3 million. Based upon the pricing matrix in the amendment, if we continue to deleverage our balance sheet in the future, we could save up to an additional $3 million of cash interest expense annually. Furthermore, we were able to extend the maturities on the $168.0 million portion of term debt which was formerly our second lien loan by over two years. Lastly, we significantly improved our financial flexibility,” added Dr. Berger.

Dr. Berger continued, “What I’m most excited about is that many of the recent trends in healthcare are supporting and validating our current operating strategy and positioning. More and more services are leaving hospitals and being performed at lower cost ambulatory settings. This is happening across the delivery system, not just in diagnostic imaging. This will be a continuing trend as health plans and their patients seek lower cost alternatives to hospitals. As an example, Anthem (one of America’s largest health insurers) recently announced that it will no longer reimburse outpatient imaging performed at hospitals, except under extraordinary circumstances. We expect others to follow. We’ve also noted that insurance companies in their efforts to control costs are purchasing freestanding, ambulatory providers such as surgery centers, urgent care locations, clinical laboratories, physical therapy centers, home health businesses, physician practices and perhaps even retail drug store locations. I’m more convinced than ever that RadNet is well positioned to be a major force in the healthcare delivery continuum of the future.”

Third Quarter Financial Results

For the third quarter of 2017, RadNet reported Revenue of $227.6 million, Adjusted EBITDA⁽¹⁾ of $36.1 million and Net Income of $3.2 million, respectively. Revenue increased $3.0 million (or 1.3%) and Adjusted EBITDA⁽¹⁾ increased $188,000 (or 0.5%). Adjusting for the sale of the Rhode Island facilities taken place on April 28, 2017, Revenue increased 1.9% and Adjusted EBITDA⁽¹⁾ increased 1.3% from the third quarter of 2016.

Net Income increased $1.6 million over the third quarter of 2016. Per share Net Income for the third quarter was $0.07, compared to per share Net Income in the third quarter of 2016 of $0.04 (based upon a weighted average number of diluted shares outstanding of 47.6 million and 46.3 million for these periods in 2017 and 2016, respectively).

The comparison of Net Income is affected by certain unusual items which occurred in each of the third quarters of 2017 and 2016.

During the third quarter of 2017, we had pre-tax losses related to (i) our divested/closed oncology operations of $2.0 million; (ii) severance from our sale of Breastlink of $1.0 million; and (iii) expenses from our refinancing transaction of $235,000. Affecting the third quarter of 2016, we wrote-off $709,000 of deferred financing fees and expensed $606,000 of one-time rating agency and legal fees related to our refinancing transaction completed on July 1, 2016. We also had a one-time $1.2 million adjustment to depreciation expense and $2.0 million of severance related to our NY acquisitions.

Adjusting for these events on a tax affected basis in both quarters, Adjusted Earnings Per Share was $0.12 in the third quarter of 2017 as compared with $0.11 in the third quarter of 2016.

Also affecting Net Income in the third quarter of 2017 (excluding the items mentioned immediately above in the Adjusted Earnings Calculation) were certain non-cash expenses or non-recurring items including: $1.5 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $139,000 of additional severance paid in connection with headcount reductions related to cost savings initiatives; $420,000 loss on the sale or disposal of certain capital equipment; and $877,000 of amortization of deferred financing costs and loan discounts related to our credit facilities.

2

For the third quarter of 2017, as compared with the prior year’s third quarter (and excluding Rhode Island from last year’s third quarter), MRI volume increased 5.1%, CT volume increased 6.3% and PET/CT volume increased 4.5%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 2.4% over the prior year’s third quarter. On a same-center basis, including only those centers which were part of RadNet for both the third quarters of 2017 and 2016, MRI volume increased 3.3%, CT volume increased 5.5% and PET/CT volume increased 2.8%. Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 1.5% compared with the prior year’s same quarter.

Nine Month Financial Results

For the nine months ended September 30, 2017, RadNet reported Revenue of $686.6 million, Adjusted EBITDA⁽¹⁾ of $101.8 million and Net Income of $7.3 million. Revenue increased $27.0 million (or 4.1%), Adjusted EBITDA⁽¹⁾ increased $3.7 million (or 3.8%) and Net Income increased $3.5 million, respectively, over the first nine months of 2016. Net Income Per Share for the nine month period ended September 30, 2017 was $0.16 per diluted share, compared to Net Income of $0.08 per diluted share in corresponding nine month period of 2016 (based upon a weighted average number of fully diluted shares outstanding of 47.2 million and 46.7 million for these periods in 2017 and 2016, respectively).

Affecting operating results in the nine months ended September 30, 2017 were certain non-cash expenses or non-recurring items including: $5.8 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $1.6 million of severance paid in connection with headcount reductions related to cost savings initiatives; $828,000 loss on the sale of certain capital equipment; $3.2 million of expenses related to divested or closed operations including oncology, Breastlink and Rhode Island; $235,000 of one-time rating agency and legal fees related to our refinancing transaction completed on August 22, 2017; $3.1 million gain on the sale of imaging and medical practice assets including Breastlink and Rhode Island; and $2.5 million of amortization of deferred financing costs and loan discounts related to our credit facilities.

2017 Guidance Update

RadNet reaffirms its previously announced 2017 guidance ranges as follows:

Total Net Revenue	$895 million - $925 million
Adjusted EBITDA(1)	$135 million - $145 million
Capital Expenditures (a)	$55 million - $60 million
Cash Interest Expense	$35 million - $40 million
Free Cash Flow Generation (b)	$40 million - $50 million

(a) Net of proceeds from the sale of equipment, imaging centers and joint venture interests.

Defined by the Company as Adjusted EBITDA⁽¹⁾ less total capital expenditures and cash paid for interest.

Dr. Berger added, “We are on track to meet our guidance ranges for the year. All ranges remain unchanged from what we announced earlier in the year. Due to lower interest expense from the refinancing transaction, we may be below our Cash Interest Expense guidance level for the year.”

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Conference Call for Today

Dr. Howard Berger, President and Chief Executive Officer, and Mark Stolper, Executive Vice President and Chief Financial Officer, will host a conference call to discuss its third quarter 2017 results on Thursday, November 9th, 2017 at 7:30 a.m. Pacific Time (10:30 a.m. Eastern Time).

Conference Call Details:

Date: Thursday, November 9, 2017

Time: 10:30 a.m. Eastern Time

Dial In-Number: 800-289-0548

International Dial-In Number: 719-457-2627

It is recommended that participants dial in approximately 5 to 10 minutes prior to the start of the 10:30 a.m. call. There will also be simultaneous and archived webcasts available at http://public.viavid.com/index.php?id=127114 or http://www.radnet.com under the “Investors” menu section and “News Releases” sub-menu of the website. An archived replay of the call will also be available and can be accessed by dialing 844-512-2921 from the U.S., or 412-317-6671 for international callers, and using the passcode 6529988.

Regulation G: GAAP and Non-GAAP Financial Information

This release contains certain financial information not reported in accordance with GAAP. The Company uses both GAAP and non-GAAP metrics to measure its financial results. The Company believes that, in addition to GAAP metrics, these non-GAAP metrics assist the Company in measuring its cash-based performance. The Company believes this information is useful to investors and other interested parties because it removes unusual and nonrecurring charges that occur in the affected period and provides a basis for measuring the Company's financial condition against other quarters. Such information should not be considered as a substitute for any measures calculated in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliation of this information to the most comparable GAAP measures is included in this release in the tables which follow.

About RadNet, Inc.

RadNet, Inc. is the leading national provider of freestanding, fixed-site diagnostic imaging services in the United States based on the number of locations and annual imaging revenue. RadNet has a network of 298 owned and/or operated outpatient imaging centers. RadNet's core markets include California, Maryland, Delaware, New Jersey and New York. In addition, RadNet provides radiology information technology solutions, teleradiology professional services and other related products and services to customers in the diagnostic imaging industry. Together with affiliated radiologists, and inclusive of full-time and per diem employees and technicians, RadNet has a total of approximately 7,300 employees. For more information, visit http://www.radnet.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning successfully integrating acquired operations, successfully achieving 2017 financial guidance, achieving cost savings, successfully developing and integrating new lines of business, continuing to grow its business by generating patient referrals and contracts with radiology practices, and receiving third-party reimbursement for diagnostic imaging services, are forward-looking statements within the meaning of the Safe Harbor. Forward-looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause the Company's actual results to differ materially from the statements contained herein. Further information on potential risk factors that could affect RadNet's business and its financial results are detailed in its most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date they are made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

CONTACTS:

RadNet, Inc.

Mark Stolper, 310-445-2800

Executive Vice President and Chief Financial Officer

4

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

	September 30,			December 31,
	2017			2016
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	8,468		$	20,638
Accounts receivable, net		168,593			164,210
Due from affiliates		1,314			2,428
Prepaid expenses and other current assets		23,181			28,435
Assets held for sale		–			2,203
Total current assets		201,556			217,914
PROPERTY AND EQUIPMENT, NET		245,919			247,725
OTHER ASSETS
Goodwill		253,140			239,553
Other intangible assets		40,920			42,682
Deferred financing costs		2,035			2,004
Investment in joint ventures		49,158			43,509
Deferred tax assets, net of current portion		48,325			50,356
Deposits and other		6,866			5,733
Total assets	$	847,919		$	849,476
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other	$	105,100		$	111,166
Due to affiliates		12,109			13,141
Deferred revenue		1,944			1,516
Current portion of deferred rent		2,742			2,961
Current portion of notes payable		30,235			22,031
Current portion of obligations under capital leases		4,617			4,526
Total current liabilities		156,747			155,341
LONG-TERM LIABILITIES
Deferred rent, net of current portion		26,225			24,799
Notes payable, net of current portion		579,921			609,445
Obligations under capital lease, net of current portion		3,173			2,730
Other non-current liabilities		7,895			5,108
Total liabilities		773,961			797,423
EQUITY
RadNet, Inc. stockholders' equity:
Common stock - $.0001 par value, 200,000,000 shares authorized; 47,536,958, and 46,574,904 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		4			4
Additional paid-in-capital		210,123			198,387
Accumulated other comprehensive (loss) gain		(1,376	)		306
Accumulated deficit		(142,885	)		(150,211	)
Total RadNet, Inc.'s stockholders' equity		65,866			48,486
Noncontrolling interests		8,092			3,567
Total equity		73,958			52,053
Total liabilities and equity	$	847,919		$	849,476

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RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
NET REVENUE
Service fee revenue, net of contractual allowances and discounts	$	211,313		$	208,430		$	638,119		$	613,031
Provision for bad debts		(11,687	)		(11,253	)		(35,187	)		(33,883	)
Net service fee revenue		199,626			197,177			602,932			579,148
Revenue under capitation arrangements		27,981			27,466			83,702			80,448
Total net revenue		227,607			224,643			686,634			659,596
OPERATING EXPENSES
Cost of operations, excluding depreciation and amortization		198,109			192,752			602,174			583,640
Depreciation and amortization		17,053			17,318			50,319			49,541
Loss (gain) on sale and disposal of equipment		420			(66	)		828			375
Severance costs		1,186			2,188			1,566			2,528
Total operating expenses		216,768			212,192			654,887			636,084
INCOME FROM OPERATIONS		10,839			12,451			31,747			23,512
OTHER INCOME AND EXPENSES
Interest expense		10,169			11,404			30,712			32,830
Meaningful use incentive		–			–			(250	)		(2,808	)
Equity in earnings of joint ventures		(3,450	)		(2,576	)		(8,372	)		(8,129	)
Gain on sale of imaging centers		(845	)		–			(3,146	)		–
Gain from return of common stock		–			–			–			(5,032	)
Other expenses		4			174			14			180
Total other expenses		5,878			9,002			18,958			17,041
INCOME BEFORE INCOME TAXES		4,961			3,449			12,789			6,471
Provision for income taxes		(1,112	)		(1,461	)		(4,177	)		(2,211	)
NET INCOME		3,849			1,988			8,612			4,260
Net income attributable to noncontrolling interests		623			344			1,286			391
NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	3,226		$	1,644		$	7,326		$	3,869
BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.07		$	0.04		$	0.16		$	0.08
DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.07		$	0.04		$	0.16		$	0.08
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		46,953,705			45,868,629			46,760,583			46,337,993
Diluted		47,577,750			46,333,970			47,239,360			46,748,836

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RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(unaudited)

	Nine Months Ended September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,612		$	4,260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		50,319			49,541
Provision for bad debts		35,187			33,883
Gain from return of common stock		–			(5,032	)
Equity in earnings of joint ventures		(8,372	)		(8,129	)
Distributions from joint ventures		6,785			2,929
Amortization deferred financing costs and loan discount		2,509			4,244
Loss on sale and disposal of equipment		828			375
Gain on sale of imaging centers		(3,146	)		–
Stock-based compensation		5,842			4,918
Non cash severance		1,047			–
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable		(38,770	)		(53,277	)
Other current assets		2,981			10,420
Other assets		309			751
Deferred taxes		2,031			1,426
Deferred rent		2,137			(678	)
Deferred revenue		428			60
Accounts payable, accrued expenses and other		6,857			9,039
Net cash provided by operating activities		75,584			54,730
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities		(22,904	)		(6,603	)
Investment at cost		(500	)		–
Purchase of property and equipment		(52,807	)		(52,110	)
Proceeds from sale of imaging and medical practice assets		9,000			63
Cash distribution from new JV partner		1,473			994
Equity contributions in existing and purchase of interest in joint ventures		(80	)		(1,374	)
Net cash used in investing activities		(65,818	)		(59,030	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable		(5,297	)		(9,219	)
Proceeds from borrowings		170,000			476,503
Payments on Term Loan Debt		(188,396	)		(463,022	)
Deferred financing costs and debt discount		(5,067	)		(945	)
Distributions paid to noncontrolling interests		(1,065	)		(492	)
Proceeds from sale of noncontrolling interest, net of taxes		7,726			–
Contributions from noncontrolling partners		125			–
Proceeds from revolving credit facility		182,000			344,600
Payments on revolving credit facility		(182,000	)		(343,000	)
Purchase of noncontrolling interests		–			(350	)
Proceeds from issuance of common stock upon exercise of options		–			150
Net cash (used in) provided by financing activities		(21,974	)		4,225
EFFECT OF EXCHANGE RATE CHANGES ON CASH		38			(13	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(12,170	)		(88	)
CASH AND CASH EQUIVALENTS, beginning of period		20,638			446
CASH AND CASH EQUIVALENTS, end of period	$	8,468		$	358
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	29,134		$	26,819

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RADNET, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON SHAREHOLDERS TO ADJUSTED EBITDA⁽¹⁾

(IN THOUSANDS)

	Three Months Ended
	September 30,
	2017			2016
Net Income Attributable to RadNet, Inc. Common Shareholders	$	3,226		$	1,647
Plus Interest Expense		10,169			11,404
Plus Provision for Income Taxes		1,112			1,458
Plus Depreciation and Amortization		17,053			17,318
Plus Loss (Gain) on Sale of Equipment		420			(66	)
Plus Severance Costs		1,186			2,188
Plus Other Expenses		4			174
Plus Non-Cash Employee Stock-Based Compensation		1,528			1,157
Plus Fees Related to Term Loan Refinancing		235			606
Plus Expenses of Divested/Closed Operations		1,986			–
Less Gain on Sale of Imaging Centers		(845	)		–
Adjusted EBITDA(1)	$	36,074		$	35,886

	Nine Months Ended
	September 30,
	2017			2016
Net Income (Loss) Attributable to RadNet, Inc. Common Shareholders	$	7,326		$	3,549
Plus Interest Expense		30,712			32,830
Plus Provision for Income Taxes		4,177			2,531
Plus Depreciation and Amortization		50,319			49,541
Plus Loss on Sale of Equipment		828			375
Plus Severance Costs		1,566			2,528
Plus Other Expenses		14			180
Plus Non-Cash Employee Stock-Based Compensation		5,842			4,918
Plus Acquisition Related Working Capital Adjustment		–			6,072
Plus Fees Related to Term Loan Refinancing		235			606
Plus Expenses of Divested/Closed Operations		3,186			–
Plus Reimbursable Legal Expenses		723			–
Less Gain on Sale of Imaging Centers		(3,146	)		–
Less Gain on Return of Common Stock		–			(5,032	)
Adjusted EBITDA(1)	$	101,782		$	98,098

8

PAYOR CLASS BREAKDOWN**

	Third Quarter
	2017
Commercial Insurance		58.9%
Medicare		20.0%
Capitation		11.7%
Workers Compensation/Personal Injury		3.6%
Medicaid		2.6%
Other		3.2%
Total		100.0%

**Capitation percentage has been calculated based upon its proportion of Revenue Under Capitation Arrangements in the period to Service Fee Revenue, Net of Contractual Allowances and Discounts plus Revenue Under Capitation Arrangements.

After deducting the capitation percentage from 100%, all other payor class percentages are based upon a proportion to global payments received from consolidated imaging centers from that periods dates of services and excludes payments from hospital contracts, Breastlink, imaging center management fees, eRAD, Imaging on Call and other miscellaneous revenue.

RADNET PAYMENTS BY MODALITY *

Third Quarter	Full Year		Full Year		Full Year
	2017		2016		2015		2014
MRI		35.2%		34.7%		35.3%		36.1%
CT		16.0%		15.8%		15.7%		15.3%
PET/CT		5.2%		5.0%		5.1%		5.7%
X-ray		8.8%		9.3%		9.6%		10.2%
Ultrasound		12.0%		12.3%		11.5%		11.1%
Mammography		16.2%		16.5%		16.4%		16.5%
Nuclear Medicine		1.1%		1.2%		1.3%		1.4%
Other		5.3%		5.2%		5.1%		3.7%
		100.0%		100.0%		100.0%		100.0%

Note

* Based upon global payments received from consolidated Imaging Centers from that year's dates of service.

Excludes payments from hospital contracts, Breastlink, Imaging on Call, eRAD, Center Management Fees and other miscellaneous operating activities.

Footnotes

⁽¹⁾ The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and adjusted for losses or gains on the sale of equipment, other income or loss, debt extinguishments 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 taken place during the period.

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Adjusted EBITDA is reconciled to its nearest comparable GAAP financial measure. Adjusted EBITDA is a non-GAAP financial measure used as analytical indicator by RadNet management 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.

⁽²⁾ As noted above, the Company defines Free Cash Flow as Adjusted EBITDA less total Capital Expenditures (whether completed with cash or financed) and Cash Interest paid. Free Cash Flow is a non-GAAP financial measure. The Company uses Free Cash Flow because the Company believes it provides useful information for investors and management because it measures our capacity to generate cash from our operating activities. Free Cash Flow does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. In addition, our definition of Free Cash Flow may differ from definitions used by other companies.

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

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EX-99.2

Exhibit 99.2

RadNet, Inc. - Third Quarter 2017 Financial Results Conference Call, November 09, 2017

C O R P O R A T E P A R T I C I P A N T S

Mark D. Stolper, Executive Vice President & Chief Financial Officer

Dr. Howard G. Berger, Chairman, President, Chief Executive Officer & Treasurer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Brian Tanquilut, Jefferies LLC

Mitra Ramgopal, Sidoti & Company

Ed Kressler, Angelo Gordon

P R E S E N T A T I O N

Operator:

Good day, and welcome to the RadNet, Inc. Third Quarter 2017 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd now like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, sir.

Mark D. Stolper:

Good morning. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's third quarter 2017 financial results. Before we begin today, we'd like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance, RadNet's ability to continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and Adjusted EBITDA for the acquired operations as estimated among others are forward-looking statements within the meaning of the Safe Harbor.

Forward-looking statements are based on Management's current preliminary expectations and are subject to risks and uncertainties, which may cause RadNet's actual results to differ materially from the statements contained herein.

These risks and uncertainties include the risks set forth in RadNet's reports filed with the SEC from time to time, including RadNet's annual report on Form 10-K for the year ended December 31, 2016, and RadNet's quarterly report on Form 10-Q to be filed shortly. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made or to reflect the occurrence of unanticipated events.

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With that, I'd like to turn the call over to Dr. Howard Berger.

Dr. Howard G. Berger:

Thank you, Mark. Good morning, everyone, and thank you for joining us today. On today's call, Mark and I plan to provide you with highlights from our third quarter 2017 results, give you more insight into factors which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest in our Company and for dedicating a portion of your day to participate in our conference call this morning.

Overall, I am very pleased by the continuing, consistent improvement in our metrics and financial performance. Our revenues increased 1.9% and our Adjusted EBITDA increased 1.3% over last year's third quarter, adjusting for the sale of our Rhode Island centers completed in April. Also adjusting for the sale of Rhode Island, procedural volumes increased 2.4% on an aggregate basis and 1.5% on a same-center basis, relative to the third quarter of last year. Earnings and earnings per share increased quarter over same quarter. Adjusted earnings per share was $0.12 per share in the third quarter of 2017, an increase from $0.11 from the third quarter of 2016 as adjusted for extraordinary events taken place in both quarters.

The quarter's performance is especially encouraging since we had one less workday during the third quarter relative to last year's quarter. Based upon our annual run rate of over $900 million of revenue, each workday is worth over $3 million of revenue to us, of which our experience is that almost 40% of this incremental revenue would fall to the EBITDA line. Additionally, we made significant investments in our reimbursement operations in the last two quarters, including ramping up staffing in self-pay collections. Accounts receivable follow-up, preauthorization, cash posting and senior Management. We expect to see the benefits of these investments in future quarters in terms of better collection yields and lower DSOs. For these reasons, this quarter's results give me confidence about our metrics as we conclude 2017 and head into 2018.

Our consistent and improved performance during this quarter and the last several quarters have resulted in significant deleveraging of our capital structure. Our leverage has declined from 5.25x net debt to trailing 12-month EBITDA to under 4.60x as of the end of this quarter. Our goal is to reduce leverage to under 4x net debt-to-EBITDA during 2018. Upon this further reduction, we would capture up to another $3 million of annual cash interest expense savings based on a pricing grid in our new credit facility.

I believe the consistent improvement we demonstrated in our operating results over the last year and a half is a result of our executing on a focused multi-faceted strategy. I'd like to reemphasize what the strategy is. First, we are streamlining our business through divesting noncore or underperforming operations. In April, we completed the sale of five centers in Rhode Island to another Operator in that market. The five centers were originally part of RadNet's acquisition completed in November 2011 of the U.S. operations of CML HealthCare.

When we purchased the assets of CML, we were most interested in CML's operations in Maryland. Managing the Rhode Island region consumed time and energy in a marketplace we felt was unlikely to grow for us. We concluded that our Rhode Island assets were better suited under the ownership of another local Operator. Also in April, as part of a larger strategic relationship with Cedar-Sinai, we sold to Cedar's our medical oncology practices in the San Fernando Valley of Los Angeles. We originally purchased these oncology practices because of their connection with our Breastlink business and because they rely heavily on diagnostic imaging. Operating medical oncology practices was never our core business, and we were able to sell our ownership to Cedars who will continue to utilize RadNet for the imaging needs for these practices. In September, we sold to Verihealth our interest in Breastlink California, our integrated Breast Disease Management operation. Like the San Fernando Valley Oncology operations, we created Breastlink partially to capture substantial imaging volumes resulting from breast cancer screening and treatment. By transferring the professional responsibilities of Breastlink to Verity, like Cedars, another strategic partner, we will remain the imaging provider of choice for these patient populations.

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In aggregate, these divested operations were running at a deficit. Through divesting the operations while regaining the imaging—while retaining the imaging volumes, we should pick up about $3 million of EBITDA in 2018.

The second part of our multi-faceted strategy is continued growth and penetration of our five core markets. On August 7, we completed acquisition of Diagnostic Imaging Associates in Delaware. DIA owns seven imaging centers and was our largest nonhospital competitor in Delaware. We expect that there will be unique cost savings and revenue efficiencies through the consolidation with our preexisting Delaware operations. With this acquisition, we become the clear leader in this marketplace and the obvious, lower-cost alternative to the hospitals. During the first three quarters of 2017, we also completed smaller tuck-in acquisitions in Stockton; Torrance; and Santa Monica, California; Silver Springs, Maryland; and more recently, we completed the acquisition of a PET/CT center in Manhattan. The stronger we get in each of our core markets, the more efficient we can be as an Operator. Furthermore, our scale positions us to achieve long-term stable pricing with regional health plans and insurance companies and affords us joint venture opportunities and unique alternative payment and contrasting arrangements.

The third part of our multi-faceted strategy is our continuing pursuit of health system joint ventures. During 2017, we both expanded existing ventures and established new JVs. On July 1, 2017, we formed the majority-owned subsidiary, Advanced Imaging of Timonium Crossing, LLC, in conjunction with the University of Maryland St. Joseph Medical Center. We sold our 25% interest in an imaging center to the University of Maryland St. Joseph Medical Center. This new joint venture expands an existing relationship we have with the University of Maryland medical systems while we operate another—where we operate other joint ventures in Maryland with this health system.

On April 1, 2017, we established two joint ventures with Cedars-Sinai Medical Center. First, we sold a 25% noncontrolling interest in four existing RadNet facilities in the San Fernando Valley of Los Angeles. Additionally, we established a joint venture in Santa Monica, California with Cedars by selling Cedars a 60% controlling interest in our existing resolution imaging facility. Cedars-Sinai is one of the premier academic medical centers in the country and has extensive outreach and breadth of capabilities that are expanding across the greater Los Angeles area. We are ready to evaluate other opportunities with Cedars in the near future.

We are enthusiastic about our joint venture strategy. In many cases, we are converting what would otherwise be formidable competitors for outpatient businesses into business partners. Often, the health systems have relationships with referring physicians, or in some cases, actually we own primary care or specialist groups that can refer business to the JVs. Many of our partners recognize that more and more outpatient imaging is migrating to freestanding, nonhospital settings. These partners also recognize the need for partnering with an organization like RadNet, who has expertise in operating lower-cost ambulatory facilities in medical communities outside of hospital campuses.

The fourth part of our multi-faceted strategy is our willingness to engage and in our pursuit of alternative payment models and in particular capitation. We currently have assumed responsibility for providing outpatient imaging to 1.5 million managed-care lives in California under full-risk capitation arrangements with various medical groups. We're able to service these patients because of our significant scale, number of facilities, spanning wide geographies, sophisticated IT infrastructure and comprehensive utilization Management capabilities. These capabilities set us apart from all other imaging center companies and uniquely position us to assume and manage utilization risk. We are aggressively pushing forward with these payment models on the East Coast and continue to be encouraged that alternative payment structures and risk taking will be a construct that can work on both coasts. While we are hopeful that in the coming quarters we would—we are hopeful that in the coming quarters, we will be able to announce more and more capitation arrangements on the East Coast.

The last part of our strategy is the expansion of our information technology platform or eRAD. We continue to grow eRAD through acquiring more customers and through purchasing and developing additional software capabilities. As RadNet continues to grow and our workflow becomes more complex, it is vital that our IT infrastructure can support the demands of our business. We are continually making improvements to eRAD, which are rolled out to our RadNet facilities and those of our growing client base. In some cases, we purchased capabilities from companies we discover in the marketplace, whose technologies complement or enhance those of eRAD. In January, we entered into a joint venture with one such Company called Script Center. Script Center provides secure data transmission services of medical information from referring physicians and their EHRs, electronic medical records, to radiology providers.

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As we move forward into the fourth quarter, I expect our business will produce a significant amount of free cash flow. Part of the reason is that we spent over $49 million of our 2017 roughly $55 million to $60 million capital expenditures budget. This is typical as we frontload our construction and equipment replacement programs each year to meet our operating objectives by end of year. Additionally, we completed a refinancing in August, which Mark will discuss in more detail in his prepared remarks. The result is that we are now paying lower cash interest expense, which will also benefit our cash flow in the fourth quarter. We ended the third quarter with a cash balance of over $8 million despite having completed the acquisition of DIA in Delaware, for which we spent $13 million in cash. I'm anticipating this cash balance to substantially increase by the end of the year. This expected significant cash balance at the end of the year will either be used to repay debt consistent with our continuing deleveraging strategy or be reinvested in growth opportunities we may identify.

At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2017 performance. When he is finished, I will make some closing remarks.

Mark D. Stolper:

Thank you, Howard. I'm now going to briefly review our third quarter 2017 performance in attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our third quarter performance. Lastly, I will reaffirm 2017 financial guidance levels.

In my discussion, I will use the term Adjusted EBITDA, which is a non-GAAP financial measure. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, each from continuing operations and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains and noncash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interest in subsidiaries and is adjusted for noncash or extraordinary and onetime events taking place during the period.

A full quantitative reconciliation of Adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is included in our earnings release.

With that said, I'd now like to review our third quarter 2017 results. For the three months ended September 30, 2017, RadNet reported revenue and Adjusted EBITDA of $227.6 million and $36.1 million, respectively. Revenue increased $3 million or 1.3% over the prior year same quarter and Adjusted EBITDA increased $188,000 or 0.5% over the prior year same quarter.

Adjusting for the sale of the Rhode Island facility completed on April 28, 2017, revenue increased 1.9% and Adjusted EBITDA increased 1.3% from the third quarter of 2016. Adjusting for the sale of all the discontinued or closed operations, which includes Breastlink, Rhode Island and the oncology operations, revenue in the third quarter of 2017 increased $9.9 million over the same quarter last year or 4.6%. Of this increase, $5.3 million or 54% of the increase was from same-center performance.

For the third quarter of 2017, as compared with the prior year's third quarter and excluding Rhode Island from last year's third quarter, MRI volume increased 5.1%, CT volume increased 6.3% and PET/CT volume increased 4.5%. Overall volume taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and all other exams increased 2.4% over the prior year's third quarter.

I will now discuss the procedural volume. Note that the beginning—beginning in the second quarter of this year, all procedural numbers I'm discussing includes all of our joint ventures, whether consolidated or unconsolidated from an accounting perspective. Our JVs have become a material part of our business, and by including their procedural volumes, it provides a more accurate and complete picture of our operations. For this quarter and going forward, I will restate the prior year's procedural volumes in the same manner to make meaningful comparisons.

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In the third quarter of 2017, we performed 1,757,976 total procedures. The procedures were consistent with our multi-modality approach in the third quarter, whereby 75.8% of all the work we did by volume was from routine imaging.

Our procedures in the third quarter of 2017 were as follows. Note the procedural volumes for comparison purposes that I will be providing for the third quarter of 2016 is adjusted for the sale of Rhode Island. We performed 241,242 MRIs this quarter as compared with 229,609 MRIs in the third quarter of 2016. We performed 175,356 CTs this quarter as compared with 165,019 CTs in the third quarter of 2016. We performed 8,769 PET/CTs this quarter as compared with 8,393 PET/CTs in the third quarter 2016. We performed 1,332,609 routine imaging exams this quarter, which include nuclear medicine, ultrasound, mammography, x-ray and all other exams as compared with 1,313,710 exams in the third quarter of 2016.

On a same-center basis, including only those centers which were part of RadNet for both the third quarter of 2017 and 2016, MRI volume increased 3.3%, CT volume increased 5.5% and PET/CT volume increased 2.8%. Overall same-center volume taking into account routine imaging exams increased 1.5% with the prior year same quarter.

Net income increased $1.6 million over the third quarter of 2016. Per share net income for the third quarter was $0.07 compared to per share net income in the third quarter 2016 of $0.04, based upon weighted average number of diluted shares outstanding of 47.6 million and 46.3 million for these periods in 2017 and 2016, respectively. The comparison of net income is affected by certain unusual items which occurred in each of the third quarters of 2017 and 2016. During the quarter—the third quarter of 2017, we had pretax losses related to: one, our divested—closed oncology operations of $2 million; two, our severance related to Breastlink of $1 million; and three, expenses from our refinancing transaction of $235,000.

Affecting the third quarter of 2016, we wrote off a $709,000 of deferred financing fees and expensed $606,000 of one-time rating agency and legal fees related to our refinancing transaction completed on July 1, 2016. We also had one-time $1.2 million adjustment to depreciation expense and $2 million of severance related to our New York acquisitions. Adjusting for these events on a tax-effective basis in both quarters, adjusted earnings per share was $0.12 in the third quarter of 2017 as compared with $0.11 in the third quarter of 2016.

Also affecting net income in the third quarter of 2017, excluding the items I mentioned above in the adjusted earnings calculation were certain noncash expenses or nonrecurring items including the following: $1.5 million of noncash employee stock compensation expense resulting from divesting of certain options and restricted stock; $139,000 of additional severance paid in connection with headcount reductions related to cost savings initiatives; $420,000 loss on the sale or disposal of certain capital equipment and $877,000 of amortization of deferred financing cost and loan discounts related to our credit facilities.

Overall, GAAP interest expense for the third quarter of 2017 was $10.2 million. This compares with GAAP interest expense in the third quarter of 2016 of $11.4 million. Cash paid for interest during the period, which excludes noncash deferred financing expenses and accrued interest was $10.1 million as compared to $8.3 million in the third quarter of last year. This increased amount this year—in this year's third quarter relative to last year was mainly due to the timing of when our LIBOR contracts matured and due to the acceleration of accrued interest payments related to our refinancing transaction that occurred in late August.

At September 30, 2017, after giving effect to bond and term loan discounts, we had $609.5 million of net debt, which is total debt left at cash balance, and we were undrawn on our $117.5 million revolving line of credit and had a cash balance of $8.5 million.

During the quarter, we repaid $5.3 million of notes and leases payable and had cash capital expenditures, net of asset dispositions, which include imaging centers and medical practices of $1.4 million.

Since December 31, 2016, accounts receivable increased approximately $4.4 million and our net days sales outstanding, or DSOs, were 62.97 days, an increase of approximately 1.74 days since the year-end 2016.

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At this time, I'd like to reaffirm our 2017 fiscal year guidance levels, which we released in conjunction with our fourth quarter and year-end 2016 financial results.

For total net revenue, our guidance range has remained between $895 million and $925 million; for Adjusted EBITDA, our guidance range remains between $135 million and $145 million; for capital expenditures, our guidance range remains between $55 million and $60 million; for cash interest expense, our guidance range remains between $35 million and $45 million—$40 million; and for free cash flow generation, which we define as Adjusted EBITDA, less our total capital expenditures and cash paid for interest, our guidance range remains between $40 million and $50 million. We are on track to meet our guidance ranges for the year and all guidance range—ranges remained unchanged from what we announced earlier this year.

I'll now take a few minutes to give you an update on 2018 reimbursement and discuss what we know with regards to 2018 anticipated Medicare rates.

With respect to 2018 Medicare reimbursement, at the end of July, we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about that time every year. At that time, we completed an initial analysis and compared those rates to 2017 rates. We volume weighted our analysis using expected 2018 procedural volumes by modality by CPT code. Our initial analysis at that time showed that the Medicare rates for 2018 were proposed to be essentially neutral relative to 2017 rates. We expected an impact of less than $1 million in aggregate to our revenue.

Last week, we received from CMS its final rule, which will govern next year's reimbursement. We completed an initial analysis along the lines we performed in July on the initial proposal. We are pleased to report that like the initial proposal in July, we anticipate a negligible impact to RadNet next year. We are obviously pleased with this, and this is the only the third year since we advent of the Deficit Reduction Act in 2007 where CMS is leaving our rates essentially unchanged. Our industry has been significantly impacted by rate cuts, and we've consistently have had to improve our business, and in some cases, dramatically, just to stay in place. We will continue to be focused on lowering our cost structure through using our scale and our ability to drive efficiencies in our organization. We will continue to seek pricing increases in regions where we are essential to the health care delivery system to private payers and its health plans, recognizing that our prices remain significantly discounted as compared to hospital settings. We will also continue to pursue partnerships with health systems where we think that these arrangements can result in increased volumes and long-term stable pricing from private payers. Lastly, we will continue to acquire strategic targets at 3 to 5x EBITDA in our core geographies that further our strength in local markets and achieve efficiencies with their existing operations.

I'd now discuss our refinancing transaction briefly. On August 22, we completed a refinancing transaction. We amended and restated our first lien credit agreement dated July 1, 2016, and raised $170 million of incremental first lien term debt under the first lien agreements. The proceeds of the offering were used to repay in its entirety the $168 million of principal amount that we had outstanding under our second lien credit agreement dated March 25, 2014. After the offering, we continue to have available to us, $117.5 million of revolving credit facility capacity under the first lien agreement, which is currently undrawn upon. The result of the transaction was that we simplified our capital structure, addressed the maturity of our second lien term loan, which would have otherwise matured in 2021 and created additional flexibility to grow our business and reduce our interest expense by approximately $3 million on an annual basis.

Additionally, there is a repricing grid in the amended credit agreement that would afford us an additional up to $3 million of annual interest savings should we deleverage the Company below 4x debt-to-EBITDA.

I'd now like to turn the call back to Dr. Berger, who'll make some closing remarks.

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Dr. Howard G. Berger:

Thank you, Mark. The traditional lines defining health care are rapidly changing. We've seen major strategic moves by some of the biggest names in health care over the last 12 to 18 months that indicate where health care is headed in the coming years. United Health, through its Optum subsidiary, has purchased physician groups, urgent care centers and surgery centers. Other insurers like Humana and several of the Blue Cross/Blue Shield providers have also began to vertically integrate or establish an ambulatory provider strategy. There are even rumors that Aetna and CVS are in discussions to combine. Some health care systems are creating their own insurance products. Amidst the consolidation and change, one thing is becoming abundantly clear. Health care services are moving away from hospitals into lower-cost ambulatory settings. There are 2 principal reasons for this.

First, patients are absorbing more of the financial burden of their health care than ever before because of the growing popularity of high deductible health plans. This popularity is being driven by the rising cost of premiums and is often the only way patients can obtain coverage at any level. As a result, patients are becoming more knowledgeable about the relative cost of services performed in hospitals versus outpatient facilities. The result is that patients are directing themselves into freestanding nonhospital operations, which offer the same or better services as hospitals do but at a fraction of the cost.

Second, insurance companies are also more frequently directing their patients into lower-cost settings through the creation of preferred provider networks and incentives such as lower copayment and office visit fees. In fact, Anthem, one of the nation's largest insurers, recently announced they would only reimburse outpatient imaging exams within hospitals under extraordinary medical necessity circumstances. Otherwise, it would direct all patients to freestanding centers like those operated by RadNet for their outpatient diagnostic and imaging needs.

These trends are very positive for RadNet. I continue to believe that we're well positioned to capitalize on the future direction of health care. We have proven that scale matters. We have demonstrated our ability to be a value-based Operator. We have shown that we can assume and manage utilization risk effectively, and we have created a scalable infrastructure on the cutting edge of technology with our eRAD IT platform and the equipment that we deploy and utilize at our facilities. We look forward to more dynamic change in the health care landscape and are determined to play a bigger role in the evolution that takes place in the coming years.

Operator, we are now ready for the question-and-answer portion of the call.

Operator:

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star, one on your telephone keypad. If you're using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. Again press star, one to ask a question.

Your first question comes from Brian Tanquilut with Jefferies. Please go ahead.

Brian Tanquilut:

Good morning, guys. Howard, thanks for all the color, and especially the one at the end of your prepared remarks. I wanted to hit on that topic on Anthem. How do you think that will play out, and out fast does that initiative ramp across the industry or across the country? What do you need to do to prepare RadNet for that in terms of capturing that opportunity from Anthem as volumes shift out to hospital mostly due to independents like you guys.

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Dr. Howard G. Berger:

Good morning Brian. Well, the first part of your question about the length of time that this will take. If you'd asked me that question maybe six months ago, I probably would've had a much longer horizon. But I think as the marketplace itself is now recognizing the need for shifting of that business, it's not only Anthem but I think other major health insurance companies that are recognizing the need to do this sooner rather than later. My expectation is, something that might have taken three to five years is probably only going to take maybe two to three years at most to have a major impact.

Now, not all of that business is going to transfer out. We always have to be mindful that the referring physician is the one most often who determines where a patient goes for any kind of ambulatory services, and part of what I think we need to do as well as insurance companies is really both educate the consumer, which means the patients or the enrollees, but also the referring physicians. I think by taking a much more aggressive policy regarding not paying for those procedures will help force the referring physicians to break patterns of behavior, which are simply something ingrained in their psyche, not necessarily because there is a real differential for the patient. In fact, our position is that anybody, given the choice, would probably prefer to go to an outpatient facility rather than be directed into a hospital whose primary responsibility is delivering inpatient care, not outpatient care. I expect the transition to happen faster and it might have before this latest announcement by Anthem.

We are in fact fielding calls from other insurance companies that want to talk with us given that in the markets that we're in, we are the dominant outpatient provider. I think there is momentum already at pace here. We expect to see this impact our 2018 results. What we need to do to prepare for it, which I believe is the last part of your question, Brian, is continue to put systems in place that help our workflow and efficiencies. At the end of the day, diagnostic imaging is a technology play. We have been very prominent in our capital investment over the years. I think that new developments, particularly in the world of MRI, CT and PET/CT, are creating efficiencies through upgrades and new equipment that allow us to process patients considerably faster than we have in the past.

Combining upgrades and investment in our facilities, both with equipment and the physical plant, as well as and perhaps just as important, our IT infrastructure, which allows us to manage those patients more efficiently before, during and after their office visit, are critical to us to absorb this additional capacity that we expect to see. I think along with that, I believe there will be further opportunities for us to joint venture with some of these health systems that recognize the inevitable transition or migration of patients out of hospitals into freestanding facilities that want to have a partner that can help provide them with opportunity to replace the business that they're losing in the hospitals.

Brian Tanquilut:

I appreciate all the color. Mark, turning over to you if you don't mind. First, on the same-store performance in the quarter, you guys mentioned divestitures obviously and the extra—or the one fewer day. If we back out all those things, what would same-store revenue would gave looked like for the quarter?

Mark D. Stolper:

Yes. Sure. Same-store revenue was up 2.5%.

Brian Tanquilut:

That's excluding the impact of the one fewer day and the divestitures?

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Mark D. Stolper:

That's excluding the impact of the one fewer day, which would add another about $3 million by our estimation based upon our $900 million plus run rate, of which we're estimating somewhere between an impact of $1.2 million and $1.4 million of additional EBITDA would've been in the quarter had we had that one extra workday. This year, we had 63 workdays in the third quarter versus 64 last year, which is a huge impact for us on any given quarter. Just to note, just in total, we'll have one less work day in 2017 versus last year as well because 2016 was a leap year.

Brian Tanquilut:

Got it. Then Mark, as I think about...

Mark D. Stolper:

We had 265 workdays this year. Last year was 266.

Brian Tanquilut:

Okay. Then Mark, as we think about go forward with the divestitures, just puts and takes in terms of revenue, EBITDA. I know you called out $3 million EBITDA contribution from the divestitures. If you don't mind just walking us through how you're thinking of that, without giving guidance for 2018. How should we be thinking about the different moving parts, including reimbursement and I know you already talked about Medicare? But just how should we think about building the model up?

Mark D. Stolper:

Sure. Well, just to give you a little bit more color on the discontinued ops here. On a run-rate basis, if you add the revenue of Breastlink, Rhode Island and the oncology operations that we sold to Cedars, that's on a run rate about $36 million of revenue on an annualized basis that we've lost through selling those businesses. They were running themselves at a deficit. We said in our prepared remarks that that would increase our EBITDA in 2018 by approximately $3 million. Now, the reason why we got into these businesses originally is that they throw off a lot of imaging and we were able to exit these businesses in a manner in which where we can still recapture the imaging because we sold them to strategic partners of ours where we have joint venture relationships where they're incentivized to continue to send the business to RadNet or to imaging centers that we and they own jointly. Going in to your question, I think it's about 2018. Going into 2018, you could assume that although we'll have $36 million of less revenue, we'll have $3 million more of an EBITDA run rate going into 2018 due to our divesting of these operations.

Brian Tanquilut:

Got it. Okay. Then last question for me. As I think about—you mentioned that your goals to get under 4x leverage in 2018. What are your assumptions there in terms of acquisition spend? Obviously, that's a big part of the leverage computation or the outlook for you guys.

Mark D. Stolper:

Sure. I mean, from a guidance standpoint, because acquisitions are so binary in nature and we're making them on an opportunistic basis, we don't budget acquisitions. When we sit in our budget meetings and we go out to the field and we build our budget from the center level up, none of us really have much visibility in terms of the acquisitions that might take place during that year, particularly these small moms and pops, which come to us from time to time on a very unpredictable basis. But, as I can tell from our track record, we are acquisitive. We haven't done anything of real major significance since the fourth quarter of 2015 where we acquired the Doshi operations. Everything really in the last year and three quarters to two years has been more on a tuck-in basis. When we think about our budget for 2018, we take our operations and what we've done in 2017 and kind of bridge them based upon opportunities for growth, challenges, risks and then we built it out from a volume basis on a center level basis.

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Brian Tanquilut:

Mark, sorry. Just to follow-up on that. As I think about your acquisition strategy, basically, we should be thinking more tuck-ins and the deals should all be accretive, right?

Mark D. Stolper:

Yes.

Brian Tanquilut:

Meaning like leverage accretive. In other words, you don't do deals that make your leverage worse.

Mark D. Stolper:

Correct. I mean, the smaller tuck-in transactions we're completing generally between 3x and 4x EBITDA. In the cases of some of the midsized to larger acquisitions, we may stretch up to 5x EBITDA if it's very strategic to us. Ultimately, we feel like we can lower that even those stretch deals through consolidation opportunities, cost-saving opportunities over time.

Brian Tanquilut:

All right. Got it. Thanks guys.

Dr. Howard G. Berger:

Let me add one other point to that. I believe that the small tuck-in acquisitions that we discussed in our remarks prior to the question-and-answer session here, will go a substantial way in replacing the revenue which we—which has been lost through the divestitures. The importance of my making this comment is that our budget and prospects for 2018 probably were not that terribly different from a revenue standpoint. But our performance and margins should improve as a result of divesting, both operations that were very low margin and replacing that with better margin acquisitions that we've accomplished throughout 2017.

Brian Tanquilut:

All right, got it. Thanks guys.

Operator:

Thank you. Your next question comes from Mitra Ramgopal with Sidoti. Please go ahead.

Mitra Ramgopal:

Yes. Hi. Good morning. Just a few questions. First, Howard, as you look at the business today post sale of the centers in Rhode Island, Breastlink and your oncology assets, do you still see having to divest more even noncore or low-margin operations, or are you pretty much where you are or where you want to be right now?

Dr. Howard G. Berger:

I think we're pretty much where we are—where we want to be. Those other noncore operations at this point are very small. While there may be opportunities for us, I don't believe that they moved the dial very much one way or the other. I think 2017 will have been a watershed year for us that has allowed us to exit lower-margin operations and fortunately place those with now strategic partners so that we can still be the beneficiary of their imaging needs.

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Mitra Ramgopal:

Okay. You'd mentioned earlier that you're seeing insurance companies looking to purchase freestanding ambulatory providers etc., in terms of surgery centers. Do you see yourself as a potential candidate for insurance companies or more really as a partnership opportunity going forward?

Dr. Howard G. Berger:

I don't have a crystal ball. Certainly, I think that anything is possible when just a couple of weeks ago, we saw the announcement that CVS and Aetna were in talks to merge their businesses. I think as I said in my closing remarks, the lines are blurring here. What I particularly like about our position in the health care industry is that: Number one, we are outpatient-based and that clearly is the direction that all of health care is moving. I don't think there's a part of what we see being fundamentally designed that doesn't emphasize that strategy. The other thing, and I say this perhaps somewhat selfishly, but nonetheless, I think with very good experience in health care, imaging is a gateway to population health. I think the conversations that we're having and will have, whether it's with health systems, insurers or others, are further recognition that better outcomes and better population health Management is utilizing the tools of diagnostic imaging in a preventive and early diagnostic way. I think I wouldn't rule anything out. We're always interested in talking. I think conversations in and of themselves will lead to opportunities for strategic relationships regardless of what any kind of a financial alignment or stock alignment might look like. I think all these—this evolvement, if you will, of the health care industry affects us in a way that almost leaves the opportunities unlimited.

Mitra Ramgopal:

Definitely appreciate the additional color. Just to follow up a little more on the acquisition front. Given that insurers like Anthem, etc., are going to be focusing more on the outpatient imaging, do you see that potentially driving up valuations as you look at the opportunities for acquisitions?

Dr. Howard G. Berger:

I don't think it drives up the cost of acquisitions if that's what you're referring to for us. I think we're very disciplined in what I believe we will consider in the way of an acquisition. As Mark mentioned, that's what our plan and philosophy has been now for many years. When you look at what the impact of this might be to a smaller Operator, I don't think it necessarily makes them more costly for us as an acquisition candidate. What they become of increased benefit for us is additional capacity to the extent that the capacity constraints add our existing facilities are further taxed. For us, I think looking at any acquisition will take into account adding capacity as much as it does look at it from a pure financial and accretive standpoint. But, I would not expect the acquisitions would become more costly for us.

Mark D. Stolper:

What I think it does, Mitra, is it is a catalyst for more health systems who are losing volume to the outpatient players to have conversations with outpatient players who are already established in the marketplace to have more joint venture opportunities be evaluated.

We're seeing more and more interest from hospitals, health systems to talk with us to try to essentially recapture business that they see migrating out of their hospital campuses into the outpatient facilities. We did that with Cedars earlier in the year by establishing two joint ventures with them in Los Angeles. One in the Santa Monica marketplace, the other in the San Fernando Valley of Los Angeles, and Cedars, as an example, which is not dissimilar to what we're seeing with some other health systems, are trying to go beyond their four walls and have satellite offices, buying physician practices, other specialty providers so that they can be more of an integrated health system and solution as opposed to just be an inpatient processor of patients within their hospital campuses.

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Mitra Ramgopal:

Okay. No, thanks a lot for that. Okay. Mark, you've mentioned earlier, I think that there are a few opportunities for you in terms of go into your customers and negotiate pricing. Do you see the story in terms of the top line still essentially being volume-driven or you feel more comfortable now that pricing can actually become a little more of a catalyst holding Medicare rates neutral?

Mark D. Stolper:

I think both. I think we have had—we did get some pricing increases this year in a couple of our East Coast markets, most notably our New Jersey marketplace as we have—as we have demonstrated our importance and our strength in that market. As insurance companies are interested in directing business to the lower cost providers, it's more of a volume play for them as opposed to a pricing play, meaning that they—when hospitals are charging multiples of the price of what outpatient providers are charging, the insurance companies are okay with providing long-term stable pricing and pricing increases to the outpatient players if they can drive more of that volume into the outpatient players.

We're working with some of the major insurance companies in ways to design plans, whether it be with different copays or lower office visits fees in order to drive and direct more of the business to us. With these discussions, in many cases, they're willing to give us increases to help them do that. I see next year, I mean, we haven't set our guidance yet, but there's no doubt in my mind that our revenue will be higher next year and that's going to be a function, certainly, of volume but I do believe there are some opportunity on the pricing side as well.

Mitra Ramgopal:

Okay. Thanks again for taking the question.

Operator:

Thank you. Your next question comes from Ed Kressler with Angelo Gordon. Please go ahead.

Ed Kressler:

Good morning guys. Thanks for having the call. One of the themes coming out of the hospital reporting in Q3 was payer mix shift. I was wondering if you guys are seeing any of that.

Mark D. Stolper:

Mix shift between government and non-government payers or...

Ed Kressler:

Away from commercial towards government.

Mark D. Stolper:

Yes. We haven't seen that. In the back of our press release, we released our quarterly payer mix. If you look at the government payer, meaning Medicare, it's right at 20% relative to our total net revenue. It's been, I would say between 19% and 21% now for several years. We haven't seen anything like that. I'm curious to know why hospitals would be seeing that. Perhaps it's related to the shift that we've been talking about in more and more services going to the ambulatory non-hospital-based providers, and so that the sicker patients are being seen within the hospitals. Obviously, the Medicare, the older patients are sicker in general. Perhaps you're seeing a mixed shift there because the ambulatory patients are going into the freestanding locations.

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Ed Kressler:

Right. Right. Yes. We're seeing it on the ambulatory surgery center side too. So it's—I think they're all scratching their heads. I am and that's why I'm asking the question. But I appreciate the feedback. Cap ex, are we—do you kind of think we're at run rate here or are there any kind of one-time issues in 2017 that may had affected it?

Dr. Howard G. Berger:

Yes. I think there were some items in 2017. We have the challenge of transitioning most of our x-ray systems that we're using, what, for the last decade or so were called computed radiography tools to digital radiology tools that CMS mandated that unless you made that conversion, there was going to be a reduction in your reimbursement for x-rays if you did not make that transition. That was a very aggressive and substantial part of our 2017 cap ex. I'm happy to say we have completed that now so that the Company has no exposure to any reimbursement reductions from CMS as a result of that new policy. That could easily have accounted for in the neighborhood of $7 million or $8 million or maybe even more of our cap ex this year that will not be necessary in 2018.

Ed Kressler:

Got you. Thank you for that. Finally, on the cost side. Are you seeing any labor cost pressure overall? Or are you staying essentially flat?

Dr. Howard G. Berger:

I think there is some labor cost pressure. The marketplace is much more of a buyers than a sellers. In other words, the work pool, I think as we—has tightened up in the marketplace and hospitals, out of desperation, are continuing to pay substantially more because they were getting differentially substantially greater reimbursement than the outpatient providers, particularly than imaging were. That has been some of the competitive factors. My guess is that I think that it's going to loosen up here because several systems that we're aware of are starting to pay out workforce reductions in the number of people. They're staffing their radiology facilities, primarily as a result of what they anticipated are lower volumes as the outpatient business transitions to the freestanding facilities. The answer is yes. I think there has been some upward pressure on our salary structure, but I think it'll be somewhat transitory and will be a different playing field probably in the next 12 to 24 months.

Mark D. Stolper:

We've also, Ed, beefed up some areas within our Company. We've added some salaries. Most notably in our reimbursement operations where we've added people in the areas of self-pay, payment posting and general Management oversight. We've made some investments given that it's becoming more and more difficult to bill and collect the money on these days, particularly because of the proliferation of these high-deductible health plans that the patients are choosing more frequently that we've had to make some investments on the salary front to deal with some of those issues.

Ed Kressler:

Terrific. Thanks for the color guys.

Dr. Howard G. Berger:

Thank you.

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Operator:

As a reminder that is star, one if you would like to ask a question on the call. We will pause for just a moment.

Gentlemen, it appears we have no further questions at this time.

Dr. Howard G. Berger:

Thank you, Operator. Again, I would like to take this opportunity to thank all of our shareholders for their continued support and employees of RadNet for their dedication and hard work. Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you for your time today, and I look forward to our next call.

Operator:

Once again, that does conclude today's conference call. We thank you for your participation. You may now disconnect.

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