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RADNET, INC. – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited condensed
consolidated financial statements and notes thereto included in Part I, Item 1
of this Quarterly Report on Form 10-Q and with our audited consolidated
financial statements and notes thereto for the year ended December 31, 2021
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2021 filed with the U.S. Securities and Exchange Commission (SEC) on March
1, 2022.

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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. Forward-looking statements in this
quarterly report include, among others, statements we make regarding:

•anticipated trends in our revenues, operating expenses or capital expenditures,
and our financial guidance;

• expected future market acceptance for our products or services, and the
anticipated protection afforded by our competitive strengths in the markets we
serve;

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•potential timing and impact of changes in regulations impacting our business;

•the ongoing impact on our business, suppliers, payors, customers, referral
sources, partners, patients and employees of the COVID-19 pandemic;

•the anticipated effect of the measures we are taking to respond to the COVID-19
pandemic

•our ability to successfully acquire and integrate new imaging operations;

•cost savings, efficiencies and improvements anticipated from our investments in
artificial intelligence and machine learning products and services; and

•our future liquidity and our continuing ability to service and remain in
compliance with applicable debt covenants or refinance our current indebtedness.

Forward-looking statements are neither historical facts nor assurances of future
performance. Because forward-looking statements relate to the future, they are
inherently subject to known and unknown risks, uncertainties and other factors
that are difficult to predict and our of our control. Our actual results, level
of activity, performance or achievements may be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these forwards-looking statements. Important factors that could cause
our actual results to differ materially from those indicated or implied in our
forward-looking statements include the factors included in "Risk Factors," in
our annual report on Form 10-K for the fiscal year ended December 31, 2021 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.

Any forward-looking statement in this quarterly report is based on information
currently available to us and speaks only as of the date of this report. We do
not undertake any responsibility to release publicly any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this quarterly report or any unanticipated events which
may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this quarterly report, 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, 2022, we operated, directly or
indirectly through joint ventures with hospitals, 351 centers located in
Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our
operations comprise two segments for financial reporting purposes for this
reporting period, Imaging Centers and Artificial Intelligence

Our Imaging Center segment provides physicians with imaging capabilities to
facilitate the diagnosis and treatment of diseases and disorders. 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, a strategy that
diversifies revenue streams, reduces exposure to reimbursement changes and
provides patients and referring physicians one location to serve the needs of
multiple procedures. Included in the segment is our eRad subsidiary, which
designs the underlying critical scheduling, data storage and retrieval systems
necessary for imaging center operation.

Our Artificial Intelligence ("AI") segment that has been established through our
acquisitions of DeepHealth, Nulogix Aidence Holding B.V. and Quantib B.V.. Our
current AI focus is to develop solutions that employ machine learning to assist
radiologists and other clinicians in interpreting images and improving patient
care, initially in the fields of brain, breast, prostate, and pulmonary
diagnostics..

We derive substantially all of our revenue, directly or indirectly, from fees
charged for the diagnostic imaging services performed at our centers. The
following table shows our centers in operation and revenues for the three months
ended March 31, 2022 and March 31, 2021:
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                                   Three Months Ended March 31,
                                         2022                     2021
Centers in operation                                      351      346
Net revenues (millions)   $           342                        $ 315


Our revenue is derived from a diverse mix of payors, including private, managed
care capitated and government payors. We believe our payor diversity mitigates
our exposure to possible unfavorable reimbursement trends within any one payor
class. In addition, our experience with capitation arrangements over the last
several years has provided us with the expertise to manage utilization and
pricing effectively, resulting in a predictable stream of revenue.

Our total service revenue during the three months ended March 31, 2022 and 2021
are presented in the table below based on an allocation of the estimated
transaction price with the patient between the primary patient classification of
insurance coverage (in thousands):

                                               Three Months Ended March 31,
                                                   2022                   2021
Commercial insurance                    $       188,465                $ 182,096
Medicare                                         70,999                   63,589
Medicaid                                          9,087                    8,451
Workers' compensation/personal injury            12,449                   10,399
Other patient revenue                             7,123                    4,775
Management fee revenue                            5,508                    5,219
Software revenue                                  3,399                    2,426
AI revenue                                          599                        -
Other                                             5,647                    2,622
Service fee revenue                             303,276                  279,577
Revenue under capitation arrangements            38,491                   35,742
Total service revenue                   $       341,767                $ 315,319


Recent Developments

As 2022 begins, our procedure volumes remain strong. Our acquisitions of aidence
Holding B.V.
and Quantib BV have expanded our AI initiatives to encompass
imaging diagnostic solutions for the most prevalent cancers. We have also
opened five centers through a combination of acquisition and internal
development.

Equity Investments, Acquisitions and Dispositions, and Joint Venture Activity

We have developed our medical imaging business through a combination of organic
growth, equity investments, acquisitions and joint venture formations. The
information below updates our activity of such matters contained in our annual
report on Form 10-K for the year ended December 31, 2021.

Equity Investments

As of March 31, 2022, we have three equity investments for which a fair value is
not readily determinable and therefore the total amounts invested are recognized
at cost as follows:

Medic Vision Imaging Solutions Ltd., based in Israel, specializes in software
packages that provide compliant radiation dose structured reporting and enhanced
images from reduced dose CT scans. Our investment of $1.2 million represents a
14.21% equity interest in the company. No observable price changes or impairment
in our investment was identified as of March 31, 2022.
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Turner Imaging Systems, based in Utah, develops and markets portable X-ray
imaging systems that provide a user the ability to acquire X-ray images wherever
and whenever they are needed. On February 1, 2018, we purchased 2.1 million
preferred shares in Turner Imaging Systems for $2.0 million. On January 1, 2019
we funded a convertible promissory note in the amount of $0.1 million that
converted into an additional 80,000 shares effective December 21, 2019. No
observable price changes or impairment in our investment was identified as of
March 31, 2022.

WhiteRabbit.ai Inc., based in California, is currently developing an artificial
intelligence suite which aims to improve the speed and accuracy of cancer
detection in radiology and improve patient care. On November 5, 2019 we acquired
an equity interest in the company for $1.0 million and also loaned the company
$2.5 million in support of it operations. No observable price changes,
impairment in our investment or impairment of the loan receivable was identified
as of March 31, 2022.

Acquisitions


Imaging Center

During the first quarter of 2022, we completed the acquisition of certain assets
of the following entities, which either engage directly in the practice of
radiology or associated businesses. The primary reason for these acquisitions
was to strengthen our presence in the Maryland market. These acquisitions are
reported as part of our Imaging Center segment.. We made a fair value
determination of the acquired assets and assumed liabilities and the following
were recorded (in thousands):
       Entity                Date Acquired    Total Consideration        Property & Equipment       Right of Use Assets        Goodwill               Right of Use Liabilities
           IFRC LLC*^             1/1/2022                      4,800                      2,103                        857           2,697                              (857)
           IFRC LLC*^             1/1/2022                      8,200                      2,910                      1,703           5,271                            (1,703)
                Total                                          13,000                      5,013                      2,560           7,968                            (2,560)


*Fair Value Determination is Final
^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, one of which
was purchased separately by a joint venture with Calvert Medical Imaging
Centers, LLC.

Artificial Intelligence

Aidence Holding B.V.

On January 20, 2022, we completed our acquisition of all the equity interests of
Aidence Holding B.V. ("Aidence") an artificial intelligence enterprise centered
on lung cancer screening, in an combination stock and cash purchase. Aidence is
reported as part of our artificial intelligence segment and was acquired to
enhance our AI capabilities. The transaction was accounted for as an acquisition
of a business and total purchase consideration was determined to be
approximately $45.2 million including i) 1,117,872 shares issued at $26.80 per
share with a fair value of $30.0 million ii) cash of $1.8 million and iii)
assuming liabilities of $11.9 million, $7.4 million in milestone contingent
consideration and cash holdback of $4.5 million and iv) a settlement of a loan
from RadNet of $1.5 million. In addition we paid certain seller closing costs
through the issuance of 23,362 shares at a fair value of $0.6 million. We
preliminarily recorded $1.0 million in current assets, $0.2 million in property
plant and equipment, $27.5 million in intangible assets, $3.2 million in
liabilities and $19.2 million in goodwill.


Quantib BV

On January 20, 2022, we completed our acquisition of all the equity interests of
Quantib B.V. ("Quantib") an artificial intelligence enterprise centered on
prostate cancer screening, in a combination stock and cash purchase. Quantib is
reported as part of our artificial intelligence segment, and was acquired to
enhance our AI capabilities. The transaction was accounted for as an acquisition
of a business and total purchase consideration was determined to be
approximately $42.3 million including i) 965,058 shares issued at $26.80 per
share with a fair value of $25.9 million ii) cash of $11.8 million and iii)
113,303 shares with a fair value at the date of close of $3.0 million and cash
holdback of $1.6 million to be issued 18 months after acquisition subject to
adjustment for any indemnification claims. We preliminarily recorded $2.4
million million in current assets, $0.1 million in property plant and equipment,
$21.3 million in intangible assets, $3.7 million in liabilities and $22.2
million in goodwill.

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As we finalize our estimation of the fair value of the assets acquired and
liabilities assumed, additional adjustments may be recorded during the
measurement period (a period not to exceed 12 months). The initial accounting is
incomplete as of March 31, 2022 for the acquired assets and liabilities as we
are currently in the process of completing the assessment of valuation inputs
and assumptions as well as completing the assessment of the tax attributes of
the business combination. The finalization of the acquisition accounting
valuation assessment may result in a change in the valuation of the deferred tax
assets and liabilities and intangible assets, along with the opening working
capital accounts, which could have a material impact on our results of
operations and financial position.

Joint Venture Activity

Acquisition

During the first quarter of 2022, our joint venture with Calvert Medical Imaging
Center, LLC
completed the acquisition of certain assets to strengthen our
presence in the Maryland market. We made a fair value determination of the
acquired assets and assumed liabilities and the following were recorded (in
thousands):

        Entity                 Date Acquired    Total Consideration        Property & Equipment       Right of Use Assets        Goodwill               Right of Use Liabilities
            IFRC LLC *^             1/1/2022                      3,922                      2,121                      1,295           1,801                            (1,295)


*Fair Value Determination is Final
^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, two of which
were purchased separately by wholly owned RadNet subsidiaries.

The following table is a summary of our investment in joint ventures during the
three months ended March 31, 2022 (in thousands):

Balance as of December 31, 2021              $ 42,229

Equity in earnings in these joint ventures 2,517

Balance as of March 31, 2022                 $ 44,746


We charged management service fees from the centers underlying these joint
ventures of approximately $5.5 million and $5.2 million for the three months
ended March 31, 2022 and 2021, respectively.

The following table is a summary of key balance sheet data for these joint
ventures as of March 31, 2022 and December 31, 2021 and income statement data
for the three months ended March 31, 2022 and 2021 (in thousands):

                                                                   March 31,            December 31,
Balance Sheet Data:                                                  2022                   2021
Current assets                                                  $     37,119          $      37,186
Noncurrent assets                                                     83,407                 73,592
Current liabilities                                                  (12,722)               (12,919)
Noncurrent liabilities                                               (27,298)               (22,370)
Total net assets                                                $     

80,506 $75,489

Book value of RadNet joint venture interests                    $     

37,214 $34,930
Cost in excess of book value of acquired joint venture
interests

                                                              7,532                  7,299
Total value of RadNet joint venture interests                   $     

44,746 $42,229

Income statement data for the three months ended March 31, 2022

    2021
Net revenue                                                    $ 34,411      $ 31,718
Net income                                                     $  5,035      $  4,803

Critical Accounting Policies

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The Securities and Exchange Commission defines critical accounting estimates as
those that are both most important to the portrayal of a company's financial
condition and results of operations and require management's most difficult,
subjective or complex judgment, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods. In Note 2 to our consolidated financial statements in this
quarterly report and in our annual report on Form 10-K for the year ended
December 31, 2021, we discuss our significant accounting policies, including
those that do not require management to make difficult, subjective or complex
judgments or estimates. The most significant areas involving management's
judgments and estimates are described below.

Use of Estimates

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

Revenues

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

As it relates to the Group, this service fee revenue includes payments for both
the professional medical interpretation revenue recognized by them as well as
the payment for all other aspects related to our providing the imaging services,
for which we earn management fees. As it relates to others centers, this service
fee revenue is earned through providing the use of our diagnostic imaging
equipment and the provision of technical services as well as providing
administration services such as clerical and administrative personnel,
bookkeeping and accounting services, billing and collection, provision of
medical and office supplies, secretarial, reception and transcription services,
maintenance of medical records, and advertising, marketing and promotional
activities.
Our revenues are based upon our management's estimate of amounts we expect to be
entitled to receive from patients and third-party payors. Estimates of
contractual allowances under Medicare, Medicaid, managed care and commercial
insurance plans are based upon historical collection experience of the payments
received from such payors in accordance with the underlying contractual
agreements. Revenues related to uninsured patients and uninsured copayment and
deductible amounts for patients who have health care coverage may have price
concessions applied. We also record estimated implicit price concessions (based
primarily on historical collection experience) related to uninsured accounts to
record self-pay revenues at the estimated amounts we expect to collect.

Under capitation arrangements with various health plans, we earn a per-enrollee
amount each month for making available diagnostic imaging services to all plan
enrollees under the capitation arrangement. Revenue under capitation
arrangements is recognized in the period in which we are obligated to provide
services to plan enrollees under contracts with various health plans. Our
estimates and assumptions related to revenue recognition did not change
materially for the quarter ended March 31, 2022.

Provider Relief Fund (COVID-19 Stimulus Funding)

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The Provider Relief Fund offers government assistance to eligible providers
throughout the healthcare system in support of certain expenses or lost revenue
attributable to the coronavirus pandemic. We have recorded provider relief
funding in our condensed Consolidated Statements of Operations in the amount of
$6.2 million for the three months ended March 31, 2021. No provider relief
funding was received for the three months ended March 31, 2022. Generally, the
department of Health and Human Services ("HHS") does not intend to recoup funds
as long as a provider's lost revenue and increased expenses exceed the amount of
provider relief funding one has received. HHS reserves the right to audit Relief
Fund recipients in the future to ensure that this requirement is met and collect
any Relief Fund amounts that were made in error or exceed lost revenue or
increased expenses due to the pandemic. Failure to comply with the terms and
conditions may be grounds for recoupment. In recognizing revenue associated with
provider relief funding our management is required to assess whether our
operations have meet the applicable requirements for the funding received.
During the quarter ended March 31, 2022, we continued to evaluate our operating
results in light of the most recent government guidance and based on our
assessment, the amount of revenue recognized is appropriate.

Accounts Receivable

Substantially all of our accounts receivable are due under fee-for-service
contracts from third party payors, such as insurance companies and
government-sponsored healthcare programs, or directly from patients. Services
are generally provided pursuant to one-year contracts with healthcare providers.
Receivables generally are collected within industry norms for third-party
payors. We continuously monitor collections from our payors and maintain an
allowance for bad debts based upon specific payor collection issues that we have
identified and our historical experience. Our estimates and assumptions for
allowances on our account receivable did not change materially during the
quarter ended March 31, 2022.

Business Combination

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

Goodwill and Indefinite Lived Intangibles

Goodwill at March 31, 2022 totaled $570.2 million. Indefinite Lived Intangible
Assets at March 31, 2022 were $13.2 million and are associated with the value of
certain trade name intangibles. Our management reviews the fair value of our
reporting units on an annual basis to determine if an event has occurred which
suggest that the fair value of a reporting unit may be impaired. When we
determine the carrying value of a reporting unit exceeds its fair value, an
impairment charge would be recognized and should not exceed the total amount of
goodwill allocated to that reporting unit. The review of fair value requires our
management to make assessments of the business and financial prospects for a
particular reporting unit. We tested goodwill for impairment on October 1, 2021.
We also continue at regular intervals to consider the current and expected
future economic and market conditions surrounding the COVID-19 pandemic and to
date have not had an indication of goodwill impairment being more likely than
not through March 31, 2022.

Recent Accounting Standards

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

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Results of Operations

The following table sets forth, for the three months ended March 31, 2022 and
2021, the percentage that certain items in the statements of operations bears to
total service revenue, inclusive of revenue under capitation contracts.

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