radnet_8k-ex9901.htm

	●	Revenue was $150.8 million, an increase of 7.7% from $140.1 million in the third quarter of 2010

	●	Adjusted EBITDA(1) was $27.0 million, a decrease of 3.7% from $28.0 million in the prior year’s third quarter; Adjusted EBITDA(1) was negatively impacted by an estimated $1.0 million due to Hurricane Irene and a $1.0 million additional reserve for the expected 2011 reimbursement effects from the bundling of CT procedure codes of the abdomen and pelvis

	●	RadNet reports per share break-even compared to a net loss of $(0.01) in the prior year’s third quarter

	●	Despite being negatively impacted by Hurricane Irene, same center procedural volumes increased 2.5% as compared with the third quarter of 2010

	●	RadNet reaffirms 2011 guidance levels

For the third quarter of 2011, RadNet reported Revenue, Adjusted EBITDA(1) and Net Income of $150.8 million, $27.0 million and $39,000, respectively. Revenue increased $10.8 million (or 7.7%), Adjusted EBITDA(1) decreased $1.0 million (or 3.7%) and Net Income increased $318,000, respectively, over the third quarter of 2010. Net Income per diluted share for the third quarter was breakeven, compared to a Net Loss of $(0.01) per diluted share in the third quarter of 2010 (based upon a weighted average number of diluted shares outstanding of 38.5 million and 37.0 million for these periods in 2011 and 2010, respectively). Affecting revenue and Adjusted EBITDA(1) in the third quarter was an estimated $1.0 million impact from Hurricane Irene in RadNet’s Mid-Atlantic and New York Metropolitan centers, a number of which lost electric power and a $1.0 million additional reserve from revising our 2011 estimated impact from the combining of procedure codes of the CT of the abdomen and pelvis.

Affecting operating results in the third quarter of 2011 were certain non-cash expenses and non-recurring items including: $709,000 of non-cash employee stock compensation expense resulting from the vesting of certain options and warrants; $316,000 of severance paid in connection with employee reductions related to cost savings initiatives from previously announced acquisitions; $331,000 net gain on the disposal of certain capital equipment (which primarily resulted from property and casualty insurance settlement proceeds); $719,000 of non-cash deferred financing expense related to the amortization of financing fees paid as part of our existing credit facilities; and $1.4 million fair value gain from our interest rate swaps, net of the amortization of an accumulated comprehensive loss existing prior to April 6, 2010.

For the third quarter of 2011, as compared to the prior year’s third quarter, MRI volume increased 12.1%, CT volume increased 4.6% and PET/CT volume increased 0.6%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 8.3% 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 2011 and 2010, MRI volume increased 2.0%, CT volume decreased 2.2% and PET/CT volume decreased 2.3%. Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 2.5% over the prior year’s same quarter.

Dr. Howard Berger, President and Chief Executive Officer of RadNet, commented, “Excluding those days affected by Hurricane Irene, our per-day volumes and revenue were strong during the third quarter. We are particularly encouraged by strong volume trends in late September and throughout October, subsequent to the quarter’s end. But for the impacts of Hurricane Irene and an additional reserve we made to revise our beginning-of-the-year estimate of the effect of the CT bundled codes, our EBITDA would have exceeded last year’s strong third quarter EBITDA. Our aggregate revenue and same center procedural volumes showed growth as compared with last year’s third quarter, which we attribute to the continuing strength of our multimodality and geographically clustered operating model.”

The acquisition consists of the purchase of two operating subsidiaries of CML, American Radiology Services (“ARS”) and The Imaging Institute (“TII”). ARS operates 15 free-standing outpatient imaging facilities in Maryland (including two facilities held in joint ventures with hospital partners) and one facility in Delaware. In addition to the imaging centers, ARS provides on-site staffing and professional interpretation services to five Maryland hospitals and teleradiology services to nine additional hospitals and radiology group customers. TII operates five imaging facilities in the Cranston, Warwick and Providence local markets in Rhode Island. On an annualized basis, ARS and TII perform over 400,000 imaging procedures at its imaging centers, and we anticipate the acquired ARS and TII operations could initially provide approximately $70 million of annualized revenue.

In conjunction with the acquisition, RadNet increased the size of its senior secured revolving credit facility by $21.25 million (“Incremental Commitments”), to $121.25 million of total borrowing capacity. The increase in the facility size is to provide additional borrowing availability to fund further acquisitions and general working capital needs. The existing senior secured revolving facility, including the Incremental Commitments, is a floating rate facility, and we may request the interest rate be based upon LIBOR (subject to a 2% LIBOR floor) plus an applicable LIBOR margin of 4.25%.

Dr. Berger noted, “We have commented recently about the increasing number and improving quality of M&A opportunities within the diagnostic imaging market. Our transaction yesterday with American Radiology and The Imaging Institute is indicative of the availability of high-quality opportunities that further our strategy of growing geographically clustered regional markets, while selectively adding new platforms from which to grow. As we continue to differentiate ourselves from our competitors by our size, quality and breadth of service offerings, we are positioned uniquely to work with health plans, hospitals and the regional medical communities to provide solutions which effectively address the growing problems within the healthcare delivery system.”

For the nine months ended September 30, 2011, RadNet reported Revenue, Adjusted EBITDA(1) and Net Income of $452.7 million, $83.2 million and $2.7 million, respectively. Revenue increased $49.5 million (or 12.3%), Adjusted EBITDA(1) increased $7.2 million (or 9.5%) and Net Income increased $18.8 million, respectively, over the first nine months of 2010. Net Income for the nine month period ended September 30, 2011 was $0.07 per diluted share, compared to a Net Loss of $(0.44) per diluted share in corresponding nine month period of 2010 (based upon a weighted average number of fully diluted shares outstanding of 39.1 million and 36.8 million for these periods in 2011 and 2010, respectively). Affecting operating results in the first nine months of 2011 were certain non-cash expenses and non-recurring items including: $2.5 million of non-cash employee stock compensation expense resulting from the vesting of certain options and warrants; $1.0 of severance paid in connection with employee reductions related to cost savings initiatives from previously announced acquisitions; $1.9 million net gain on the disposal of certain capital equipment, which includes property and casualty insurance settlement proceeds; $2.2 million of non-cash deferred financing expense related to the amortization of financing fees paid as part of our existing credit facilities; and $2.8 million fair value gain from our interest rate swaps, net of the amortization of an accumulated comprehensive loss existing prior to April 6, 2010.

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.

RadNet, Inc. is a national market leader providing high-quality, cost-effective diagnostic imaging services through a network of 233 owned and/or operated outpatient imaging centers (inclusive of 19 facilities held in Joint Ventures). RadNet's core markets include California, Maryland, Delaware, Rhode Island, New Jersey and New York. Together with affiliated radiologists, and inclusive of full-time and per diem employees and technicians, RadNet has a total of approximately 5,000 employees. For more information, visit http://www.radnet.com.

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 2011 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.

	September 30, 2011			December 31, 2010
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	254		$	627
Accounts receivable, net		122,036			96,094
Prepaid expenses and other current assets		16,303			14,304
Total current assets		138,593			111,025
PROPERTY AND EQUIPMENT, NET		191,431			194,230
OTHER ASSETS
Goodwill		153,895			143,353
Other intangible assets		54,389			57,348
Deferred financing costs, net		13,517			15,486
Investment in joint ventures		17,275			15,444
Deposits and other		3,134			2,628
Total assets	$	572,234		$	539,514
LIABILITIES AND EQUITY DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	93,840		$	82,619
Due to affiliates		1,525			2,975
Deferred revenue		1,191			1,568
Current portion of notes payable		5,339			8,218
Current portion of deferred rent		974			745
Current portion of obligations under capital leases		6,556			9,139
Total current liabilities		109,425			105,264
LONG-TERM LIABILITIES
Deferred rent, net of current portion		12,069			10,379
Deferred taxes		277			277
Line of credit		31,300			-
Notes payable, net of current portion		477,877			481,578
Obligations under capital lease, net of current portion		2,871			5,639
Other non-current liabilities		14,599			18,850
Total liabilities		648,418			621,987
COMMITMENTS AND CONTINGENCIES

EQUITY DEFICIT
Common stock - $.0001 par value, 200,000,000 shares authorized; 37,426,460 and 37,223,475 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		4			4
Paid-in-capital		165,185			162,444
Accumulated other comprehensive loss		(1,324	)		(2,137	)
Accumulated deficit		(240,157	)		(242,841	)
Total Radnet, Inc.'s equity deficit		(76,292	)		(82,530	)
Noncontrolling interests		108			57
Total equity deficit		(76,184	)		(82,473	)
Total liabilities and equity deficit	$	572,234		$	539,514

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

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010

NET REVENUE	$	150,845		$	140,093		$	452,693		$	403,222

OPERATING EXPENSES
Cost of operations		117,747			106,634			352,688			311,478
Depreciation and amortization		14,309			13,002			42,526			40,153
Provision for bad debts		8,608			8,458			25,261			24,603
Loss (gain) on sale and disposal of equipment		(331	)		451			(1,928	)		606
Severance costs		316			164			970			731
Total operating expenses		140,649			128,709			419,517			377,571

INCOME FROM OPERATIONS		10,196			11,384			33,176			25,651

OTHER EXPENSES
Interest expense		13,242			12,781			39,307			35,477
Loss on extinguishment of debt		-			-			-			9,871
Other expenses (income)		(1,506	)		821			(3,566	)		1,971
Total other expenses		11,736			13,602			35,741			47,319

LOSS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES		(1,540	)		(2,218	)		(2,565	)		(21,668	)
Benefit from (provision for) income taxes		(234	)		(317	)		(718	)		(523	)
Equity in earnings of joint ventures		1,822			2,282			6,129			6,114
NET INCOME (LOSS)		48			(253	)		2,846			(16,077	)
Net income attributable to noncontrolling interests		9			32			162			75
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	39		$	(285	)	$	2,684		$	(16,152	)

BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.00		$	(0.01	)	$	0.07		$	(0.44	)

DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.00		$	(0.01	)	$	0.07		$	(0.44	)

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		37,426,460			36,979,725			37,347,946			36,755,781

Diluted		38,469,973			36,979,725			39,078,998			36,755,781

	Nine months ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	2,846		$	(16,077	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		42,526			40,153
Provision for bad debts		25,261			24,603
Equity in earnings of joint ventures		(6,129	)		(6,114	)
Distributions from joint ventures		6,408			8,339
Deferred rent amortization		1,919			1,875
Amortization of deferred financing costs		2,186			2,074
Amortization of bond discount		180			107
Loss (gain) on sale and disposal of equipment		(1,928	)		606
Loss on extinguishment of debt		-			9,871
Amortization of cash flow hedge		918			611
Stock-based compensation		2,499			2,820
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable		(49,865	)		(27,678	)
Other current assets		(2,312	)		(5,675	)
Other assets		(464	)		(48	)
Deferred revenue		(377	)		-
Accounts payable and accrued expenses		10,384			14,687
Net cash provided by operating activities		34,052			50,154
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities		(13,686	)		(34,580	)
Purchase of property and equipment		(34,283	)		(33,135	)
Proceeds from insurance claims on damaged equipment		2,740			-
Proceeds from sale of equipment		310			94
Purchase of equity interest in joint ventures		(1,500	)		-
Net cash used in investing activities		(46,419	)		(67,621	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable		(14,397	)		(16,295	)
Repayment of debt		-			(412,000	)
Proceeds from borrowings		-			482,360
Deferred financing costs		(217	)		(17,407	)
Proceeds from, net of payments on, line of credit		31,300			-
Payments to counterparties of interest rate swaps, net of amounts received		(4,874	)		(4,783	)
Distributions to noncontrolling interests		(111	)		(84	)
Proceeds from issuance of common stock upon exercise of options/warrants		242			49
Net cash provided by financing activities		11,943			31,840
EFFECT OF EXCHANGE RATE CHANGES ON CASH		51			(5	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(373	)		14,368
CASH AND CASH EQUIVALENTS, beginning of period		627			10,094
CASH AND CASH EQUIVALENTS, end of period	$	254		$	24,462

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	30,847		$	23,579

	Nine Months Ended September 30,
	2011			2010

Net Income (Loss) Attributable to RadNet, Inc. Common Shareholders	$	2,684		$	(16,152	)
Plus Provision for Income Taxes		718			523
Plus Other Expenses (Income)		(3,566	)		1,971
Plus Interest Expense		39,307			35,477
Plus Severence Costs		970			731
Plus Loss (Gain) on Sale of Equipment		(1,928	)		606
Plus Depreciation and Amortization		42,526			40,153
Plus Non Cash Employee Stock Compensation		2,499			2,820
Plus Loss on Extinguishment of Debt		-			9,871
Adjusted EBITDA(1)	$	83,210		$	76,000

	Third Quarter 2011	Full Year 2010	Full Year 2009

Commercial Insurance	55.3%	55.7%	55.8%
Medicare	20.2%	19.3%	20.0%
Capitation	14.1%	15.3%	15.4%
Workers Compensation/Personal Injury	4.5%	4.1%	3.5%
Medicaid	3.5%	3.2%	3.2%
Other	2.4%	2.4%	2.1%
	100.0%	100.0%	100.0%

RADNET PAYMENTS BY MODALITY *

	Third Quarter 2011	Full Year 2010	Full Year 2009

MRI	35.4%	34.3%	34.1%
CT	16.0%	17.5%	19.1%
PET/CT	5.9%	6.1%	6.0%
X-ray	10.1%	10.1%	9.8%
Ultrasound	11.0%	11.0%	10.3%
Mammography	15.9%	16.0%	16.0%
Nuclear Medicine	1.6%	1.7%	1.7%
Other	4.1%	3.2%	3.0%
	100.0%	100.0%	100.0%

RADNET AVERAGE PAYMENTS BY MODALITY *

	Third Quarter 2011	Full Year 2010	Full Year 2009

MRI	$ 497	$ 501	$ 503
CT	300	306	308
PET/CT	1,490	1,494	1,493
X-ray	41	40	38
Ultrasound	107	107	108
Mammography	134	135	135
Nuclear Medicine	321	322	323
Other	123	126	127

Note
* Based upon global payments received from consolidated Imaging Centers from that year's dates of service.
Excludes payments from hospital contracts, Breastlink, Center Management Fees and other miscellaneous operating activities.

(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.

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.

	Revenue	$575 million - $605 million
	Adjusted EBITDA(1)	$110 million - $120 million
	Capital Expenditures (a)	$35 million - $40 million
	Cash Interest Expense	$45 million - $49 million
	Free Cash Flow Generation (b)	$25 million - $35 million