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 August 8, 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:

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

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

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

o 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 August 8, 2017 RadNet, Inc. (“RadNet”) issued a press release and held a conference call regarding our financial results for the quarter ended June 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 August 8, 2017 relating to RadNet, Inc.’s financial results for the quarter ended June 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:  August 9, 2017	RADNET, INC.
	By: /s/ Jeffrey L. Linden Name: Jeffrey L. Linden Title: Executive Vice President and General Counsel

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EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated August 8, 2017
99.2	Transcript of conference call.

4

EX-99.1

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

RadNet Reports Second Quarter Financial Results to Include Record Revenue and EBITDA, the Acquisition of Diagnostic Imaging Associates of Delaware and a Refinancing Transaction

· RadNet reports record Revenue and EBITDA performance

· Total Net Revenue increased 5.2% to $230.0 million in the second quarter of 2017 from $218.6 million in the second quarter of 2016

· Adjusted EBITDA⁽¹⁾ increased 5.5% to $37.0 million in the second quarter of 2017 from $35.1 million in the second quarter of 2016

· Earnings Per Share was $0.11 per share in the second quarter of 2017, an increase from $0.08 from the second quarter of 2016

· Aggregate procedural volumes increased 1.9% (adjusting for the sale of Rhode Island) and same center volumes increased 2.4% as compared with the second quarter of 2016

· RadNet completed the acquisition of its largest free standing outpatient competitor in Delaware, Diagnostic Imaging Associates

· RadNet is launching a refinancing transaction to simplify the capital structure, decrease its cost of debt and lengthen maturities

· RadNet reaffirms previously announced 2017 guidance levels

LOS ANGELES, California, August 8, 2017 – RadNet, Inc. (NASDAQ: RDNT), a national leader in providing high-quality, cost-effective, fixed-site outpatient diagnostic imaging services through a network of 295 owned and/or operated outpatient imaging centers, today reported financial results for its second quarter of 2017.

Dr. Howard Berger, Chairman and Chief Executive Officer of RadNet, commented, “I am pleased with our operational results this quarter and the improvements we are making to our business. We continue to demonstrate steady and consistent revenue growth, positive same store procedural gains and higher EBITDA and Earnings as compared prior year periods.”

Dr. Berger continued, “Our improved financial performance combined with reducing our net debt by over $12 million during the quarter is contributing to the continued deleveraging of our balance sheet. In the last year and a half, we have reduced leverage by almost three quarters of a turn of EBITDA. This focus is provides us more financial and operating flexibility and reduces financial risk.”

Dr. Berger concluded, “During the quarter, we accomplished a number of important operating milestones. First, we commenced operations with Cedars Sinai of two joint ventures in the Los Angeles area. We are proud of our affiliation with one of the most well-known and high-quality health systems in California. Second, we exited the Rhode Island marketplace with the sale of our five imaging centers. We concluded that we were highly unlikely to ever build the scale or breadth of operations we would strategically desire in that market and that we were more advantaged by redeploying that capital in the Delaware marketplace (where we are now the clear outpatient imaging leader). Third, we began operations of Breastlink New York, opening an integrated breast disease management facility in the Columbus Circle area of Manhattan, where we are now offering breast surgery in addition to our traditional women’s imaging. These are just a few of the opportunities we are pursuing to expand our business, and I look forward to discussing more business development initiatives as the year progresses.”

1

Second Quarter Financial Results

For the second quarter of 2017, RadNet reported Revenue of $230.0 million. Adjusted EBITDA⁽¹⁾ for the second quarter was $37.0 million. Revenue increased $11.4 million (or 5.2%) and Adjusted EBITDA⁽¹⁾ increased $1.9 million (or 5.5%) from the second quarter of last year.

For the second quarter, RadNet reported Net Income of $5.3 million, an increase of $1.7 million over the second quarter of 2016. Per share diluted Net Income for the second quarter was $0.11, compared to per share diluted Net Income in the second quarter of 2016 of $0.08 (based upon a weighted average number of diluted shares outstanding of 47.2 million and 46.9 million for these periods in 2017 and 2016, respectively).

Affecting Net Income in the second quarter of 2017 were certain non-cash expenses and non-recurring items including: $1.0 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $177,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $453,000 loss on the sale of certain capital equipment; $2.3 million gain on the sale of five imaging centers in Rhode Island and two oncology operations in California; $1.2 million of expenses of divested and closed operations in Rhode Island and California; $723,000 of legal expenses that are the subject of a judgement for which we receive reimbursement; and $822,000 of non-cash amortization of deferred financing costs and loan discount on debt issuances.

For the second quarter of 2017, as compared with the prior year’s second quarter (and excluding Rhode Island from each period), MRI volume increased 4.3%, CT volume increased 5.9% and PET/CT volume increased 7.2%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 1.9% over the prior year’s second quarter. On a same-center basis, including only those centers which were part of RadNet for both the second quarters of 2017 and 2016, MRI volume increased 3.5%, CT volume increased 5.9% and PET/CT volume increased 6.5%. Overall same-center volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and other exams, increased 2.4% over the prior year’s same quarter.

Six Month Financial Results

For the six months ended June 30, 2017, RadNet reported Revenue of $459.0 million. Adjusted EBITDA⁽¹⁾ for the six month period in 2017 was $65.7 million. Revenue increased $24.1 million (or 5.5%) and Adjusted EBITDA⁽¹⁾ increased $3.5 million (or 5.6%) from the same six month period last year.

For the six month period in 2017, RadNet reported Net Income of $4.1 million. Net Income increased $1.9 million over the six month period of 2016. Per share Net Income for the six month period in 2017 was $0.09, compared to per share Net Income in the prior year’s same period of $0.05 (based upon a weighted average number of diluted shares outstanding of 47.1 million and 47.0 million for these periods in 2017 and 2016, respectively).

Affecting Net Income in the six month period of 2017 were certain non-cash expenses and non-recurring items including: $4.3 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock; $380,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $408,000 loss on the sale of certain capital equipment; $2.3 million gain on the sale of five imaging centers in Rhode Island and two oncology operations in California; $1.2 million of expenses of divested and closed operations in Rhode Island and California; $723,000 of legal expenses that are the subject of a judgement for which we receive reimbursement; and $1.6 million of non-cash amortization of deferred financing costs and discount on debt issuances.

2

Acquisition of Diagnostic Imaging Associates of Delaware

RadNet today reported it acquired Diagnostic Imaging Associates (“DIA”), RadNet’s principal non-hospital outpatient competitor in Delaware. The acquisition should provide RadNet with approximately $14 million of additional revenue on an annual basis and transforms RadNet into the clear non-hospital based outpatient imaging leader in Delaware.

Founded in 1984, DIA owns and operates seven imaging centers in Northern Delaware and performs approximately 85,000 imaging procedures per year, including MRI, CT, Ultrasound, Mammography and x-Ray. DIA’s centers are multimodality and are accredited by the American College of Radiology (“ACR”).

Dr. Howard Berger, Chairman and Chief Executive Officer of RadNet, noted, “We are delighted to complete this significant transaction. DIA has been a respected competitor of ours since we entered the Delaware marketplace in 2008. DIA operates high quality facilities and enjoys a well-respected professional reputation. Through the combination of RadNet’s existing eight facilities with DIA’s, we become the clear leader of non-hospital outpatient imaging operators in Delaware. We expect there will be unique cost savings and revenue efficiencies we will be able to achieve through this consolidation, and we welcome the employees and radiologists of DIA into the RadNet family.”

“It is our stated goal to be the number one provider in every market in which we operate. With this transaction, we achieve this objective. We are transforming into the principal low-cost alternative to hospital based operations in Delaware. Hospital outpatient imaging rates in Delaware are typically two to four times higher than our rates. Access to our conveniently located 15 locations will provide Delaware residents and employers the option to choose to obtain high quality outpatient diagnostic imaging at a fraction of the cost they would otherwise experience at hospital-owned and operated facilities. We expect that this combination will significantly benefit patients, referring physicians and health plans alike in the Delaware marketplace,” added Dr. Berger.

Refinancing Transaction

RadNet today reports that it will be soliciting a refinancing transaction. RadNet’s intention is to amend its Amended and Restated First Lien Credit and Guaranty Agreement dated July 1, 2016 (the “First Lien Agreement”) and to raise $170 million of incremental first lien term debt under the First Lien Agreement. The proceeds of the offering will be to repay in its entirety the $168 million of principal amount that RadNet has outstanding under its Second Lien Credit and Guaranty Agreement dated March 25, 2014. If successful, after such a transaction, RadNet expects to continue to have available to it $117.5 million of revolving credit facility capacity under the First Lien Agreement, which was undrawn upon as of June 30^th, 2017. In addition, RadNet would have approximately $637 million par value term loans outstanding under its amended First Lien Agreement.

The potential refinancing transaction would be subject to negotiations with lenders and market and other conditions. As such, there can be no assurance that RadNet will complete a refinancing transaction, at all, or on terms that are favorable to RadNet or its investors. RadNet may engage from time to time in discussions with creditors of RadNet, as well as their respective advisors, as RadNet pursues such potential refinancing transaction.

Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, commented “We have successfully deleveraged the company from approximately 5.25x Net Debt to EBITDA as of the end of 2015 to approximately 4.6x currently. We are striving to continue our deleveraging both through the repayment of debt and through the growth of our business. This focus on reducing our leverage has positioned us to pursue this intended transaction. The result, if we are successful, will be that we will simplify our capital structure, address the maturity of our second lien term loan (due in 2021), create additional flexibility to grow our business and reduce our interest expense. If successful, we expect to consummate a transaction in August.”

3

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.

(b) 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.”

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 second quarter 2017 results on Tuesday, August 8th, 2017 at 7:30 a.m. Pacific Time (10:30 a.m. Eastern Time).

Conference Call Details:

Date: Tuesday, August 8, 2017

Time: 10:30 a.m. Eastern Time

Dial In-Number: 877-719-9789

International Dial-In Number: 719-325-2204

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=125762 or http://www.radnet.com under the “About RadNet” menu section and “News and Press 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 9831180.

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.

4

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 295 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

5

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

	June 30,			December 31,
	2017			2016
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	12,707		$	20,638
Accounts receivable, net		170,155			164,210
Due from affiliates		3,087			2,428
Prepaid expenses and other current assets		21,702			28,435
Assets held for sale		–			2,203
Total current assets		207,651			217,914
PROPERTY AND EQUIPMENT, NET		253,179			247,725
OTHER ASSETS
Goodwill		244,464			239,553
Other intangible assets		41,506			42,682
Deferred financing costs		1,806			2,004
Investment in joint ventures		48,500			43,509
Deferred tax assets, net of current portion		48,416			50,356
Deposits and other		6,298			5,733
Total assets	$	851,820		$	849,476
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other	$	107,452		$	111,166
Due to affiliates		12,079			13,141
Deferred revenue		1,961			1,516
Current portion of deferred rent		2,991			2,961
Current portion of notes payable		21,933			22,031
Current portion of obligations under capital leases		5,384			4,526
Total current liabilities		151,800			155,341
LONG-TERM LIABILITIES
Deferred rent, net of current portion		26,429			24,799
Notes payable, net of current portion		598,020			609,445
Obligations under capital lease, net of current portion		3,632			2,730
Other non-current liabilities		8,290			5,108
Total liabilities		788,171			797,423
EQUITY
RadNet, Inc. stockholders' equity:
Common stock - $.0001 par value, 200,000,000 shares authorized;47,266,352, and 46,574,904 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively		4			4
Additional paid-in-capital		204,417			198,387
Accumulated other comprehensive (loss) gain		(1,394	)		306
Accumulated deficit		(146,111	)		(150,211	)
Total RadNet, Inc.'s stockholders' equity		56,916			48,486
Noncontrolling interests		6,733			3,567
Total equity		63,649			52,053
Total liabilities and equity	$	851,820		$	849,476

6

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
NET REVENUE
Service fee revenue, net of contractual allowances and discounts	$	214,056		$	203,759		$	426,806		$	404,601
Provision for bad debts		(11,854	)		(12,326	)		(23,500	)		(22,630	)
Net service fee revenue		202,202			191,433			403,306			381,971
Revenue under capitation arrangements		27,812			27,132			55,721			52,982
Total net revenue		230,014			218,565			459,027			434,953
OPERATING EXPENSES
Cost of operations, excluding depreciation and amortization		198,611			194,062			404,065			390,888
Depreciation and amortization		16,612			15,811			33,266			32,223
Loss on sale and disposal of equipment		453			441			408			441
Severance costs		177			173			380			340
Total operating expenses		215,853			210,487			438,119			423,892
INCOME FROM OPERATIONS		14,161			8,078			20,908			11,061
OTHER INCOME AND EXPENSES
Interest expense		10,303			10,745			20,543			21,426
Meaningful use incentive		–			–			(250	)		(2,808	)
Equity in earnings of joint ventures		(2,994	)		(3,274	)		(4,922	)		(5,553	)
Gain on sale of imaging centers		(2,301	)		–			(2,301	)		–
Gain from return of common stock		–			(5,032	)		–			(5,032	)
Other expenses		7			4			10			6
Total other expenses		5,015			2,443			13,080			8,039
INCOME BEFORE INCOME TAXES		9,146			5,635			7,828			3,022
Provision for income taxes		(3,523	)		(2,256	)		(3,065	)		(750	)
NET INCOME		5,623			3,379			4,763			2,272
Net income (loss) attributable to noncontrolling interests		313			(243	)		663			47
NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	5,310		$	3,622		$	4,100		$	2,225
BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.11		$	0.08		$	0.09		$	0.05
DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	0.11		$	0.08		$	0.09		$	0.05
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		46,756,276			46,558,944			46,662,420			46,576,631
Diluted		47,195,898			46,882,383			47,068,563			46,960,226

7

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(unaudited)

	Six Months Ended June 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,763		$	2,272
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		33,266			32,223
Provision for bad debts		23,500			22,630
Gain from return of common stock		–			(5,032	)
Equity in earnings of joint ventures		(4,922	)		(5,553	)
Distributions from joint ventures		3,993			2,098
Amortization deferred financing costs and loan discount		1,636			2,738
Loss on sale and disposal of equipment		408			441
Gain on sale of imaging centers		(2,301	)		–
Stock-based compensation		4,314			3,761
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable		(29,445	)		(24,873	)
Other current assets		4,553			8,454
Other assets		(835	)		220
Deferred taxes		1,940			10
Deferred rent		1,830			1,052
Deferred revenue		445			–
Accounts payable, accrued expenses and other		7,014			10,983
Net cash provided by operating activities		50,159			51,424
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities		(9,904	)		(6,603	)
Investment at cost		(500	)		–
Purchase of property and equipment		(42,647	)		(40,267	)
Proceeds from sale of equipment		63			63
Proceeds from sale of imaging facilities		5,627			–
Cash distribution from new JV partner		1,473			994
Equity contributions in existing and purchase of interest in joint ventures		(80	)		(734	)
Net cash used in investing activities		(45,968	)		(46,547	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable		(3,769	)		(6,310	)
Payments on Term Loan Debt		(12,125	)		(12,357	)
Deferred financing costs and debt discount		(570	)		–
Distributions paid to noncontrolling interests		(655	)		(157	)
Proceeds from sale of noncontrolling interest, net of taxes		4,850			–
Contributions from noncontrolling partners		125			–
Proceeds from revolving credit facility		139,400			235,500
Payments on revolving credit facility		(139,400	)		(221,700	)
Proceeds from issuance of common stock upon exercise of options		–			150
Net cash used in financing activities		(12,144	)		(4,874	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		22			(16	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(7,931	)		(13	)
CASH AND CASH EQUIVALENTS, beginning of period		20,638			446
CASH AND CASH EQUIVALENTS, end of period	$	12,707		$	433
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	19,023		$	18,545

8

RADNET, INC.

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

(IN THOUSANDS)

	Three Months Ended
	June 30,
	2017			2016
Net Income Attributable to RadNet, Inc. Common Shareholders	$	5,310		$	3,622
Plus Interest Expense		10,303			10,745
Plus Provision for Income Taxes		3,523			2,256
Plus Depreciation and Amortization		16,612			15,811
Plus Other Expenses (Income)		7			4
Less Gain on Acquisition-Related Return of Common Stock		–			(5,032	)
Plus Acquisition-Related Working Capital Adjustment		–			6,072
Plus Severance Costs		177			173
Less Gain on Sale of Imaging Centers		(2,301	)		–
Plus Loss on Sale of Equipment		453			441
Plus Expenses of Divested/Closed Operations		1,200			–
Plus Reimbursable Legal Expenses		723
Plus Non Cash Employee Stock Compensation		1,038			1,028
Adjusted EBITDA(1)	$	37,045		$	35,120

	Six Months Ended
	June 30,
	2017			2016
Net Loss Attributable to RadNet, Inc. Common Shareholders	$	4,100		$	2,225
Plus Interest Expense		20,543			21,426
Plus Provision for (Benefit From) Income Taxes		3,065			750
Plus Depreciation and Amortization		33,266			32,223
Plus Other Expenses (Income)		10			6
Less Gain on Acquisition-Related Return of Common Stock		–			(5,032	)
Plus Acquisition-Related Working Capital Adjustment		–			6,072
Plus Severance Costs		380			340
Less Gain on Sale of Imaging Centers		(2,301	)		–
Plus Loss on Sale of Equipment		408			441
Plus Expenses of Divested/Closed Operations		1,200			–
Plus Reimbursable Legal Expenses		723
Plus Non Cash Employee Stock Compensation		4,314			3,761
Adjusted EBITDA(1)	$	65,708		$	62,212

9

PAYOR CLASS BREAKDOWN**

	Second Quarter
	2017
Commercial Insurance		59.0%
Medicare		19.7%
Capitation		11.5%
Workers Compensation/Personal Injury		3.7%
Medicaid		2.7%
Other		3.5%
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 * 

	Second Quarter		Full Year		Full Year		Full Year
	2017		2016		2015		2014
MRI		35.0%		34.7%		35.3%		36.1%
CT		16.3%		15.8%		15.7%		15.3%
PET/CT		5.1%		5.0%		5.1%		5.7%
X-ray		9.1%		9.3%		9.6%		10.2%
Ultrasound		12.0%		12.3%		11.5%		11.1%
Mammography		16.1%		16.5%		16.4%		16.5%
Nuclear Medicine		1.2%		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.

11

EX-99.2

Exhibit 99.2

RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 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 and Chief Financial Officer

Dr. Howard G. Berger, M.D., President and Chief Executive Officer

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

Jason Plagman, Jefferies & Company

Mitra Ramgopal, Sidoti & Company, LLC

Daniel D'Elena, Prudential Financial

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

Operator:

Good day, everyone, and welcome to the RadNet, Inc. Second Quarter 2017 Financial Results Conference Call. Today’s conference is being recorded.

At this time, I would like to turn conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, Sir.

Mark D. Stolper:

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet’s second 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 those 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 occurrences of unanticipated events.

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

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

Dr. Howard G. Berger, M.D.:

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 second 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 revenue increased 5.2% and our Adjusted EBITDA increased 5.5% over last year's second quarter. Procedural volumes increased 1.9% on an aggregate basis, adjusting for our sale of our Rhode Island centers at the end of April and 2.4% on a same-center basis relative to the second quarter of last year. The same-center procedural growth, a major factor in driving our improvement in profitability, has the potential to ultimately lead to margin enhancement, assuming we continue to have stability in our reimbursement rates.

Earnings and earnings per share also increased quarter over same quarter. Earnings per share was $0.11 per share in the second quarter of 2017, an increase from $0.08 from the second quarter of 2016. Sequentially, the quarter was also a significant improvement over the first quarter of this year, as our Adjusted EBITDA increased 29% as compared with the first quarter of 2017. We turned a net loss of $1.2 million in the first quarter of 2016 into a net profit of $5.3 million in the second quarter.

I believe the improvement in our results is reflective of our focus on internal operations. Until this morning's announcement of our acquisition of Diagnostic Imaging Associates of Delaware, which I will discuss shortly, we had not completed a material acquisition since our acquisition of Diagnostic Imaging Group on October 1, 2015. Instead, our focus has included integrating our New York operations, achieving cost savings, expanding centers to pursue what we perceive to be strong business opportunities and consummating health system joint ventures.

At the beginning of the second quarter, we commenced the operations of two Los Angeles joint ventures with Cedars-Sinai Medical System in Santa Monica and the San Fernando Valley. These joint ventures mark our continued interest and activity around the joint venture model, a business strategy we've employed on the East Coast for some time. In Maryland, where the majority of our joint ventures operate, some of our partnerships have been in place for over a decade. We are having further discussions with health systems on both coasts and hope to be in a position to announce new ventures in the coming quarters.

This methodical and steady focus on internal operations has also allowed us to de-lever our balance sheet materially in the last six quarters. We reduced our leverage from 5.25 times net debt to EBITDA at the end of 2016 to about 4.6 times at the end of the second quarter. During the second quarter, we reduced our debt by over $12 million and our objective is to reduce our leverage to under 4 times in the coming quarters. Our effectiveness in reducing leverage has resulted in a refinancing opportunity that we are pursuing, which Mark will discuss in more detail during his prepared remarks.

During the quarter we exited our Rhode Island cluster of centers. We originally purchased these five centers as part of a much larger transaction in 2011, which included the acquisition of a major competitor of ours in Maryland. We struggled to find ways to build or acquire the same scale in Rhode Island that we desire in all of our core markets, thus, we concluded that it would be more advantageous for us to sell the assets and redeploy the capital in Delaware where we have a major strategic focus.

As many of you have read in our earnings release this morning, we announced the acquisition of Diagnostic Imaging Associates of Delaware. DIA has been our largest outpatient imaging competitor in Delaware since we entered this market in 2008. The combination of our eight centers and their seven centers makes RadNet the major nonhospital-based outpatient imaging provider in that state. DIA, like our centers in Delaware, is a multimodality operator and performs about 85,000 imaging exams per year. It has a strong clinical reputation and I expect there will be opportunities for cost synergies and revenue enhancements as we begin the integration of the operations during this third quarter.

The scale of our Rhode Island facilities and the purchase of DIA underscore one of the core tenets of RadNet's strategy. Our strategy requires that we be the largest outpatient imaging player in all the markets in which we operate, and strive for enough regional scale to make us an indispensable part of the provider networks of the health plans and insurance companies whose patients we serve. This regional scale provides us with operational efficiencies and cost savings opportunities. Most importantly, the strategy provides us with a seat at the negotiating table with commercial payors, allowing us to establish and maintain fair pricing for the work we do, as we have already demonstrated in other markets.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

Lastly, during the quarter we began operations of Breastlink New York in the Columbus Circle area of Manhattan. As many of you are aware, our Breastlink initiative, which up to now has been operational only in Southern California, is a comprehensive breast disease management offering. In addition to performing all facets of breast imaging—mammography, ultrasound, MRI, PET CT, and imagining-guided biopsies—Breastlink also incorporates breast surgery and medical ecology. We perform these services with an integrated and multidisciplinary approach for coordination of care. With the opening of our Breastlink New York practice, we have co-located with our Women's Imaging office, offering a renowned breast surgery practice.

As we move into the second half of the year, I expect our business will produce a significant amount of free cash flow. To date we have spent over $47 million of our 2017 roughly $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 year-end. We completed the second quarter with a cash balance of over $12 million and 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 de-leveraging strategy, or reinvest it in growth opportunities we may identify.

At this time, I would like to turn the call back over to Mark to discuss some of the highlights of our second 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 second quarter 2017 performance and 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 second 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, and excludes losses or gains on the sale of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains, and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taken 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 second quarter 2017 results.

For the three-months ended June 30, 2017, RadNet reported revenue and Adjusted EBITDA of $230 million and $37 million respectively. Revenue increased $11.4 million, or 5.2%, over the prior year's same quarter and Adjusted EBITDA increased $1.9 million, or 5.5%, over the prior-year same quarter. For the second quarter of 2017, and adjusting for the sale of Rhode Island, as compared to the prior-year second quarter, MRI volume increased 4.3%, CT volume increased 5.9%, and PET CT volume increased 7.2%. Overall volume, taking into account routine imaging exams inclusive of x-ray, ultrasound, mammography, and other exams increased 1.9% over the prior year's second quarter.

I now will discuss procedural volumes. Note that all procedural numbers I'm about to discuss and will discuss in the future will now include 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 the procedural volumes, it provides a more accurate and complete picture of our operations. For this quarter, and going forward, I will restate the prior period procedural volumes in the same manner to make meaningful comparisons.

In the second quarter of 2017, we performed 1,790,619 total procedures. The procedures were consistent with our multimodality approach in the second quarter whereby 75.9% of all the work we did by volume was from routine imaging. Our procedures in the second quarter of 2017 were as follows: 242,633 MRIs as compared with 232,600 MRIs in the second quarter of 2016; 179,687 CTs as compared with 169,664 CTs in the second quarter of 2016; 8,775 PET CTs as compared with 8,187 PET CTs in the second quarter of 2016; and 1,359,524 routine imaging exams, which include nuclear medicine, ultrasound, mammography, x-ray, and other exams as compared with 1,347,247 of all these exams in the second quarter of 2016.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

For the second quarter, RadNet reported net income of $5.3 million, an increase of $1.7 million over the second quarter of 2016. Per share diluted net income for the second quarter was $0.11 compared to per share diluted net income in the second quarter of 2016 of $0.08, based upon weighted average number of diluted shares outstanding of $47.2 million and $46.9 million, for these periods in 2017 and 2016 respectively.

Affecting net income in the second quarter of 2017 were certain non-cash expenses and nonrecurring items, including the following: $1 million of non-cash employee stock compensation expense resulting from divesting of certain options and restricted stock; $177,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $453,000 loss on the sale of certain capital equipment; $2.3 million gain on the sale of five imaging centers in Rhode Island and two oncology operations in California; $1.2 million of expenses of divested and closed operations in Rhode Island and California; $723,000 of legal expenses that are subject of a judgment for which we will receive reimbursement; and $822,000 of non-cash amortization of deferred financing costs and loan discounts on debt issuances.

Overall GAAP interest expense for the second quarter of 2016 was $10.3 million. This compares with GAAP interest expense in the second quarter of 2016 of $10.7 million. Cash paid for interest during the period, which excludes non-cash deferred financing expense and accrued interest, was $8 million as compared with $9.5 million in the second quarter of last year.

At June 30, 2017, after giving effect to bond and term loan discounts, we had $616.3 million of net debt, which is total debt less our cash balance. We were undrawn on our $117.5 million revolving line of credit and had a cash balance of $12.7 million. During the quarter, we repaid $7.7 million of notes and leases payable and term loan debt, and had cash capital expenditures net of asset dispositions of $12.3 million. Since December 13, 2016, accounts receivable increased approximately $5.9 million and our net Day Sales Outstanding, or DSOs, were at 61.44 days, an increase of approximately 0.2 days since year-end 2016.

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 results. For total net revenue, our guidance levels remain at $895 million to $925 million. For Adjusted EBITDA, our guidance levels remain at $135 million to $145 million. For capital expenditures, our guidance levels remain at $55 million to $60 million. For cash interest expense, our guidance levels remain at $35 million to $40 million. For free cash flow generation, which we define as Adjusted EBITDA less total capital expenditures and cash paid for interest, our guidance levels remain at $40 million to $50 million.

We are on track to meet our guidance ranges for the year. All ranges remain unchanged from what we announced earlier in the year, and as Dr. Berger mentioned earlier, for the remaining six months, our capital expenditures will be less than one-third of what we already spent in the first half of the year and we should produce the vast majority of our free cash flow during the second half of this year. We expect to accumulate significantly more cash on our balance sheet between now and year-end.

I'll now take a few minutes to give you an update on 2018 reimbursements and discuss what we know with regards to 2018 anticipated Medicare rates. With respect to 2018 Medicare reimbursements, we received a matrix for proposed rates by CPT code, which is typical as part of the physician fee schedule proposal that is released about this time every year. We have completed an initial analysis and compared those rates to 2017 rates. We volume-weighted our analysis using expected 2018 procedural volumes. Our initial analysis shows that Medicare rates for 2018 are essentially neutral relative to 2017 rates. We expect an impact of less than $1 million to us in aggregate revenue. We are obviously pleased with this as this is only the third year since the advent of the Deficit Reduction Act in 2017 where CMS is proposing to leave rates essentially unchanged.

Our industry has been significantly impacted by rate cuts and we've consistently had to improve our business and, in some cases, dramatically, just to stay in place. We hope that CMS recognizes that the problem in imaging is not pricing but are the abuses like overutilization and self referral settings. Of course, the proposed rates for the physician fee schedule are subject to comment from lobbying and industry groups, and there is no assurance that the final rule to be released in November 2017 timeframe will reflect the same proposed rates.

Whether or not the final rule in November timeframe is consistent with the proposed rates, we will continue to be focused on lowering our cost structure through using our scale and ability to drive efficiencies in our organization. We will continue to seek pricing increases in regions where we are essential to the healthcare delivery system, recognizing that our prices remain significantly discounted as compared to hospital settings. We will also continue to pursue partnership opportunities with health systems where we think these arrangements could result in increased volumes and long-term stable pricing from private payors.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

Lastly, we will continue to acquire strategic targets at three to four times EBITDA in our core geographies that further our strength in local markets and achieve efficiencies from our existing operations.

I'll now discuss our refinancing transaction. As many of you have seen this morning in our earnings press release, we have launched a refinancing transaction. Our intention is to amend our amended and restated first lien credit guarantee agreement dated July 1, 2016 and to raise $170 million of incremental first lien term debt under the first lien agreement. The proceeds of the offering will be to repay in its entirety the $168 million of principal amount that we have outstanding under our second lien credit and guaranteed agreement which is dated March 25, 2014. If successful, after the transaction, we expect to continue to have available to us $170.5 million of revolving credit facility, which at this time, is undrawn as of June 30. In addition, RadNet would have approximately $637 million par value of term loans outstanding under our first lien term agreement.

As Dr. Berger stated earlier, we have successfully deleveraged the Company from approximately 5.25 times net debt to EBITDA as of the end of 2015 to approximately 4.6 times currently. We are striving to continue to deleverage both through the repayment of debt and through our growth of the business. This focus on reducing our leverage has positioned us to pursue this intended transaction. The result, if we are successful, will be that we will have simplified our capital structure, addressed the maturity of our second lien term loan, which is now due in 2021, and created additional flexibility to grow our business and reduce our interest expense. If successful, we expect to consummate the transaction towards the end of August.

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

Dr. Howard G. Berger, M.D.:

Thank you, Mark. For the remainder of the year, we will work to expand virtually every aspect of our business across our five core markets. Our initiatives include driving same-center performance, expanding existing joint ventures, and creating new joint ventures, building Breastlink New York, pursuing capitation opportunities in California and establishing capitation on the East Coast, and expanding our eRAD and Information Technology platforms.

The key to our current and future success is and will continue to be using our scale intelligently and effectively. Our size allows us to leverage core competencies and management skills to operate efficiently while affording us a voice in establishing long-term fair and stable reimbursement rates with commercial payors. Our size allows us to be a supportable platform for growth and also attracts unique business opportunities; capitation is one of them. The size, infrastructure, knowledge, and breadth of services necessary to successfully manage risk-based contracts separate RadNet from most of the rest of the imaging industry. Scale attracts operating and financial partners like large health systems who seek joint venture opportunities to participate in the continuing migration of imaging services from hospitals to freestanding centers. Scale brings insular business opportunities, such as our Breastlink breast disease management offering and IT opportunities, which we pursue through eRAD.

As we have demonstrated, we need to get out or get big to be relevant in our core markets. I believe we have the platform and the Team to continue to grow RadNet into a valuable and indispensable part of the healthcare delivery system.

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

Operator:

Thank you. If you would like to ask a question, please signal by pressing star, one on your telephone keypad. If you are using a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star, one to ask a question.

Our first question will come from Brian Tanquilut with Jefferies.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

Jason Plagman:

Hey, guys. This is Jason Plagman on for Brian. Nice quarter. I just wondered if you could give some color on your outlook for capitated revenue. I know it declined a little bit sequentially, but how we should expect that to trend in the second half.

Mark D. Stolper:

Sure. Yes. I mean, we've had tremendous growth in capitation over the last few years, as you've seen, and the big year was in 2015 with sort of the advent of the Affordable Care Act. We saw a tremendous growth within even existing contracts in terms of enrollment. As you're aware, Jason, our cap checks each month is based upon enrollment. In other words, we're not billing and collecting for each procedure, we get a check from the various medical (phon) groups with whom we contract that is based on number of enrollees. We have not added any new contracts this year in terms of that type of growth, so our capitation really this year versus last year is fairly flat. It may go up or down slightly in any given month or any given quarter just by number of enrollees who enter these health plans, or leave these health plans, or who choose our contracted medical groups as their primary care providers, or who leave those primary care provider groups.

So, it's been fairly constant, but if you look at the trend over the last three years, we've had significant growth in capitation. We are in discussions with several new groups here in California, as well as talking to some of the existing groups who have positive lies in geographies that we're currently not capitated with, so I do expect continued growth there in California. As Dr. Berger mentioned in his remarks, we do have some fairly significant opportunities on the East Coast that we've been working on now for some time, and we're hoping that we'll be in a position to talk a little bit more about that as the year progresses because that would be a major step for our Company to bring capitation outside of California to other core markets where we operate.

Jason Plagman:

Great. That was helpful. Then on the debt refinancing, any initial thoughts on where the interest rate may come in on that? Do you expect it to be similar to your current first lien or it'll (phon) be a tack-on?

Mark D. Stolper:

Sure. Sure. Obviously, there's not a whole lot I can say at this point because we're just launching the deal right now, but I can talk to you about our intentions and our expectations. Our intention and expectation is that the blended cost of our debt capital, what you now compare our current first and second lien rate and the interest expense that falls out of those rates, to what would be now the new pricing under a unit tranche deal or a first lien only deal, we're anticipating that there would be an interest savings to the Company that would be material to us, and we're also seeking a structure that incentivizes the Company to reduce its leverage in the future so that we're seeking a structure that would have step-downs in our leverage so that as we continue to deleverage the balance sheet, the cost of our debt would be reduced, and what it would also do, it would prevent us from having to go out and do another refinancing in a year or two when we anticipate having lower leverage and may anticipate a ratings upgrade from the agencies, meaning Moody's and S&P, that would allow us to achieve a lower cost of capital.

We're looking to achieve a structure today that would not only build in some interest savings for us today, but it would also allow us to have step-downs in the future.

Jason Plagman:

Great. That makes sense. Last one for me, on the M&A environment, are you seeing many tuck-in opportunities in your existing markets? Secondly, any thoughts on potentially expanding into additional adjacent states or entirely new states?

Dr. Howard G. Berger, M.D.:

Yes. We're seeing interest in current markets from smaller operators. It's something that we get inquiries often from. As I've mentioned before on prior closed calls, we don't go looking for acquisitions by and large; we want inbound interest from motivated sellers. I think that will continue to be part of our strategy in our core markets. As far as getting outside of those core markets, unless there was an extremely unusual opportunity for the Company, at this point in time, we think it's best to deploy our capital in the existing markets that we're in rather than enter a new market.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

Jason Plagman:

Thanks. Appreciate the questions.

Dr. Howard G. Berger, M.D.:

Yes. Thank you, Jason.

Operator:

All right. Next we will hear from Mitra Ramgopal with Sidoti & Company.

Mitra Ramgopal:

Yes. Hi. Good morning. Just following up a little on the acquisition front. Regarding the DIA transaction, I know it's relatively small, but guidance remained unchanged. Does the guidance already still with some acquisition activity?

Mark D. Stolper:

No. Our guidance, when we set it at the beginning of the year, assumes—unless there's an acquisition that's already been announced, it assumes no acquisitions.

Mitra Ramgopal:

Okay. Again, but DIA, that's—you're looking for more of the contribution for 2018 in terms of guidance being unchanged for this year?

Mark D. Stolper:

Yes.

Mitra Ramgopal:

Okay. Dr. Berger, as it relates it's expanding the network, how do you view pursuing JVs versus acquisitions; any preference?

Dr. Howard G. Berger, M.D.:

Well, I would say that the pursuit of joint ventures is probably a greater priority for the Company at this point in time. I should say that pursuing joint ventures is not mutually exclusive also with doing acquisitions because all of our joint venture partners are interested in continuing to grow the relationships, but the joint ventures that we've already announced and those that we're continuing to pursue, have a lot of additional benefit long-term for the Company in terms of stability and relevance in the marketplace as, I think, alternative reimbursement models evolve. So, we have found that all of our joint ventures ultimately, we believe, will enhance the Company's overall performance, either by growth inside those joint ventures or enhancing our opportunity for reimbursement or new reimbursement models that will only come to us, I believe, as a result of having partners that have even a bigger seat at the table or a voice with the payors. I think at the present time, our primary focus is on doing more joint ventures with large health systems.

Mitra Ramgopal:

Okay. Thanks. On the same-store number, clearly you saw nice improvement, especially in CT and PET CT. I was wondering if anything in particular is driving. Also, the strong improvements you saw on the operating margin, anything that might have been different that led to that.

Dr. Howard G. Berger, M.D.:

Well, in regards particularly to PET CT, we have become the largest source of clinical trials in the country for two new agents used who are looking at prostate cancer and Alzheimer's disease. This has been a major growth opportunity for the Company, uniquely because of our large network of over 40 PET CT systems, which makes us by far the largest provider of those services, as well as the clinical skills that we have in managing these clinical trials. I'm pleased to say that both clinical trials are producing very favorable and important results, and expect that in both of these cases, the methods will be adopted and reimbursed on a more routine basis in the very near future.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

As far CT is concerned, some of our CT growth is both the combination of upgrading some of our systems to better technology, as well as, I think, some renewed value that people see in CT scanning since it's a little less expensive than MRI scanning and has more in the way of opportunities for preventative screenings, such as CT of the lung, which has now been approved by CMS and which is beginning to generate more activity and interest in our core markets.

Mitra Ramgopal:

Thanks. On the operating margin, I guess, that's a function of some deleverage you're getting off of top line and the mix?

Dr. Howard G. Berger, M.D.:

Yes. Mitra, I think as we've continued to hone our skills internally on a number of different levels, whether it be IT implementation, better negotiating with our vendors for supplies, and our latest focus of turning attention to reimbursement operations to enhance our collection rates, all of these are working nicely with the Company now. That's been our primary focus here over the last couple of years.

Mitra Ramgopal:

Okay. Thanks again for taking the questions.

Dr. Howard G. Berger, M.D.:

Yes. Thank you.

Mark D. Stolper:

Thanks, Mitra.

Operator:

Once again, that is star, one if you would like to ask a question. Again, star, one. We'll pause for just a moment.

We'll take a follow-up question from Brian Tanquilut with Jefferies.

Jason Plagman:

Hey, guys, just one follow-up. The Breastlink rollout in New York, just wondering how that's been received so far relative to when you rolled that out in California, just any initial reception and thoughts on how that's been going would be helpful.

Dr. Howard G. Berger, M.D.:

Well, it's a little bit early. We only launched that at the beginning of the second quarter, so we're barely 90 days into that process. It has been a primary objective of ours just to integrate these surgical practices, again, to our facilities. The early results is very enthusiastic on the part of the patients who very much appreciate coming to our Columbus Circle centers in Manhattan, and are able and more efficiently to get all of their consultation as well as imaging done in a very expeditious manner. So, we're still doing some build-out and expansion of our facilities, and I think it'll probably be the first quarter of next year until we're fully settled in and have the ability to go out and more widely market the multidisciplinary approach. But, if we use, as a gauge of this, the enthusiasm of our patients and, most importantly, our surgical physicians that we've brought into the practice, so far I think it's a resounding success.

Jason Plagman:

Thanks, guys.

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RadNet, Inc. - Second Quarter 2017 Financial Results Conference Call, August 8, 2017

Operator:

We'll hear from Dan Mena with Prudential.

Daniel D'Elena:

Hey, guys. Thanks for taking my question. First here, the four times leverage target that you referenced, is that a gross or net level?

Mark D. Stolper:

It's a net debt level. Currently our covenants in our credit agreement allows us to net cash against debt, so we look at it as on a net debt basis because we could always take that cash balance at any time and prepay the first lien at this point without any prepayment penalty.

Daniel D'Elena:

All right. Great. Thank you. Then last one for me, working capital looked like in was a bit of a use in the quarter and for the first half. I was hoping you could talk a little bit about what's driving that and then maybe how we should think about working capital for the back half of '17. Thanks.

Mark D. Stolper:

Sure. Sure. There tends to be a drain in the first two quarters of working capital, and it generally relates to our revenue cycle throughout the year, particularly now as more and more patients have migrated to these higher deductible health plans that there's a delay in cash that we see, mostly in the first quarter but it bleeds into the second quarter, and we often see that that turns around here in Quarters 3 and 4, which tend to be much stronger cash collection quarters. So that's typical of the seasonality now that's been growing every year as more and more patients are going to these higher deductible plans.

Going forward, I do expect to see working capital be a use of cash, but a small use of cash as we continue to grow the business. As you grow a business, generally AR and working capital grows along with it, and that's not been de-similar to our business as we've grown so great over the number of years. But, if we stopped growing and just kept a constant business, we'd expect working capital to be neutral.

Operator:

Okay. Hearing no response, as a reminder, that is star, one to ask a question.

No further callers in queue at this time.

Dr. Howard G. Berger, M.D.:

All right. Again, I'd like to take this opportunity to thank all of our Shareholders for their continued support and the employees of RadNet for their dedication and hard work. Management will continue to 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:

Thank you. That does conclude today's call. We do thank you all for your participation. You may now disconnect.

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