| SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES During the period covered in this report, there have been no material changes to the significant accounting policies we use and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2019 . The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2019 . 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 when 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 and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. As it relates to the consolidated medical 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 the estimated amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). 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. We typically experience some seasonality to our revenue stream. During the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year. It is common for inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures. Second, in recent years, we have observed greater participation in high deductible health plans by patients. As these high deductibles reset in January for most of these patients, we have observed that patients utilize medical services less during the first quarter, when securing medical care will result in significant out-of-pocket expenditures. Our total revenues during the three months ended March 31, 2020 and 2019 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 2020 2019 Commercial insurance $ 155,461 $ 151,678 Medicare 57,749 54,199 Medicaid 6,628 7,120 Workers' compensation/personal injury 10,274 11,027 Other patient revenue 5,662 5,835 Management fee revenue 2,567 2,117 Teleradiology and Software revenue 3,770 4,386 Other 6,222 6,310 Service fee revenue 248,333 242,672 Revenue under capitation arrangements 33,231 28,877 Total revenue $ 281,564 $ 271,549 RECLASSIFICATION – We have reclassified certain amounts within property and equipment and goodwill to conform to our 2020 presentation. ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience. In regards to the credit loss standard, our expectation is that the historical credit loss experienced across our receivable portfolio is materially similar to any current expected credit losses that would be estimated under the CECL model. In 2018 and 2019 we entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Proceeds on notes receivables are reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. At March 31, 2020 we have $22.7 million , net of discount, remaining to be collected on these agreements. We do not utilize factoring arrangements as an integral part of our financing for working capital. To employ the CECL model for the notes receivable, we assess the party's ability to pay by reviewing their financial statements annually and reassessing any insolvency risk on a semi-annual basis. If a failure to pay occurs, we estimate an expected credit loss after three quarters of late payments based on the remittance schedule of the note. In the event of a significant past due balance, as the sold receivables were already revalued and recorded at net realizable value, we can mitigate the expected credit loss by offsetting any collections from the underlying factored receivables and not remitting that to the counter party. DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $1.4 million and $1.6 million , as of March 31, 2020 and December 31, 2019 , respectively and related to our line of credit. In conjunction with our Sixth and Seventh Amendments to our First Lien Credit Agreement (as defined below), a net addition of approximately $0.7 million was added to deferred financing costs. See Note 6, Credit Facilities and Notes Payable for more information. INVENTORIES - Inventories, consisting mainly of medical supplies, are stated at the lower of cost or net realizable value with cost determined by the first-in, first-out method. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years . Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years . Maintenance and repairs are charged to expense as incurred. BUSINESS COMBINATION - When the qualifications for business combination accounting treatment are met, it requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. GOODWILL AND INDEFINITE LIVED INTANGIBLES - Goodwill at March 31, 2020 totaled $444.4 million . Indefinite lived intangible assets at March 31, 2020 were $11.3 million . Goodwill and Indefinite Lived Intangibles are recorded as a result of business combinations. When we determine the carrying value of 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. We tested goodwill and indefinite lived intangibles for impairment on October 1, 2019, noting no impairment. In addition to the annual impairment test, we regularly assess if an event has occurred which would require interim impairment testing. We considered the current and expected future economic and market conditions surrounding the novel strain of coronavirus ("COVID-19") pandemic and did not identify an indication of goodwill impairment being more likely than not through March 31, 2020 . Activity in goodwill for the three months ended March 31, 2020 is provided below (in thousands): Balance as of December 31, 2019 $ 441,973 Goodwill acquired through the acquisition of Olney Open MRI, LLC 601 Goodwill acquired through the acquisition of MRI at Woodbridge, LLC 1,833 Balance as of March 31, 2020 $ 444,407 INCOME TAXES - Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized. We recorded an income tax benefit of $4.4 million , or an effective tax rate of 23.8% , for the three months ended March 31, 2020 compared to an income tax benefit of $1.2 million , or an effective tax rate of 39.0% for the three months ended March 31, 2019 . The income tax rates for the three months ended March 31, 2020 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; and (iii) excess tax benefits attributable to share-based compensation. We believe no significant changes in the unrecognized tax benefits will occur within the next 12 months. On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act, among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company’s current tax provision. LEASES - We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our consolidated balance sheets. Finance leases are included in property and equipment, current finance lease liability, and long-term finance lease liability in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. ROU assets are tested for impairment if circumstances suggest that the carrying amount may not be recoverable. Our ROU assets consist of facility and equipment assets on operating leases. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets in 2020. Our facility leases require us to maintain insurance policies which would cover major damage to our facilities. We maintain business interruption insurance to cover loss of business due to a facility becoming non-operational under certain circumstances. Our equipment leases are covered by warranty and service contracts which cover repairs and provide regular maintenance to keep the equipment in functioning order. See Note 5, Leases, for more information. EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we first amended and restated as of April 20, 2015, and again on March 9, 2017 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 8, 2017. We have reserved for issuance under the Restated Plan 14,000,000 shares of common stock. We can issue options, stock awards, stock appreciation rights, stock units and cash awards under the Restated Plan. Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options and warrants generally vest over three to five years and expire five to ten years from date of grant. The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. See Note 7, Stock-Based Compensation, for more information. COMPREHENSIVE LOSS - ASC 220 establishes rules for reporting and displaying comprehensive loss or income and its components. Our unrealized gains or losses on foreign currency translation adjustments, interest rate cap and swap agreements are included in comprehensive loss and are included in the consolidated statements of comprehensive loss for the three months ended March 31, 2020 and 2019 . COMMITMENTS AND CONTINGENCIES - We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. We believe that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. DERIVATIVE INSTRUMENTS 2016 CAPS In the fourth quarter of 2016, we entered into two forward interest rate cap agreements ("2016 Caps"). The 2016 Caps will mature in September and October 2020. The 2016 Caps had notional amounts of $150,000,000 and $350,000,000 , respectively, which were designated at inception as cash flow hedges of future cash interest payments associated with portions of our variable rate bank debt. Under these arrangements, the Company purchased a cap on 3 month LIBOR at 2.0% . We incurred a $5.3 million premium to enter into the 2016 Caps which is being accrued over the life of the agreements. At inception, we designated our 2016 Caps as cash flow hedges of floating-rate borrowings. In accordance with ASC Topic 815, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. See Fair Value Measurements section below for the fair value of the 2016 Caps at March 31, 2020 . A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2016 Caps is as follows (amounts in thousands): For the three months ended March 31, 2020 Account January 1, 2020 Balance Amount of comprehensive gain recognized on derivative net of taxes March 31, 2020 Balance Location Accumulated Other Comprehensive Loss, net of taxes (1,877 ) 280 (1,597 ) Liabilities and Equity For the twelve months ended December 31, 2019 Account January 1, 2019 Balance Amount of comprehensive gain recognized on derivative net of taxes December 31, 2019 Balance Location Accumulated Other Comprehensive Loss, net of taxes 2,506 (4,383 ) (1,877 ) Liabilities and Equity 2019 SWAPS In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 swaps"). The 2019 swaps have total notional amounts of $500,000,000 , consisting of two agreements of $50,000,000 each and two agreements of $200,000,000 each. The 2019 swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 swaps with locked in 1 month LIBOR rates at 1.96% for the $100,000,000 notional and at 2.05% for the $400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates remain above the arranged rates. At inception, we designated our 2019 swaps as cash flow hedges of floating-rate borrowings. In accordance with ASC Topic 815, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. See Fair Value Measurements section below for the fair value of the 2019 swaps at March 31, 2020 . A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2019 swaps is as follows (amounts in thousands): For the three months ended March 31, 2020 Account January 1, 2020 Balance Amount of comprehensive loss recognized on derivative net of taxes March 31, 2020 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ (5,870 ) $ (18,829 ) $ (24,699 ) Liabilities and Equity For the twelve months ended December 31, 2019 Account January 1, 2019 Balance Amount of comprehensive loss recognized on derivative net of taxes December 31, 2019 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ — $ (5,870 ) $ (5,870 ) Liabilities and Equity FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement: Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data. Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment. Derivatives: The tables below summarize the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our condensed consolidated balance sheets, as follows (in thousands): As of March 31, 2020 Level 1 Level 2 Level 3 Total Current and long term liabilities 2016 caps - Interest Rate Contracts $ — $ 727 $ — $ 727 2019 swaps - Interest Rate Contracts $ — $ 34,937 $ — $ 34,937 As of December 31, 2019 Level 1 Level 2 Level 3 Total Current and long term liabilities 2016 caps - Interest Rate Contracts $ — $ 1,081 $ — $ 1,081 2019 swaps - Interest Rate Contracts $ — $ 9,477 $ — $ 9,477 The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward LIBOR curve. The forward LIBOR curve is readily available in the public markets or can be derived from information available in the public markets. Long Term Debt: The table below summarizes the estimated fair value compared to our face value of our long-term debt as follows (in thousands): As of March 31, 2020 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 595,656 $ — $ 595,656 $ 694,875 As of December 31, 2019 Level 1 Level 2 Level 3 Total Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 708,948 $ — $ 708,948 $ 705,699 As of March 31, 2020 our Barclays revolving credit facility had an $80.0 million balance outstanding while at December 31, 2019 , our Barclays revolving credit facility had no aggregate principal amount outstanding. Our SunTrust revolving credit facility relating to our consolidated subsidiary NJIN, had no principal amount outstanding at March 31, 2020 and at December 31, 2019 . The estimated fair value of our long-term debt, which is discussed in Note 6, was determined using Level 2 inputs primarily related to comparable market prices. We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment. Additionally, we consider the carrying amount of our finance lease obligations to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates. EARNINGS PER SHARE - Earnings per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding, net of common stock held in treasury, as follows (in thousands except share and per share data): Three Months Ended March 31, 2020 2019 Net loss attributable to RadNet, Inc.'s common stockholders $ (16,358 ) $ (3,733 ) BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 50,294,329 49,553,694 Basic and diluted net loss per share attributable to RadNet, Inc.'s common stockholders $ (0.33 ) $ (0.08 ) EQUITY INVESTMENTS AT FAIR VALUE–Accounting guidance requires entities to measure equity investments at fair value, with any changes in fair value recognized in net income. If there is no readily determinable fair value, the guidance allows entities the ability to measure investments at cost less impairment. As of March 31, 2020 , 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: 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. On March 24, 2017, we acquired an initial 12.5% equity interest in Medic Vision for $1.0 million . We also received an option to exercise warrants to acquire up to an additional 12.5% equity interest for $1.4 million within one year from the initial share purchase date, if exercised in full. On March 1, 2018 we exercised our warrant in part and acquired an additional 1.96% for $200,000 . Our initial equity interest has been diluted to 12.25% and our total equity investment stands at 14.21% . In accordance with accounting guidance , as we exercise no significant influence over Medic Vision’s operations, the investment is recorded at its cost of $1.2 million , given that the fair value is not readily determinable. No impairment in our investment was identified as of March 31, 2020 . Turner Imaging: 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 $143,000 that converted to additional 80,000 shares December 21, 2019. No impairment in our investment was identified as of March 31, 2020 . WhiteRabbit.ai Inc: 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 its operations, the principal of which is due November 2022. To leverage their artificial intelligence expertise, we entered into a software subscription service contract to assist our radiology work flow and advanced them $4.0 million for future software subscription fees that is recorded as a prepaid expense in Prepaid and Other Current assets in our consolidated balance sheets. INVESTMENT IN JOINT VENTURES – We have 12 unconsolidated joint ventures with ownership interests ranging from 35% to 55% . These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling financial interest in such ventures. We evaluate our investment in joint ventures, including cost in excess of book value (equity method goodwill) for impairment whenever indicators of impairment exist. No indicators of impairment existed as of March 31, 2020 . Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the three months ended March 31, 2020 (in thousands): Balance as of December 31, 2019 $ 34,470 Equity in earnings in these joint ventures 1,955 Balance as of March 31, 2020 $ 36,425 We charged management service fees from the centers underlying these joint ventures of approximately $2.6 million and $2.1 million for the quarters ended March 31, 2020 and 2019 , respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures. The following table is a summary of key balance sheet data for these joint ventures as of March 31, 2020 and December 31, 2019 and income statement data for the three months ended March 31, 2020 and 2019 (in thousands): Balance Sheet Data: March 31, 2020 December 31, 2019 Current assets $ 28,618 $ 27,427 Noncurrent assets 69,819 61,037 Current liabilities (9,829 ) (9,217 ) Noncurrent liabilities (23,988 ) (18,872 ) Total net assets $ 64,620 $ 60,375 Book value of RadNet joint venture interests $ 29,985 $ 28,001 Cost in excess of book value of acquired joint venture interests and other 6,440 6,469 Total value of Radnet joint venture interests $ 36,425 $ 34,470 Total book value of other joint venture partner interests $ 34,635 $ 32,374 Income statement data for the three months ended March 31, 2020 2019 Net revenue $ 26,341 $ 27,254 Net income $ 4,245 $ 3,952 |
