RadNet, Inc. 10-K

Item 8. Financial Statements and Supplementary Data 50 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of RadNet, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of RadNet, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income , equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 29, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 51 Accounting for Revenue Recognition Description of the Matter For the year ended December 31, 2023, the Company’s service fee revenue was $1,463 million. As discussed in Note 2 to the consolidated financial statements, service fee revenue is based upon the estimated amounts the Company expects to be entitled to receive from patients and third-party payors (Medicare, Medicaid, managed care health plans and commercial insurance companies). Estimates of contractual allowances and implicit price concessions associated with third-party payors and any amounts due directly from patients are based upon historical collection experience from such payors. The contractual allowance estimation process is periodically reviewed to consider and incorporate updates to the laws and regulations, changes in business and economic conditions and contractual terms resulting from contract negotiations and renewals. The Company also records estimated implicit price concessions (based primarily on historical collection experience) related to amounts due directly from patients to record these revenues and accounts receivable at the estimated amounts the Company expects to collect. Auditing management’s estimates of contractual allowances and implicit price concessions was complex and judgmental due to the significant data inputs and subjective assumptions utilized in determining related amounts. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the measurement of service fee revenue. This included testing controls related to management’s review of the significant assumptions and inputs used in the determination of the estimated amount that would be collected for services rendered during the period. We also tested controls over the current and historical data used by management in determining this estimate, including the completeness and accuracy of the data. To test the estimated contractual allowances and implicit price concessions, we performed audit procedures that included, among others, assessing methodologies and evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its estimates. We also assessed the historical accuracy of management’s estimates as a source of potential corroborative or contrary evidence. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2007. Los Angeles, California February 29, 2024 52 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) As of December 31, 2023 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 342,570 $ 127,834 Accounts receivable 163,707 166,357 Due from affiliates 25,342 18,971 Prepaid expenses and other current assets 47,657 54,022 Total current assets 579,276 367,184 PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS Property and equipment, net 604,401 565,961 Operating lease right-of-use-assets 596,032 603,524 Total property, equipment and right-of-use-assets 1,200,433 1,169,485 OTHER ASSETS Goodwill 679,463 677,665 Other intangible assets 90,615 106,228 Deferred financing costs 1,643 2,280 Investment in joint ventures 92,710 57,893 Deposits and other 46,333 53,172 Total assets $ 2,690,473 $ 2,433,907 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable, accrued expenses and other $ 342,940 $ 369,595 Due to affiliates 15,910 23,100 Deferred revenue 4,647 4,021 Current portion of operating lease liability 55,981 57,607 Current portion of notes payable 17,974 12,400 Total current liabilities 437,452 466,723 LONG-TERM LIABILITIES Long-term operating lease liability 605,097 604,117 Notes payable, net of current portion 812,068 839,344 Deferred tax liability, net 15,776 9,256 Other non-current liabilities 6,721 23,015 Total liabilities 1,877,114 1,942,455 EQUITY RadNet, Inc. stockholders' equity: Common stock - $ .0001 par value, 200,000,000 shares authorized; 67,956,318 and 57,723,125 shares issued and outstanding at December 31, 2023 and 2022 respectively 7 6 Additional paid-in-capital 722,750 436,288 Accumulated other comprehensive loss ( 12,484 ) ( 20,677 ) Accumulated deficit ( 79,578 ) ( 82,622 ) Total RadNet, Inc.'s stockholders' equity 630,695 332,995 Noncontrolling interests 182,664 158,457 Total equity 813,359 491,452 Total liabilities and equity $ 2,690,473 $ 2,433,907 The accompanying notes are an integral part of these financial statements. 53 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Years Ended December 31, 2023 2022 2021 REVENUE Service fee revenue $ 1,463,197 $ 1,278,016 1,166,743 Revenue under capitation arrangements 153,433 152,045 148,334 Total revenue 1,616,630 1,430,061 1,315,077 Provider relief funding — — 9,110 OPERATING EXPENSES Cost of operations, excluding depreciation and amortization 1,395,239 1,264,346 1,123,274 Gain on contribution of imaging centers into joint venture ( 16,808 ) — — Lease abandonment charges 5,146 — 19,675 Depreciation and amortization 128,391 115,877 96,694 Loss on sale and disposal of equipment and other 2,187 2,529 1,246 Severance costs 3,778 946 744 Total operating expenses 1,517,933 1,383,698 1,241,633 INCOME FROM OPERATIONS 98,697 46,363 82,554 OTHER INCOME AND EXPENSES Interest expense 64,483 50,841 48,830 Equity in earnings of joint ventures ( 6,427 ) ( 10,390 ) ( 10,967 ) Non-cash change in fair value of interest rate swaps 8,185 ( 39,621 ) ( 21,670 ) Loss on extinguishment of debt and related expenses — 731 6,044 Other (income) expenses ( 6,354 ) 1,833 1,438 Total other expenses 59,887 3,394 23,675 INCOME BEFORE INCOME TAXES 38,810 42,969 58,879 Provision for income taxes ( 8,473 ) ( 9,361 ) ( 14,560 ) NET INCOME 30,337 33,608 44,319 Net income attributable to noncontrolling interests 27,293 22,958 19,592 NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 3,044 $ 10,650 $ 24,727 BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.05 $ 0.19 $ 0.47 DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.05 $ 0.17 $ 0.46 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 63,580,059 56,293,336 52,496,679 Diluted 64,658,299 57,320,870 53,421,033 The accompanying notes are an integral part of these financial statements. 54 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) Years Ended December 31, 2023 2022 2021 NET INCOME $ 30,337 $ 33,608 $ 44,319 Currency translation adjustments 4,617 ( 3,943 ) ( 65 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings 3,576 3,687 3,695 COMPREHENSIVE INCOME 38,530 33,352 47,949 Less comprehensive income attributable to noncontrolling interests 27,293 22,958 19,592 COMPREHENSIVE INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 11,237 $ 10,394 $ 28,357 The accompanying notes are an integral part of these financial statements. 55 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY (IN THOUSANDS EXCEPT SHARE DATA) Additional Accumulated Other Radnet, Inc. Common Stock Paid-in Comprehensive Accumulated Stockholders' Noncontrolling Total Shares Amount Capital (Loss) Income Deficit Equity Interests Equity BALANCE - DECEMBER 31, 2020 51,640,537 $ 5 $ 307,788 $ ( 24,051 ) $ ( 117,999 ) $ 165,743 $ 92,560 $ 258,303 Issuance of stock upon exercise of options 53,960 — 488 — — 488 — 488 Shares issued under the equity compensation plan 1,212,758 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 471,162 — — — — — — — Stock-based compensation expense — — 25,284 — — 25,284 — 25,284 Issuance of common stock for acquisitions and asset purchases 82,658 — 2,498 — — 2,498 — 2,498 Release of holdback shares from the purchase of DeepHealth 91,517 — 2,413 — — 2,413 — 2,413 Forfeiture of restricted stock ( 4,365 ) — ( 81 ) — — ( 81 ) — ( 81 ) Gain on contribution of assets to majority owned subsidiary — — ( 4 ) — — ( 4 ) — ( 4 ) Contribution from noncontrolling partner — — — — — — 123 123 Sale of economic interests in majority owned subsidiary, net of taxes — — 4,206 — — 4,206 7,404 11,610 Distributions paid to noncontrolling interests — — — — — — ( 2,426 ) ( 2,426 ) Change in cumulative foreign currency translation adjustment — — — ( 65 ) — ( 65 ) — ( 65 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 3,695 — 3,695 — 3,695 Net income (loss) — — — — 24,727 24,727 19,592 44,319 BALANCE - DECEMBER 31, 2021 53,548,227 $ 5 $ 342,592 $ ( 20,421 ) $ ( 93,272 ) $ 228,904 $ 117,253 $ 346,157 Issuance of stock upon exercise of options 25,000 1 294 — — 295 — 295 Shares issued under the equity compensation plan 725,577 — — — — — — — Issuance of common stock to settle DeepHealth contingent consideration 781,577 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 204,160 — — — — — — — Stock-based compensation expense — — 23,543 — — 23,543 — 23,543 Issuance of common stock for acquisitions 2,465,294 — 63,311 — — 63,311 — 63,311 Forfeiture of restricted stock and share cancellation ( 26,710 ) — ( 75 ) — — ( 75 ) — ( 75 ) Contribution from noncontrolling partner — — — — — — 19,139 19,139 Sale of economic interests in majority owned subsidiary, net of taxes — — 6,623 — — 6,623 — 6,623 Distributions paid to noncontrolling interests — — — — — — ( 893 ) ( 893 ) Change in cumulative foreign currency translation adjustment — — — ( 3,943 ) — ( 3,943 ) — ( 3,943 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 3,687 — 3,687 — 3,687 Net income (loss) — — — — 10,650 10,650 22,958 33,608 56 BALANCE - DECEMBER 31, 2022 57,723,125 $ 6 $ 436,288 $ ( 20,677 ) $ ( 82,622 ) $ 332,995 $ 158,457 $ 491,452 Issuance of stock upon exercise of options 12,424 — 142 — — 142 — 142 Shares issued under the equity compensation plan 1,128,453 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 37,909 — — — — — — — Stock-based compensation expense — — 26,785 — — 26,785 — 26,785 Issuance of common stock, net of issuance costs 8,711,250 1 245,831 — — 245,832 — 245,832 Issuance of common stock in connection with acquisitions 378,699 — 11,470 — — 11,470 — 11,470 Forfeiture of restricted stock ( 35,542 ) — — — — — — — Sale of economic interests in majority owned subsidiary, net of taxes — — 2,236 — — 2,236 — 2,236 Contribution from noncontrolling partner — — — — — — 2,885 2,885 Distributions paid to noncontrolling interests — — — — — — ( 5,972 ) ( 5,972 ) Change in cumulative foreign currency translation adjustment — — — 4,617 — 4,617 — 4,617 Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 3,576 — 3,576 — 3,576 Other — — ( 2 ) — — ( 2 ) 1 ( 1 ) Net income (loss) — — — — 3,044 3,044 27,293 30,337 BALANCE - DECEMBER 31, 2023 67,956,318 $ 7 $ 722,750 $ ( 12,484 ) $ ( 79,578 ) $ 630,695 $ 182,664 $ 813,359 The accompanying notes are an integral part of these financial statements. 57 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Years Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 30,337 $ 33,608 $ 44,319 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 128,391 115,877 96,694 Amortization of operating lease right-of-use assets 61,102 68,847 73,967 Lease abandonment charges 5,146 — 19,675 Equity in earnings of joint ventures, net of dividends 9,176 ( 5,952 ) ( 6,260 ) Amortization and write off of deferred financing costs and loan discount 2,987 2,693 3,254 Gain on contribution of imaging centers into joint venture ( 16,808 ) — — Loss on sale and disposal of equipment and other 2,187 2,529 1,246 Loss on extinguishment of debt — — 1,496 Loss on impairment 3,949 — — Amortization of cash flow hedge 3,576 3,687 3,695 Non-cash change in fair value of interest rate swap 8,185 ( 39,621 ) ( 21,670 ) Stock-based compensation 26,785 23,770 25,203 Change in value of contingent consideration ( 3,880 ) ( 325 ) — Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: Accounts receivable 2,650 ( 30,078 ) ( 5,890 ) Other current assets ( 8,441 ) ( 3,327 ) ( 15,777 ) Other assets ( 1,484 ) ( 12,166 ) 662 Deferred taxes 6,056 13,356 19,834 Operating lease liability ( 54,763 ) ( 68,943 ) ( 72,553 ) Deferred revenue 626 ( 7,316 ) ( 28,319 ) Accounts payable, accrued expenses and other liabilities 15,086 49,778 9,915 Net cash provided by operating activities 220,863 146,417 149,491 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of imaging centers and other operations ( 10,918 ) ( 129,961 ) ( 77,691 ) Purchase of property and equipment ( 176,600 ) ( 119,451 ) ( 137,874 ) Purchase of intangible assets — — ( 5,130 ) Proceeds from sale of equipment 83 3,904 625 Equity contributions in existing and purchase of interest in joint ventures ( 14,035 ) ( 1,441 ) ( 1,441 ) Net cash used in investing activities ( 201,470 ) ( 246,949 ) ( 221,511 ) CASH FLOWS FROM FINANCING ACTIVITIES Payments on term loan debt ( 41,063 ) ( 53,750 ) ( 619,529 ) Principal payments on notes and leases payable other than term loan debt ( 2,930 ) — ( 3,302 ) Additional deferred finance costs on revolving loan amendment — — ( 938 ) Proceeds from debt issuance, net of issuance costs — 147,996 717,307 Distributions paid to noncontrolling interests ( 5,972 ) ( 893 ) ( 2,426 ) Proceeds from sale of economic interest in majority owned subsidiary — — 13,073 Proceeds from revolving credit facility — — 128,300 Payments on revolving credit facility — — ( 128,300 ) Sale of noncontrolling interests 5,121 — — Payments on contingent consideration ( 5,495 ) — — Proceeds from issuance of common stock, net of issuance costs 245,832 — — Proceeds from issuance of common stock upon exercise of options 142 294 488 Net cash provided by financing activities 195,635 93,647 104,673 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 292 ) 113 ( 65 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 214,736 ( 6,772 ) 32,588 CASH AND CASH EQUIVALENTS, beginning of period 127,834 134,606 102,018 CASH AND CASH EQUIVALENTS, end of period $ 342,570 $ 127,834 $ 134,606 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 64,695 $ 39,151 $ 29,042 Cash paid during the period for income taxes $ 1,587 $ 587 $ 1,950 The accompanying notes are an integral part of these financial statements. RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Supplemental Schedule of Non-Cash Investing and Financing Activities We acquired equipment and certain leasehold improvements for approximately $ 67.7 million, $ 111.8 million, and $ 63.9 million during the years ended December 31, 2023, 2022 and 2021, respectively, that we had not paid for as of December 31, 2023, 2022 and 2021, respectively. The offsetting amount due was recorded in our consolidated balance sheets under accounts payable, accrued expenses and other. On December 12, 2023, we issued 64,569 shares of common stock to settle the stock contingent liabilities as part of our purchase of Heart & Lung Imaging Limited. The shares were ascribed a value of $ 2.3 million. On September 20, 2023, we issued 56,600 shares of common stock to settle the stock contingent liabilities as part of our purchase of Heart & Lung Imaging Limited. The shares were ascribed a value of $ 1.6 million. On September 1, 2023, we made a contribution of a business with a fair value of $ 27.2 million to our Santa Monica Imaging Group, LLC joint venture. On July 7, 2023, we issued 113,303 shares of common stock to settle the stock holdback contingent liabilities as part of our purchase of Quantib B.V.. The shares were ascribed a value of $ 3.5 million. On April 13, 2023, we issued 144,227 shares of common stock to settle the general holdback contingent liabilities as part of our purchase of Aidence Holding B.V.. The shares were ascribed a value of $ 4.0 million. On February 1, 2023, we issued a promissory note in the amount of $ 19.8 million to acquire radiology equipment previously leased under operating leases. On November 1, 2022, we issued 359,002 shares of common stock to complete our purchase of Heart & Lung Imaging Limited. The shares were ascribed a value of $ 6.8 million. On November 1, 2022 we made a contribution to our joint venture Arizona Diagnostic Radiology Group of $ 12.7 million in equipment and other assets. We recorded an offset to due to affiliates of $ 4.5 million to reduce our overall investment to $ 8.3 million. On April 1, 2022 we received $ 8.4 million in fixed assets and equipment from our partner in Frederick County Radiology, LLC. On January 20, 2022, we issued 1,141,234 shares of common stock to complete our purchase of Aidence Holding B.V. The shares were ascribed a value of $ 30.6 million. On January 20, 2022, we issued 965,058 shares of common stock to complete our purchase of Quantib B.V. The shares were ascribed a value of $ 25.9 million. On October 22, 2021 we completed our purchase of specific technology assets of DRT LLC in part by issuing 15,000 shares of our common stock to complete the transaction. The shares were ascribed a value of $ 0.4 million. On August 24, 2021, we completed our stock purchase of Tangent Associates LLC by issuing 67,658 shares of our common stock to complete the transaction. The shares were ascribed a value of $ 2.0 million. On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, partnership agreement with Simi Valley Hospital and Health Services. Of the total combined assets of $ 0.4 million, we transferred $ 0.3 million and Simi Valley Hospital and Health Services contributed the remaining $ 0.1 million. 58 RADNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – NATURE OF BUSINESS We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States. At December 31, 2023, we operated directly or indirectly through joint ventures with hospitals, 366 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. In addition to our center operations, we have certain other subsidiaries that develop Artificial Intelligence ("AI") products and solutions that are designed to enhance interpretation of radiographic images. Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Artificial Intelligence. For further financial information about these segments, see Note 5, Segment Reporting. In June 2023, we completed a public offering of 8,711,250 shares of our common stock at a price to the public of $ 29.75 per share. The gross proceeds as a result of this public offering was $ 259.2 million before underwriting discounts, commissions, and expenses totaling $ 13.4 million. The consolidated financial statements include the accounts of RadNet, Inc. as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report. Accounting regulations stipulate that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics which evidence a controlling financial interest, is considered a Variable Interest Entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. VIEs that we consolidate as the primary beneficiary consist of professional corporations which are owned or controlled by individuals within our senior management and provide professional medical services for centers in Arizona, California, Delaware, Maryland, New Jersey and New York. These VIEs are collectively referred to as the consolidated medical group (the "Group"). RadNet provides non-medical, technical and administrative services to the Group for which it receives a management fee, pursuant to the related management agreements. Through the management agreements we have exclusive authority over all non-medical decision making related to the ongoing business operations and we determine the annual budget. The Group has insignificant operating assets and liabilities, and de minimis equity. Substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group. The creditors of the Group do not have recourse to our general credit and there are no other arrangements that could expose us to losses on behalf of the Group. However, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. The Group on a combined basis recognized $ 205.6 million, $ 189.1 million, and $ 179.6 million of revenue, net of management services fees to RadNet, for the years ended December 31, 2023, 2022, and 2021, respectively and $ 205.6 million, $ 189.1 million, and $ 179.6 million of operating expenses for the years ended December 31, 2023, 2022, and 2021, respectively. RadNet, Inc. recognized $ 849.4 million, $ 786.5 million, and $ 749.2 million of total billed net service fee revenue for the years ended December 31, 2023, 2022, and 2021, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. The cash flows of the Group are included in the accompanying consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. In our consolidated balance sheets at December 59 31, 2023 and December 31, 2022, we have included approximately $ 94.1 million and $ 110.3 million, respectively, of accounts receivable and approximately $ 16.7 million and $ 16.2 million of accounts payable and accrued liabilities related to the Group, respectively. At all of our centers not serviced by the Group we have entered into long-term contracts with medical groups to provide professional services at those centers, including supervision and interpretation of diagnostic imaging procedures. The medical groups maintain full control over the physicians they employ. Through our management agreements, we make available to the medical groups the imaging centers, including all furniture, fixtures and medical equipment therein. The medical groups are compensated for their services from the professional component of the global net service fee revenue and after deducting management service fees paid to us, we have no economic controlling interest in these medical groups. As such, the financial results of these groups are not consolidated in our financial statements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION – The operating activities of subsidiaries are included in the accompanying consolidated financial statements (“financial statements”) from the date of acquisition. Investments in companies in which we have the ability to exercise significant influence, but not control, are accounted for by the equity method. All intercompany transactions and balances, with our consolidated entities and the unsettled amount of intercompany transactions with our equity method investees, have been eliminated in consolidation. As stated in Note 1 above, the Group consists of VIEs and we consolidate the operating activities and balance sheets of each. USE OF ESTIMATES - The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our consolidated statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could materially differ from these estimates. REVENUES – Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period 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 fees 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 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 Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by the Group 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 other 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 co-payment 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. 60 Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans. Our total service fee revenues for the years ended December 31, 2023, 2022, and 2021 are presented in the table below. Our imaging center revenue is displayed as the estimated service fee, broken down by classification of insurance coverage type. Additional revenues are earned from our management services provided to joint ventures and our software and AI subsidiaries. In Thousands 2023 2022 2021 Commercial insurance $ 897,948 $ 785,128 $ 743,462 Medicare 363,863 311,124 280,911 Medicaid 43,175 38,279 34,731 Workers' compensation/personal injury 47,364 51,339 44,235 Other patient revenue 42,249 31,849 19,398 Management fee revenue 17,936 22,235 19,630 Software and teleradiology 18,082 14,238 10,525 Other 20,111 19,428 12,436 Revenue under capitation arrangements 153,433 152,045 148,334 Imaging center segment revenue 1,604,161 1,425,665 1,313,662 AI segment revenue 12,469 4,396 1,415 Total revenue $ 1,616,630 $ 1,430,061 $ 1,315,077 GOVERNMENT ASSISTANCE: COVID-19 PANDEMIC AND CARES ACT FUNDING - On March 11, 2020 the World Health Organization (WHO) designated COVID-19 as a global pandemic. To aid businesses and stimulate the national economy, Congress passed The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was signed in to law on March 27, 2020. As part of the CARES act, we received $ 39.6 million total of accelerated Medicare payments which were recorded to deferred revenue in our consolidated balance sheet and are being applied to revenue as services are performed. Through December 31, 2023, all of the accelerated Medicare payments have been applied to revenue. 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. We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. 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. Amounts remaining to be collected on these agreements were $ 14.3 million and $ 15.4 million at December 31, 2023 and December 31, 2022, respectively. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis. ACCOUNTS PAYABLE AND ACCRUED EXPENSES - Accounts payable and accrued expenses were comprised of the following (in thousands): 61 December 31, 2023 2022 Accounts payable $ 122,888 $ 102,678 Accrued expenses 124,059 181,574 Accrued salary and benefits 71,297 62,072 Accrued professional fees 24,696 23,271 Total $ 342,940 $ 369,595 SOFTWARE REVENUE RECOGNITION – We have developed and sell Picture Archiving Communications Systems (“PACS”) and related services. The PACS sales are made primarily through our sales force and generally include hardware, software, installation, training and first-year warranty support. Hardware which is not unique or special purpose, is purchased from a third-party and resold to customers with a small mark-up. We have determined that our core software products, such as PACS, are essential to most of our arrangements as hardware, software and related services are sold as an integrated package. Revenue is recognized when a performance obligation is satisfied by transferring a promised good or service to a customer. For the years ended December 31, 2023, 2022 and 2021, we recorded approximately $ 20.2 million, $ 13.2 million, and $ 10.5 million, respectively, in revenue related to our software business which is included in net service fee revenue in our consolidated statements of operations. At December 31, 2023 we had deferred revenue of approximately $ 1.3 million associated with these sales which we expect to recognize into revenue over the next 12 months. SOFTWARE DEVELOPMENT COSTS – When we develop our own software and artificial intelligence solutions we capitalize and amortize those costs over their useful life. Costs related to the research and development of new software products and enhancements to existing software intended for resale to our customers are expensed as incurred. CONCENTRATION OF CREDIT RISKS – Financial instruments that potentially subject us to credit risk are primarily cash equivalents and accounts receivable. We have placed our cash and cash equivalents with one major financial institution. The cash in the financial institution is in excess of the amount insured by the Federal Deposit Insurance Corporation, or FDIC. 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. We continuously monitor collections and maintain an allowance for bad debts based upon our historical collection experience. In addition, we have notes receivable stemming from our factoring of accounts receivable as stated above. Companies with which we factor our receivables are well known established buyers of such instruments, have agreed to assume the full risk of their collection. CASH AND CASH EQUIVALENTS – We consider all highly liquid investments that mature in three months or less when purchased to be cash equivalents. The carrying amount of cash and cash equivalents approximates the fair market value. DEFERRED FINANCING COSTS – Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs are related to our revolving credit facilities. Deferred financing costs, net of accumulated amortization, were $ 1.6 million and $ 2.3 million for the twelve months ended at December 31, 2023 and 2022, respectively. See Note 8, Credit Facilities and Notes Payable for more information on our revolving lines of credit. PROPERTY AND EQUIPMENT – Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over the estimated useful lives, 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 COMBINATIONS – 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. 62 GOODWILL AND INDEFINITE LIVED INTANGIBLES – Goodwill totaled $ 679.5 million and $ 677.7 million at December 31, 2023 and December 31, 2022, respectively. Indefinite lived intangible assets were $ 9.0 million at December 31, 2023 and $ 24.1 million at December 31, 2022 and are associated with the value of certain trade name intangibles and in process research and development ("IPR&D"). Goodwill, trade name intangibles and IPR&D are recorded as a result of business combinations. When we determine the carrying value of goodwill exceeds its fair value, an impairment charge would be recognized which should not exceed the total amount of goodwill allocated to that reporting unit. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately. We tested goodwill, trade name and IPR&D for impairment on October 1, 2023. In September 2023, we determined that an IPR&D indefinite-lived intangible asset related to Aidence's Ai Veye Lung Nodule and Veye Clinic would not receive FDA approval for sale in the US without a new submission and additional expenditures for rework in the original projected timeline. The additional expenditures, delay and reduction of US sales affected the estimated fair value of the related IPR&D intangible asset and resulted in impairment charges of $ 3.9 million within Cost of operations in our Consolidated Statements of Operations . The estimated fair value of the IPR&D intangible asset was determined using the multi-period excess earnings method under the income approach, which estimates the present value of the free cash flows associated with the asset and tax amortization benefit to arrive at the fair value of the asset. Our annual impairment test as of October 1, 2023 noted no other impairment, and we have not identified any indicators of impairment through December 31, 2023. LONG-LIVED ASSETS – We evaluate our long-lived assets (property and equipment) and intangibles, other than goodwill and indefinite lived intangible assets, for impairment when events or changes indicate the carrying amount of an asset may not be recoverable. Accounting standards requires that if the sum of the undiscounted expected future cash flows from a long-lived asset or definite-lived intangible is less than the carrying value of that asset, an asset impairment charge must be recognized. The amount of the impairment charge is calculated as the excess of the asset’s carrying value over its fair value, which generally represents the discounted future cash flows from that asset or in the case of assets we expect to sell, at fair value less costs to sell. At December 31, 2023 and December 31, 2021 we recorded lease abandonment of $ 2.5 million and $ 7.1 million, respectively in leasehold improvements for facilities that we abandoned. See the Leases discussion below for more information. Other than this, we determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired during any periods presented. 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. See Note 10, Income Taxes, for more information. 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 ROU 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. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets as of December 31, 2023. 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 63 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. We closely monitor patient levels at our imaging centers and occasionally divest or shut down centers to maximize utilization rates. We may abandon low utilization leases and divert the patients to nearby centers. During 2023, we experienced lower utilization at two imaging centers. To complete the closure of these locations, we took a lease abandonment charge of approximately $ 5.1 million and $ 19.7 million at December 31, 2023 and December 31, 2021, respectively. Of these amounts, $ 2.7 million and $ 12.6 million were related to right-of-use assets impairment and $ 2.5 million and $ 7.1 million were related to the write-off of leasehold improvements for the years ending December 31, 2023 and December 31, 2021. UNINSURED RISKS – We maintain a high-deductible workers’ compensation insurance policy. We have recorded liabilities of $ 3.4 million and $ 3.9 million at December 31, 2023 and December 31, 2022, respectively, for the estimated future cash obligations associated with the unpaid portion of the workers compensation claims incurred. We and our affiliated physicians carry an annual medical malpractice insurance policy that protects us for claims that are filed during the policy year and that fall within policy limits. The policy has a deductible which is $ 10,000 per incidence for all years covered by this report. In December 2008, in order to eliminate the exposure for claims not reported during the regular malpractice policy period, we purchased a medical malpractice claims made tail policy, which provides coverage for any claims reported in the event that our medical malpractice policy expires. As of December 31, 2023, this policy remains in effect. We have entered into an arrangement with Blue Shield to administer and process claims under a self-insured plan that provides health insurance coverage for our employees and dependents. We have recorded liabilities as of December 31, 2023 and 2022 of $ 7.2 million and $ 7.4 million, respectively, for the estimated future cash obligations associated with the unpaid portion of the medical and dental claims incurred by our participants. Additionally, we entered into an agreement with Blue Shield for a stop loss policy that provides coverage for any claims that exceed $ 250,000 up to a maximum of $ 1.0 million in order for us to limit our exposure for unusual or catastrophic claims. EMPLOYEE BENEFIT PLAN – We adopted a profit-sharing/savings plan pursuant to Section 401(k) of the Internal Revenue Code that covers substantially all non-professional employees. Eligible employees may contribute on a tax-deferred basis a percentage of compensation, up to the maximum allowable under tax law. Employee contributions vest immediately. We can elect to provide a matching contribution in the amount to a maximum of 1.0 % per 4.0 % of employee contributions. We contributed $ 0.0 million and $ 3.0 million in matching for each of the twelve months ended December 31, 2023 and December 31, 2022. EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we first amended and restated at various points in time: first on April 20, 2015, second on March 9, 2017, third on April 15, 2021 and currently as of April 27, 2023 (the “Restated Plan”). The Restated Plan was most recently approved by our stockholders at our annual stockholders meeting on June 7, 2023. We have reserved 20,100,000 shares of common stock for issuance under the Restated Plan which can be issued in the form of incentive and/or nonstatutory stock options, restricted and/or unrestricted stock, stock units, and stock appreciation rights. Terms and conditions of awards can be direct grants or based on achieving a performance metric. We evaluate performance-based awards to determine if it is probable that the vesting conditions will be met. We also consider probability of achievement of performance conditions when determining expense recognition. For the awards where vesting is probable, equity-based compensation is recognized over the related vesting period. Stock options generally vest over three years to five years and expire five years to ten years from date of grant. We determine the compensation expense for each stock option award using the Black Scholes, or similar, valuation model. Those models require that our management make certain estimates concerning risk free interest rates and volatility in the trading price of our common stock. 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. In connection with our acquisition of DeepHealth Inc. on June 1, 2020, we assumed the DeepHealth, Inc. 2017 Equity Incentive Plan, including outstanding options awards that can be exercised for our common stock. No additional awards will be granted under the DeepHealth, Inc. 2017 Equity Incentive Plan. See Note 11, Stock-Based Compensation, for more information. FOREIGN CURRENCY TRANSLATION – For our operations in Canada, Europe and the United Kingdom, the functional currency of our foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rate at the balance sheet dates. Revenues and expenses are translated using average exchange rates prevailing during the reporting period. Any translation adjustments resulting from this process are shown separately as a 64 component of accumulated other comprehensive income (loss). Gains and losses related to the foreign currency portion of international transactions are included in the determination of net income. The following is a reconciliation of Foreign Currency Translation amounts for the years ended December 31, 2023, 2022 and 2021 is provided below (in thousands): Currency Translation Balance as of December 31, 2020 ( 377 ) Currency Translation Adjustments ( 65 ) Balance as of December 31, 2021 ( 442 ) Currency Translation Adjustments ( 3,943 ) Balance as of December 31, 2022 ( 4,385 ) Currency Translation Adjustments 4,617 Balance as of December 31, 2023 232 OTHER COMPREHENSIVE INCOME (LOSS) – Accounting guidance establishes rules for reporting and displaying other comprehensive income (loss) and its components. Our foreign currency translation adjustments and the amortization of balances associated with derivatives previously classified as cash flow hedges are included in other comprehensive income (loss). The components of other comprehensive income (loss) for the twelve month periods ended December 31, 2023, December 31, 2022, and December 31, 2021 are included in the consolidated statements of comprehensive income. 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. Based on current information, we do not believe that reasonably possible or probable losses associated with pending legal proceedings would 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 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 matured in October 2023 for the two smaller notional and will mature in October 2025 for the two larger notional. Under these arrangements, we arranged the 2019 swaps with locked in 1 month Term SOFR rates at 1.89 % for the $ 100,000,000 notional and at 1.98 % for the $ 400,000,000 notional. In October of 2023, the two agreements of $ 50,000,000 each matured and the remaining 2019 swaps have a total notional amount of $ 400,000,000 as of December 31, 2023. 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 accounting guidance, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is reported as a component of other accumulated comprehensive income (loss) in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. The cash flows for both our $ 400,000,000 notional interest rate swap contract locked in at 1.98 % due October 2025 and our $ 100,000,000 notional interest rate swap contract locked in at 1.89 % did not match the cash flows for our Barclays term loans and so we determined that they were not currently effective as cash flow hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $ 400,000,000 notional and after July 1, 2020 for the $ 100,000,000 notional was recognized in earnings. As of July 1, 2020, the total change in fair value relating to swaps included in other comprehensive income was approximately $ 24.4 million, net of taxes. This amount will be amortized to interest expense through October 2023 at approximately $ 0.4 million per month and continuing at approximately $ 0.3 million per month through October 2025. 65 A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps for the Swaps that became ineffective in 2020 is as follows (amounts in thousands): Interest Rate Contracts - Ineffective Portion For the twelve months ended Amount of gain (loss) recognized in income on derivative (current period ineffective portion) Location of gain (loss) recognized in Income on derivative (current period ineffective portion) Amount of loss reclassified from accumulated other comprehensive income (loss) into income (prior period effective portion) Location of loss reclassified from accumulated other comprehensive income (loss) into income (prior period effective portion) December 31, 2023 $( 8,185 ) Other Income (Expense) $( 3,576 ) Interest Expense December 31, 2022 $ 39,621 Other Income (Expense) $( 3,687 ) Interest Expense December 31, 2021 $ 21,670 Other Income (Expense) $( 3,695 ) Interest Expense Contingent Consideration : Aidence Holding B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Aidence Holding B.V. ("Aidence") an artificial intelligence enterprise centered on lung cancer screening. As part of the purchase agreement, we agreed to pay up to $ 10.0 million consideration upon the completion of two identified milestones in RadNet common shares or cash at our election. The contingency had a fair value of approximately $ 7.2 million on December 31, 2022. The fair value is based on the yield rate of S&P B-rated corporate bonds and the probability of meeting the milestones which were tied to FDA approval of artificial intelligence screening solutions. In September 2023, we determined that the milestones could not be achieved under the contractual terms of the stock purchase agreement because the original submissions of artificial intelligence screening solutions did not receive regulatory clearance. A new submission would be required; and therefore, the probability of the milestones being achieved became zero. Accordingly, management recognized a gain of $ 7.2 million in 2023 representing the change in fair value of contingent consideration within Cost of operations in our Consolidated Statements of Operations . In addition, there was a general holdback of $ 4.0 million for any indemnification claims, which was settled on April 30, 2023 by the issuance of 144,227 shares of our common stock. Quantib B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V. ("Quantib") an artificial intelligence enterprise centered on prostate cancer screening. As part of the purchase agreement, we agreed to issue 18 months after acquisition, 113,303 shares of our common stock with an initial fair value at the date of close of $ 3.0 million subject to adjustment for any indemnification claims and will be adjusted to fair value in subsequent periods. In addition, there is a general holdback of $ 1.6 million to be issued in cash subject to adjustment for any indemnification claims. On July 7, 2023, we settled the stock holdback contingent liabilities by issuing 113,303 shares of our common stock at an ascribed value of $ 3.5 million and also settled the general holdback for $ 1.6 million in cash. Montclair. On October 1, 2022, we completed our acquisition of Montclair Radiological Associates. As part of the purchase agreement, we recorded $ 1.2 million in contingent consideration which was based on the anticipated achievement of specific EBITDA targets within a defined time frame. In June 2023, we determined that the contingent consideration thresholds were not achieved and, as such, we recognized a gain of $ 1.2 million representing the change in fair value of the contingent consideration within Cost of operations in our Consolidated Statements of Operations . Heart & Lung Imaging Limited. On November 1, 2022, we completed our acquisition of 75 % of the equity interests of Heart & Lung Imaging Limited. The purchase included $ 10.2 million in contingent milestone consideration and cash holdback of $ 0.6 million to be issued 24 months after acquisition subject to adjustment for any indemnification claims, which will be adjusted to fair value in subsequent periods. The milestone contingencies had a value of approximately $ 6.2 million and $ 11.1 million as of December 31, 2023 and 2022, respectively. The contingent consideration is determined by the achievement of a specific number of physician reads. On September 20, 2023, we settled a milestone contingent liability by issuing 56,600 shares of our common stock at an ascribed value of $ 1.6 million and cash of $ 1.8 million. On December 12, 2023, we settled a milestone contingent liability by issuing 64,569 shares of our common stock at an ascribed value of $ 2.3 million and cash of $ 2.1 million. A tabular roll-forward of contingent consideration is as follows (amounts in thousands): 66 67 For the twelve months ended December 31, 2023 Entity Account January 1, 2023 Balance Settlement of Contingent Consideration Change in Valuation of Contingent Consideration Currency Translation December 31, 2023 Balance Aidence Other Long Term Liabilities $ 11,158 $ ( 4,000 ) $ ( 7,158 ) $ — $ — Quantib Accrued Expenses & Other Long Term Liabilities $ 3,709 $ ( 5,110 ) $ 1,401 $ — $ — Montclair Accrued Expenses $ 1,200 $ ( 1,200 ) $ — $ — Heart & Lung Limited Accrued Expenses & Other Long Term Liabilities $ 11,656 $ ( 7,854 ) $ 2,477 $ 600 $ 6,879 For the twelve months ended December 31, 2022 Entity Account January 1, 2022 Balance Settlement of Contingent Consideration Change in Valuation of Contingent Consideration Currency Translation December 31, 2022 Balance Aidence Other Long Term Liabilities $ — $ 11,453 $ ( 362 ) $ 67 $ 11,158 Quantib Accrued Expenses & Other Long Term Liabilities $ — $ 4,581 $ ( 903 ) $ 31 $ 3,709 Montclair Accrued Expenses $ — $ 1,200 $ — $ — $ 1,200 Heart & Lung Limited Accrued Expenses & Other Long Term Liabilities $ — $ 10,814 $ 566 $ 276 $ 11,656 See Fair Value Measurements section below for the fair value of contingent consideration at December 31, 2023 and 2022. 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 table below summarizes the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets in our consolidated balance sheets, as follows (in thousands): 68 As of December 31, 2023 Level 1 Level 2 Level 3 Total Other Current Assets and Deposits and Other 2019 SWAPS - Interest Rate Contracts $ — $ 15,118 $ — $ 15,118 As of December 31, 2022 Level 1 Level 2 Level 3 Total Other Current Assets and Deposits and Other 2019 SWAPS - Interest Rate Contracts $ — $ 23,302 $ — $ 23,302 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 SOFR curve in 2023 and forward LIBOR curve in 2022. respectively. The forward SOFR curve and forward LIBOR curve are readily available in the public markets or can be derived from information available in the public markets. Contingent Consideration: The tables below summarize the estimated fair values of contingencies and holdback relating to our acquisitions that are subject to fair value measurements and the classification of these liabilities on our consolidated balance sheets, as follows (in thousands): As of December 31, 2023 Level 1 Level 2 Level 3 Total Accrued expenses and other non-current liabilities Heart & Lung Imaging Limited $ — $ — $ 6,879 $ 6,879 The estimated fair value of these liabilities was determined using Level 3 inputs. For Heart & Lung Imaging Limited, the contingent consideration is determined by the achievement of a specific number of physician reads. As significant inputs for the contingent consideration of Heart & Lung Imaging Limited are not observable and cannot be corroborated by observable market data they are classified as Level 3. As of December 31, 2022 Level 1 Level 2 Level 3 Total Accrued expenses and other non-current liabilities Aidence Holding B.V. milestone consideration $ — $ — $ 11,158 $ 11,158 Quantib B.V. Holdback of 113,303 shares of RadNet common stock $ — $ — $ 3,709 $ 3,709 Montclair Radiological Associates $ — $ — $ 1,200 $ 1,200 Heart & Lung Imaging Limited $ — $ — $ 11,656 $ 11,656 The estimated fair value of these liabilities was determined using Level 3 inputs. For Aidence Holding B.V., the milestone contingent liability was adjusted to fair value based on the yield rate of S&P B-rated corporate bonds and the probability of FDA approval. For the Quantib B.V holdback shares, the fair value was determined by calculating the value of estimated shares issuable as of the reporting date (which was $ 18.83 ) translated at the current exchange rate at December 31, 2022, the time period related to the contractual settlement term, and the probability of issuing the shares. For Montclair Radiological Associates the contingent consideration is determined by obtaining specific EBITDA targets within a defined time frame. For Heart & Lung Imaging Limited the contingent consideration is determined by the achievement of a specific number of physician reads. As significant inputs for the contingent consideration of Aidence B.V., Quantib B.V., Montclair Radiological Associates and Heart & Lung Imaging Limited are not observable and cannot be corroborated by observable market data, they are classified as Level 3. 69 Long Term Debt The table below summarizes the estimated fair value and carrying amount of our Barclays Term Loans and Trust Term Loan long-term debt as follows (in thousands): As of December 31, 2023 Level 1 Level 2 Level 3 Total Fair Value Total Face Value Barclays Term Loans and Truist Term Loan $ — $ 824,759 $ — $ 824,759 $ 823,063 As of December 31, 2022 Level 1 Level 2 Level 3 Total Fair Value Total Face Value Barclays Term Loans and Truist Term Loan $ — $ 843,594 $ — $ 843,594 $ 864,125 Our Barclays revolving credit facility had no aggregate principal amount outstanding as of December 31, 2023 and December 31, 2022, respectively. Our Truist revolving credit facility had no aggregate principal amount outstanding as of December 31, 2023 and December 31, 2022, respectively. The estimated fair values of our long-term debt, which is discussed in Note 8, was determined using Level 2 inputs for the Barclays and Truist term loans. Level 2 inputs primarily relate to comparable market prices. We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, and current liabilities 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 and other notes payable to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates. 70 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): Years Ended December 31, 2023 2022 2021 Net income attributable to RadNet, Inc. common stockholders $ 3,044 $ 10,650 $ 24,727 BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 63,580,059 56,293,336 52,496,679 Basic net income per share attributable to RadNet, Inc. common stockholders $ 0.05 $ 0.19 $ 0.47 DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 63,580,059 56,293,336 52,496,679 Add nonvested restricted stock subject only to service vesting 202,995 172,139 259,539 Add additional shares issuable upon exercise of stock options, warrants and holdback shares 875,245 855,395 664,815 Weighted average number of common shares used in calculating diluted net income per share 64,658,299 57,320,870 53,421,033 Changes in fair value associated with contingently issuable shares $ — $ ( 724 ) $ — Net income attributable to RadNet, Inc's common stockholders for diluted share calculation $ 3,044 $ 9,926 $ 24,727 Diluted net income per share attributable to RadNet, Inc. common stockholders $ 0.05 $ 0.17 $ 0.46 Stock options and non-vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive: Shares issuable upon the exercise of stock options 754,131 152,723 47,792 Weight average shares for which the exercise price exceeds the average market price of common stock 70,760 — — INVESTMENTS IN EQUITY SECURITIES- 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, adjusted for observable price changes and impairments, with changes recognized in net income. As of December 31, 2023, we have three equity investments for which a fair value is not readily determinable and we do not have significant influence and therefore the total amounts invested are recognized at cost as follows: Medic Vision, based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. Our investment of $ 1.2 million, represents a 14.21 % equity interest in the company. No observable price changes or impairment in our investment was identified as of December 31, 2023. Turner Imaging Systems, based in Utah, develops and markets portable X-ray imaging systems that provide a user the ability to acquire X-ray images wherever and whenever they are needed. On February 1, 2018, we purchased 2.1 million preferred shares in Turner Imaging Systems for $ 2.0 million. On January 1, 2019 we funded a convertible promissory note in the amount of $ 0.1 million that converted to an additional 80,000 preferred shares on October 11, 2019. No observable price changes or impairment in our investment was identified as of December 31, 2023. 71 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 2,315,350 shares of Series A Preferred Stock interest at a cost of $ 1.0 million and also loaned the company $ 2.5 million in support of its operations. On October 6, 2023, WhiteRabbit.ai Inc. commenced another offering of preferred shares and the Company converted its note receivable outstanding principal and accrued interest in exchange for 20,325,203 shares of Series C-1 Preferred Stock at an exchange rate of $ 0.123 per share. No observable price changes or impairment in our investment was identified as of December 31, 2023. INVESTMENT IN JOINT VENTURES – We have 13 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, as we do 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 December 31, 2023. Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the years ended December 31, 2023 and December 31, 2022 (in thousands): Balance as of December 31, 2021 $ 42,229 Equity contributions in existing and purchase of interest in joint ventures 9,712 Equity in earnings in these joint ventures 10,390 Distribution of earnings ( 4,438 ) Balance as of December 31, 2022 $ 57,893 Equity in earnings in these joint ventures 6,427 Equity contributions in existing and purchase of interest in joint ventures 43,993 Distribution of earnings ( 15,603 ) Balance as of December 31, 2023 $ 92,710 We charged management service fees from the imaging centers underlying these joint ventures of approximately $ 17.9 million , $ 22.2 million, and $ 19.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures. As we have the ability to exercise significant influence over our joint venture entities, we consider them related parties. Amounts transacted between ourselves and the entities in the ordinary course of business are disclosed on our balance sheet in the due from/to affiliate accounts. The following table is a summary of key financial data for these joint ventures as of December 31, 2023 and 2022, respectively, and for the years ended December 31, 2023, 2022 and 2021, respectively, (in thousands): December 31, Balance Sheet Data: 2023 2022 Current assets $ 39,819 $ 39,304 Noncurrent assets 224,936 134,694 Current liabilities ( 46,587 ) ( 29,588 ) Noncurrent liabilities ( 70,834 ) ( 37,952 ) Total net assets $ 147,334 $ 106,458 2023 2022 2021 Net revenue $ 184,194 $ 145,256 $ 129,023 Net income $ 12,968 $ 21,169 $ 21,893 72 During the years ended December 31, 2023 and 2022, we made additional equity contributions of $ 2.4 million and $ 1.4 million, respectively, to Arizona Diagnostic Radiology Group ("ADRG", our joint venture with Dignity Health). On November 1, 2022, we contributed eight of our imaging centers to ADRG of $ 12.7 million and recorded a loss of $ 0.5 million which was calculated as the difference between the sale price and carrying value of such imaging centers which included equipment and other assets and an allocation of goodwill to such imaging centers. We recorded $ 4.5 million of the sale price as an offset to due to affiliates while the remaining $ 8.3 million was recorded as investment in joint venture on our balance sheet. We accounted for the transaction as an adjustment to our equity investment for the value of the assets contributed. To maintain our 49 % economic interest in ADRG, we received a distribution from the partnership of $ 4.5 million to reduce our overall investment to $ 8.3 million. Formation of majority owned subsidiary and sale of economic interest Los Angeles Imaging Group, LLC. On September 1, 2023, we formed a wholly-owned subsidiary, Los Angeles Imaging Group, LLC ("LAIG"). The operation offers multi-modality imaging services out of three locations in Los Angeles, California. We contributed the operations of 3 centers to the subsidiary. Cedars-Sinai Medical Center ("CSMC") purchased from us a 35 % noncontrolling interest in LAIG for a cash payment of $ 5.9 million. As a result of the transaction, we retain a 65 % controlling economic interest in LAIG. Joint venture investment contribution Santa Monica Imaging Group, LLC. On April 1, 2017, we formed, in conjunction with Cedars-Sinai Medical Center ("CSMC") the Santa Monica Imaging Group, LLC ("SMIG"), consisting of two multi-modality imaging centers located in Santa Monica, California with RadNet holding a 40 % economic interest and CSMC holding a 60 % economic interest. RadNet accounted for its share of the venture under the equity method. On January 1, 2019, CSMC purchased an additional 5 % economic interest in SMIG from us and, as a result, of our economic interest in SMIG was reduced to 35 %. On September 1, 2023, RadNet contributed an additional multi-modality imaging center and a newly constructed imaging center located in Beverly Hills, California valued at $ 27.2 million and purchased an additional economic interest in SMIG for cash payment of $ 11.3 million. Simultaneously, CSMC contributed five additional multi-modality imaging centers located in Santa Monica, California. As a result of the transaction, our economic interest in SMIG has been increased to 49 %. We recorded a gain of $ 16.8 million, within (Gain) on contribution of imaging centers into joint venture in our Consolidated Statements of Operations , representing the difference between the fair value and carrying value of the business contributed. The related gain on disposal of business was calculated as the difference between the fair value and carrying value of such imaging centers which included equipment, other assets, accrued liabilities, and an allocation of goodwill to such imaging centers. In determining the fair value of the imaging centers contributed to SMIG, we used an income approach which is considered a level 3 valuation technique. See Fair Value Measurements above for further detail on the valuation hierarchy. Key assumptions used in measuring the fair value are financial forecasts and a discount rate. We also utilized the cash paid for an additional interest in the joint venture to substantiate the fair value of the contributed assets. NOTE 3 - RECENT ACCOUNTING STANDARDS Recently Issued Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Updates (ASUs) 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures . The guidance requires entities to provide enhanced disclosures about significant segment expenses. For entities that have adopted the amendments in ASU 2023-07, the updated guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and is applicable to the Company in fiscal 2025. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on its consolidated financial position and results of operations. In December 2023, the FASB issued Accounting Standards Updates (ASUs) 2023-09 ("ASU 2023-09"), Income Tax (Topic 740) Improvements to Income Tax Disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, and is applicable to the Company in fiscal 2025. Early adoption is permitted. The 73 Company is currently evaluating the impact of the adoption of ASU 2023-09 on its consolidated financial position and results of operations. NOTE 4 – BUSINESS COMBINATIONS AND RELATED ACTIVITY Acquisitions Imaging Center Segment During the years ended 2023, 2022 and 2021, we completed the acquisition of certain assets of the following entities, which either engage directly in the practice of radiology or associated businesses. The primary reason for these acquisitions was to strengthen our presence in the California, Delaware, Maryland, New Jersey and New York markets. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands): 2023: Entity Date Acquired Total Purchase Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Right of Use Liabilities C.C.D.G.L.R. & S Services Inc.* 1/1/2023 3,500 435 1,689 3,015 50 — ( 1,689 ) Southern California Diagnostic Imaging, Inc.* 1/1/2023 1,815 466 1,184 1,272 50 27 ( 1,184 ) Inglewood Imaging Center, LLC* 2/1/2023 2,600 877 1,188 1,658 50 15 ( 1,188 ) Ramapo Radiology Associates, P.C.* 2/1/2023 2,000 1,663 3,775 229 100 8 ( 3,775 ) Madison Radiology Medical Group, Inc.* 4/1/2023 250 100 — 150 — — — Delaware Diagnostic Imaging, P.A.* 8/1/2023 600 401 337 149 50 — ( 337 ) Total $ 10,765 $ 3,942 $ 8,173 $ 6,473 $ 300 $ 50 $( 8,173 ) *Fair Value Determination is Final 74 2022: Entity Date Acquired Total Purchase Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Right of Use Liabilities IFRC LLC*^ 1/1/2022 8,200 2,910 1,703 5,271 — 19 ( 1,703 ) IFRC LLC*^ 1/1/2022 4,800 2,103 857 2,697 — — ( 857 ) Montclair Radiological Associates, P.A.*# 10/1/2022 94,877 16,414 4,665 79,690 400 ( 2,168 ) ( 4,124 ) Heart & Lung Imaging Limited+ 11/1/2022 32,000 — — 16,200 15,800 — — Chelsea Diagnostic Radiology, P.C.* 12/1/2022 2,800 568 — 2,132 100 — — North Jersey Imaging Center, LLC* 12/9/2022 104 20 — 55 25 4 — Total $ 142,781 $ 22,015 $ 7,225 $ 106,045 $ 16,325 $( 2,145 ) $( 6,684 ) *Fair Value Determination is Final ^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, one of which was purchased separately by a joint venture with Calvert Medical Imaging Centers, LLC. # Montclair Radiological Associates includes a liability for $ 1.2 million in contingent consideration. +See detailed description of the Heart & Lung Imaging Limited acquisition below. Heart & Lung Imaging Limited. On November 1, 2022, we acquired a 75 % controlling interest in Heart & Lung Imaging Limited (“HLI”). HLI is a teleradiology concern which operates in the United Kingdom with the National Healthcare Service to screen high risk populations for cardiac and lung conditions. HLI’s operations are included in our imaging center segment for reporting purposes. The transaction was accounted for as the acquisition of a business with a total purchase consideration of approximately $ 31.9 million, including: i) shares with a fair value of $ 6.8 million ( 359,002 shares issued at $ 19.06 per share), ii) cash of $ 6.3 million, iii) contingent consideration of $ 10.8 million ($ 10.2 million in contingent milestone consideration and cash holdback of $ 0.6 million to be issued 24 months after acquisition subject to adjustment for any indemnification claims) and iv) noncontrolling interest of $ 8.0 million. We recorded $ 0.6 million in current assets, $ 15.8 million in intangible assets, $ 0.6 million current liabilities and $ 16.2 million in goodwill in connection with this transaction. As part of the purchase price allocation, we determined the identifiable intangible assets are customer relationships and trade names. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a rate of 19.0 %. The cash flows were based on estimated earnings from existing customers, and the discount rate applied was benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. Artificial Intelligence Segment Aidence Holding B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Aidence Holding B.V. ("Aidence") an artificial intelligence enterprise focused on lung cancer screening. Aidence is reported as part of our artificial intelligence segment and was acquired to enhance our AI capabilities. The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $ 45.2 million including i) 1,117,872 shares issued at $ 26.80 per share with a fair value of $ 30.0 million, ii) cash of $ 1.8 million, iii) contingent consideration of $ 11.9 million ($ 7.4 million in milestones to be settled in shares or cash at our election and a share holdback of $ 4.5 million), and iv) a settlement of a loan from RadNet of $ 1.5 million. In addition we paid certain seller closing costs through the issuance of 23,362 shares at a fair value of $ 0.6 million. As a result of this transaction, we recorded $ 1.0 million in current assets, $ 0.2 million in property and equipment, $ 27.7 million in intangible assets (including developed technology of 75 $ 21.1 million and IPR&D of $ 5.5 million), $ 3.2 million in current liabilities, a deferred tax liability of $ 3.5 million, and $ 22.9 million in goodwill. In performing the purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Aidence business. As part of the purchase price allocation, we determined the identifiable intangible assets are developed technology, IPR&D, trade names, and customer relationships. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using rates ranging from 15 % to 17 %. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The developed technology consists of artificial intelligence powered applications for lung nodule management and early lung cancer diagnosis and reporting. The IPR&D asset relates primarily to an in-process project for a customer relationship management offering to manage patients that are found with Incidental Pulmonary Nodules and has not reached technological feasibility as of the acquisition date. The asset recorded relates to one project, and the Company originally expected to complete the project following twelve months of acquisition. Subsequently, in September 2023, we determined that the In-process Research and Development ("IPR&D") related to Aidence's Ai Veye Lung and Veye Clinic would not achieve FDA approval for sale in the US without a new submission and additional expenditures for rework. The additional expenditures, delay, and reduction of US sales affected the estimated fair value of the associated IPR&D intangible asset and resulted in impairment charges of $ 3.9 million within Cost of operations in our Consolidated Statements of Operations . The useful lives for the developed technology asset was set at 7 years, for customer relationships 5.4 years, and trade names was 7 years. The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the acquisition. These benefits include expanding the Company's AI capabilities to drive revenue growth. Quantib B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V. ("Quantib") an artificial intelligence enterprise focused on prostate cancer screening. Quantib is reported as part of our artificial intelligence segment, and was acquired to enhance our AI capabilities. The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $ 42.3 million including i) 965,058 shares issued at $ 26.80 per share with a fair value of $ 25.9 million, ii) cash of $ 11.8 million, and iii) contingent consideration consisting of 113,303 shares with a fair value at the date of close of $ 3.0 million and cash of $ 1.6 million both to be released 18 months after acquisition subject to adjustment for any indemnification claims. As a result of this transaction, we recorded $ 2.4 million in current assets, $ 0.1 million in property and equipment, $ 21.3 million in intangible assets (including developed technology of $ 19.6 million and IPR&D of $ 0.7 million), $ 0.7 million in current liabilities, $ 6.7 million in long-term debt and deferred tax liabilities, and $ 26.4 million in goodwill. In performing the purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Quantib business. As part of the purchase price allocation, we determined the identifiable intangible assets are developed technology, IPR&D, trade names, and customer relationships. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using rates ranging from 50 % to 55 %. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The developed technology consists of artificial intelligence powered applications for neurological and prostate imaging scans and reporting. The useful lives for the developed technology asset was set at seven years , customer relationships three years , and trade names seven years . The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the acquisition. These benefits include expanding the Company's AI capabilities to drive revenue growth. 76 As disclosed above, for the acquisitions of Aidence and Quantib, the Company uses the income approach to determine the fair value of developed technology and IPR&D acquired in business combinations. This approach determines fair value by estimating the after-tax cash flows attributable to the respective assets over their useful lives and then discounting these after-tax cash flows back to a present value. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected product introductions by competitors. The value of the in-process projects is based on the project's stage of completion, the complexity of the work completed as of the acquisition date, the projected costs to complete, the expected introduction date, the estimated cash flows to be generated upon commercial release and the estimated useful life of the technology. The Company believes that the estimated developed technology and IPR&D amounts represent the fair value at the date of acquisition and do not exceed the amount a third-party would pay for the assets. The significant assumptions used to estimate the fair value of intangible assets include discount rates and certain assumptions that form the basis of the forecasted results, specifically, revenue growth rates, EBITDA margins and obsolescence factors. These significant assumptions are forward looking and could be affected by future economic and market conditions. Subsidiary activity Formation of majority owned subsidiaries Frederick County Radiology, LLC. On April 1, 2022 we formed Frederick County Radiology, LLC ("FCR"), a partnership with Frederick Health Hospital, Inc. The operation offers multi-modality services out of six locations in Frederick, Maryland. We contributed the operations of four centers to the enterprise and Frederick Health Hospital, Inc. contributed $ 5.4 million in fixed assets, $ 3.0 million in equipment, and $ 11.0 million in goodwill. As a result of the transaction, we recognized a gain of $ 6.6 million to additional paid in capital and retained a 65 % controlling economic interest in FCR and Frederick Health Hospital, Inc. retains an $ 11.1 million or 35 % noncontrolling economic interest in FCR. Formation of majority owned subsidiary and sale of ownership interest Los Angeles Imaging Group, LLC. On September 1, 2023 we formed a wholly-owned subsidiary, Los Angeles Imaging Group, LLC ("LAIG"). The operation offers multi-modality imaging services out of three locations in Los Angeles, California. We contributed the operations of 3 centers to the subsidiary. Cedars-Sinai Medical Center purchased from us a 35 % noncontrolling economic interest in LAIG for a cash payment of $ 5.9 million. As a result of the transaction, we retain a 65 % controlling economic interest in LAIG. Sale of ownership interest in a majority owned subsidiary Tarzana Medical Center, LLC. Effective September 1, 2021 we completed the sale of a 24.9 % ownership interest in our majority owned subsidiary West Valley Imaging Group, LLC for $ 13.1 million to Tarzana Medical Center, LLC. After the sale, our ownership interest in the subsidiary has reduced from 75.0 % to 50.1 % and we retain a controlling financial interest in the subsidiary. We recognized in additional paid in capital on our consolidated balance sheets, $ 4.2 million excess in consideration over the carrying value of the sold economic interest. Post the sale of our ownership interest we acquired from Tarzana Medical Center, LLC, certain tangible and intangible business assets for purchase consideration of approximately $ 5.2 million. NOTE 5 – SEGMENT REPORTING Our reportable segments are described below: Imaging Center Our Imaging Center segment provides physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. Services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services, a strategy that diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. We also provide teleradiology services in the United Kingdom though our majority-owned Heart & Lung Imaging Limited subsidiary. Included in the segment is our eRad subsidiary, which designs the underlying critical scheduling, data storage and retrieval systems necessary for imaging center operation. 77 Artificial Intelligence ("AI") Our AI segment develops and deploys clinical applications to enhance interpretation of medical images and improve patient outcomes with an emphasis on brain, breast, prostate, and pulmonary diagnostics. Our chief operating decision maker ("CODM"), who is also our CEO, evaluates the financial performance of our segments based upon their respective revenue and segmented internal profit and loss statements prepared on a basis not consistent with GAAP. We do not report balance sheet information by segment since it is not reviewed by our CODM. In the normal course of business, our reportable segments enter into transactions with each other. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues recognized by a segment and expenses incurred by the counterparty are eliminated in consolidation and do not affect consolidated results. Twelve Months Ended December 31, 2023 Imaging Centers AI Intersegment Elimination Consolidated Total Revenue: Third Party $ 1,610,707 $ 5,923 $ — $ 1,616,630 Intersegment — 6,546 ( 6,546 ) — Total revenue $ 1,610,707 $ 12,469 $ ( 6,546 ) $ 1,616,630 Twelve Months Ended December 31, 2022 Imaging Centers AI Intersegment Elimination Consolidated Total Revenue: Third Party $ 1,425,665 $ 4,396 $ — $ 1,430,061 Intersegment — — — — Total revenue $ 1,425,665 $ 4,396 $ — $ 1,430,061 The table below present segment information reconciled to our financial results, with segment operating income or loss including revenue less cost of operations, depreciation and amortization, and other operating expenses to the extent specifically identified by segment (in thousands): 78 Twelve Months Ended December 31, 2023 2022 2021 Revenue: Imaging Centers $ 1,604,161 $ 1,425,665 $ 1,313,662 AI 12,469 4,396 1,415 Total revenue $ 1,616,630 $ 1,430,061 $ 1,315,077 Cost of Operations Imaging Centers $ 1,371,036 $ 1,240,593 $ 1,117,941 AI 24,203 23,753 5,333 Total cost of operations $ 1,395,239 $ 1,264,346 $ 1,123,274 Gain on contribution of imaging centers into joint venture Imaging Centers $ ( 16,808 ) $ — $ — AI — — — Total cost of operations $ ( 16,808 ) $ — $ — Lease abandonment charges Imaging Centers $ 5,146 $ — $ 19,675 AI — — — Total depreciation and amortization $ 5,146 $ — $ 19,675 Depreciation and Amortization Imaging Centers $ 120,776 $ 109,524 $ 96,174 AI 7,615 6,353 520 Total depreciation and amortization $ 128,391 $ 115,877 $ 96,694 Loss on Disposal of Equipment Imaging Centers $ 2,191 $ 2,506 $ 1,246 AI ( 4 ) 23 — Total loss (gain) $ 2,187 $ 2,529 $ 1,246 Severance Imaging Centers $ 1,973 $ 926 $ 744 AI 1,805 20 — Total severance $ 3,778 $ 946 $ 744 Income from Operations Imaging Centers $ 119,847 $ 72,116 $ 77,882 AI ( 21,150 ) ( 25,753 ) ( 4,438 ) Total income from operations $ 98,697 $ 46,363 $ 73,444 79 In the first quarter of 2024, we revised our reportable segments to combine our eRad business, which was included in the Imaging Center segment, with our AI segment to form a new Digital Health reportable segment. As a result of the change, beginning with our Quarterly Report on Form 10-Q for the quarter ending March 31, 2024, we will report our results in these two reportable segments. The change in reportable segments will be reflected retrospectively. NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is recorded as a result of business combinations. The following is a reconciliation of Goodwill by business segment for the years ended December 31, 2022 and December 31, 2023 is provided below (in thousands): Imaging Center Artificial Intelligence Total Balance as of December 31, 2021 $ 489,210 $ 24,610 $ 513,820 Additions 120,551 48,697 169,248 Disposals ( 4,200 ) — ( 4,200 ) Measurement period and other adjustments ( 106 ) 147 41 Currency translation 1,028 ( 2,272 ) ( 1,244 ) Balance as of December 31, 2022 $ 606,483 $ 71,182 $ 677,665 Additions 6,473 — 6,473 Disposals ( 9,235 ) — ( 9,235 ) Measurement period and other adjustments 1,603 — 1,603 Currency translation 1,233 1,724 2,957 Balance as of December 31, 2023 $ 606,557 $ 72,906 $ 679,463 The amount of goodwill from these acquisitions that is deductible for tax purposes as of December 31, 2023 is $ 142.7 million. Other intangible assets are primarily related to our business combinations and software development. They include the estimated fair values of such items as service agreements, customer lists, covenants not to compete, acquired technologies, and trade names. Total amortization expense was $ 12.2 million, $ 10.1 million, and $ 4.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. Intangible assets are amortized using the straight-line method over their useful life determined at acquisition. Management service agreements are amortized over 25 years using the straight line method. Software development is capitalized and amortized over the useful life of the software when placed into service. Trade names are reviewed annually for impairment. The following tables shows annual amortization expense, by asset classes that will be recorded over the next five years (in thousands): 2024 2025 2026 2027 2028 Thereafter Total Weighted average amortization period remaining in years Management Service Contracts $ 2,287 $ 2,287 $ 2,287 $ 2,287 $ 2,287 $ 6,671 $ 18,106 7.9 Covenant not to compete and other contracts 946 714 427 132 45 6 2,270 3.4 Customer Relationships 1,234 1,104 981 797 764 10,564 15,444 17.7 Patent and Trademarks 316 316 316 315 300 164 1,727 5.8 Developed Technology & Software 7,785 7,785 7,745 7,210 7,046 6,117 43,688 5.7 Trade Names amortized 77 77 77 77 63 27 398 5.3 Trade Names indefinite life — — — — — 7,100 7,100 — IPR&D — — — — — 1,882 1,882 — Total Annual Amortization $ 12,645 $ 12,283 $ 11,833 $ 10,818 $ 10,505 $ 32,531 $ 90,615 80 NOTE 7 - PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation and amortization are as follows (in thousands): December 31, 2023 2022 Land $ 250 $ 250 Medical equipment 714,400 649,034 Computer and office equipment, furniture and fixtures 127,540 119,467 Software costs 47,286 36,015 Leasehold improvements 537,853 501,963 Equipment originally acquired under finance/capital lease 13,971 13,971 Total property and equipment cost 1,441,300 1,320,700 Accumulated depreciation ( 836,899 ) ( 754,739 ) Total property and equipment $ 604,401 $ 565,961 Included in our property and equipment at December 31, 2023 is approximately $ 42.7 million total of construction in process amounts consisting of $ 12.2 million in medical equipment, $ 1.9 million in computer and office equipment, $ 6.0 million in software costs and $ 22.6 million in leasehold improvements. Included in our property and equipment at December 31, 2022 is approximately $ 73.4 million total of construction in process amounts consisting of $ 26.6 million in medical equipment, $ 5.3 million in computer and office equipment, $ 0.4 million in software costs and $ 41.1 million in leasehold improvements. Depreciation and amortization expense of property and equipment, including amortization of equipment under finance leases, for the years ended December 31, 2023, 2022 and 2021 was $ 116.2 million, $ 105.6 million, and $ 92.3 million, respectively. NOTE 8 - CREDIT FACILITIES AND NOTES PAYABLE As of December 31, 2023 and December 31, 2022 our term loan debt and other obligations consisted of the following (in thousands): December 31, 2023 December 31, 2022 Barclays Term Loans collateralized by RadNet's tangible and intangible assets $ 678,687 $ 714,125 Discount on Barclays Term Loans ( 9,041 ) ( 11,127 ) Truist Term Loan collateralized by NJIN's tangible and intangible assets 144,375 150,000 Discount on Truist Term Loan ( 990 ) ( 1,254 ) Equipment notes payable at 6.0 %, due 2028, collateralized by medical equipment 17,011 — Total debt obligations 830,042 851,744 Less current portion ( 17,974 ) ( 12,400 ) Long-term portion of debt obligations $ 812,068 $ 839,344 The following is a listing of annual principal maturities of notes payable exclusive of all related discounts and repayments on our revolving credit facilities for years ending December 31 (in thousands) 81 2024 $ 20,324 2025 22,431 2026 22,676 2027 124,188 2028 650,454 Total notes payable obligations $ 840,073 We had no outstanding balance under our $ 195.0 million Barclays Revolving Credit Facility at December 31, 2023 and had reserved an additional $ 7.6 million for certain letters of credit. The remaining $ 187.4 million of our Barclays Revolving Credit Facility was available to draw upon as of December 31, 2023. We also had no balance under our $ 50.0 million Truist Revolving Credit Facility, related to our consolidated subsidiary NJIN, at December 31, 2023, and with no letters of credit reserved against the facility, the full amount was available to draw upon. At December 31, 2023 we were in compliance with all covenants under our credit facilities. On February 1, 2023, we issued a promissory note in the amount of $ 19.8 million to acquire radiology equipment previously leased under operating leases. Amendments to Credit Facilities Barclays: First Amendment to Second Amended and Restated First Lien Credit and Guaranty Agreement On March 27, 2023, we entered into the First Amendment to Second Amended and Restated First Lien Credit and Guaranty Agreement related to our Barclays credit facility (the "Barclays Amendment"), which replaces the interest rate benchmark, from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") and includes applicable credit spread adjustments of 0.11448 %, 0.26161 %, and 0.42826 % for interest periods of one month, three months, and six months, respectively. The replacement of LIBOR with SOFR and the credit spread adjustments were effective as of March 31, 2023, which was the last day of the last-ending existing interest period of currently outstanding loan bearing interest at LIBOR. Other than the foregoing, the material terms of the Barclays credit facility remained unchanged. Barclays: Second Amended and Restated First Lien Credit and Guaranty Agreement On April 23, 2021, we entered into the Second Amended and Restated First Lien Credit and Guaranty Agreement (the "Barclays Restated Credit Agreement") which provides for $ 725.0 million of senior secured first lien term loans (the "Barclays Term Loans") and a $ 195.0 million senior secured revolving credit facility (the "Barclays Revolving Credit Facility"). The proceeds of the Barclays Term Loans were used to refinance loans outstanding under our prior Barclays credit agreement and provide funding for current and future operations. Total costs of the Barclays Restated Credit Agreement amounted to approximately $ 14.9 million segregated as follows: $ 8.8 million capitalized to discount and deferred finance cost, $ 4.5 million expensed to debt restructuring costs, $ 1.5 million charged to loss on early extinguishment of debt and $ 0.1 million written off to interest expense. Amounts capitalized will be amortized over the remaining terms of the respective credit facilities under the Barclays Restated Credit Agreement. Truist: Second Amended and Restated Revolving Credit and Term Loan Agreement On October 7, 2022, we entered into the Second Amended and Restated Revolving Credit and Term Loan Agreement (the "Truist Restated Credit Agreement") which provides for a $ 150.0 million of a secured term loan (the "Truist Term Loan") and a $ 50.0 million secured revolving credit facility (the "Truist Revolving Credit Facility"). Both loans were secured by our simultaneous entry into the Second Amended and Restated Guaranty and Security Agreement on the same date. The proceeds were were used to refinance the outstanding balance under our prior Truist term loan agreement and provide funding for current and future operations. Total costs of the Truist Restated Credit Agreement amounted to approximately $ 2.7 million segregated as follows: $ 2.0 million capitalized to discount and deferred finance cost and $ 0.7 million expensed to loss on extinguishment of debt and related expenses in other expense. Amounts capitalized will be amortized over the remaining terms of the respective credit facilities under the Truist Restated Credit Agreement. All obligations under the Truist Restated Credit Agreement bear interest at either a SOFR or a Base Rate (each as defined in the Truist Restated Credit Agreement), plus an applicable margin according to the following schedule: 82 Pricing Level Leverage Ratio Applicable Margin for SOFR Loans Applicable Margin for Base Rate Loans Applicable Margin for Letter of Credit Fees Applicable Percentage for Commitment Fee I Greater than or equal to 3.00 :1.00 2.50 % per annum 1.50 % per annum 2.50 % per annum 0.45 % per annum II Less than 3.00 :1.00 but greater than or equal to 2.50 :1.00 2.25 % per annum 1.25 % per annum 2.25 % per annum 0.40 % per annum III Less than 2.50 :1.00 but greater than or equal to 2.00 :1.00 2.00 % per annum 1.00 % per annum 2.00 % per annum 0.35 % per annum IV Less than 2.00 :1.00 but greater than or equal to 1.50 :1.00 1.75 % per annum 0.75 % per annum 1.75 % per annum 0.30 % per annum V Less than 1.50 :1.00 1.50 % per annum 0.50 % per annum 1.50 % per annum 0.30 % per annum Senior Credit Facilities: Barclays Term Loans: Through March 31, 2023, the Barclays Term Loans bore interest at either a Eurodollar Rate or an Alternative Base Rate (in each such case, as defined in the Barclays Restated Credit Agreement) plus an applicable margin. The applicable margin for Eurodollar Rate and Alternative Base Rate was 3 % and 2 %, respectively, with an effective Eurodollar Rate and the Alternative Base Rate of 4.63 % and 8.00 %, respectively. Under the Barclays Amendment, effective March 31, 2023, the Barclays Term Loans bear interest either at a SOFR or Alternative Base Rate (in each such case, as defined in the Restated Barclays Credit Agreement) plus an applicable margin. The applicable margin for Eurodollar Rate and Alternative Base Rate was 3 % and 2 %, respectively. At December 31, 2023, we have an effective SOFR of 8.38 %, with an applicable credit spread adjustment of 0.26161 %, and an Alternative Base Rate of 10.5 %, respectively. The Barclays Restated Credit Agreement provides for quarterly payments of principal for the Barclays Term Loans in the amount of approximately $ 1.8 million. The Barclays Term Loans will mature on April 23, 2028 unless otherwise accelerated under the terms of the Barclays Restated Credit Agreement. Truist Term Loan: The Truist Term Loan currently bears interest at a three month SOFR election of 5.33 % plus an applicable margin and fees based on Pricing Level V described above. The scheduled amortization of the Truist Term Loan began March 31, 2023 with quarterly payments of $ 1.9 million, representing 1.00 % of the original principal balance. At scheduled intervals, the quarterly amortization increases by $ 0.9 million, with the remaining balance to be paid at maturity. The Truist Term Loan will mature on October 10, 2027 unless otherwise accelerated under the terms of the Truist Restated Credit Agreement. Revolving Credit Facilities: Barclays Revolving Credit Facility: The Barclays Revolving Credit Facility is a $ 195.0 million senior secured revolving credit facility. Associated with the Barclays Revolving Credit Facility are deferred financing costs, net of accumulated amortization, of $ 1.1 million at December 31, 2023. 83 Revolving loans borrowed under the Barclays Revolving Credit Facility bear interest at either a SOFR or an Alternate Base Rate (in each case, as defined in the Barclays Restated Credit Agreement) plus an applicable margin which adjusts depending on our net leverage ratio, according to the following schedule: Net Leverage Ratio Term SOFR Loans Alternative Base Rate Spread > 3.50 x 3.25 % 2.25 % > 3.00 x but ≤ 3.50 x 3.00 % 2.00 % ≤ 3.00 x 2.75 % 1.75 % As of December 31, 2023, the effective interest rate for borrowings on revolving loans under the Barclays Revolving Credit Facility was 10.3 %. For letters of credit issued under the Barclays Revolving Credit Facility, letter of credit fees accrue at the applicable margin for SOFR revolving loans which is currently 3.00 % and fronting fees accrue at 0.125 % per annum, in each case on the average aggregate daily maximum amount available to be drawn under all letters of credit issued under the Barclays Restated Credit Agreement. In addition, a commitment fee of 0.50 % per annum accrues on the unused revolver commitments under the Barclays Revolving Credit Facility. The Barclays Revolving Credit Facility will terminate on April 23, 2026 unless otherwise accelerated in accordance with the terms of the Barclays Restated Credit Agreement. Truist Revolving Credit Facility: Associated with the Truist Revolving Credit Facility of $ 50.0 million are deferred financing costs, net of accumulated amortization, of $ 0.5 million at December 31, 2023. As of December 31, 2023, NJIN had no borrowings under the Truist Revolving Credit Facility. The Truist Revolving Credit Facility bears interest with different margins based on types of borrowings at a Pricing Level V as noted in the pricing grid above. The Truist Revolving Credit Facility terminates on the earliest of (i) October 7, 2027, (ii) the date on which the Revolving Commitments are terminated pursuant to Section 2.8 of the Truist Restated Credit Agreement, or (iii) the date on which all amounts outstanding under the Truist Restated Credit Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise). Recent Amendments to prior Credit Facilities Truist Credit Facilities: On August 31, 2018, under an Amended and Restated Revolving Credit and Term Loan Agreement, our NJIN subsidiary secured a term loan commitment of $ 60.0 million and established revolving credit facility of $ 30.0 million. The agreement had a maturity date of August 31, 2023 and was refinanced on October 10, 2022 by the Truist Restated Credit Agreement. NOTE 9 – LEASES Our material lease contracts are for facilities and advanced radiology equipment. In regards to our imaging, administrative and warehouse facilities, the most common initial lease term varies in length from 5 to 15 years. Including renewal options negotiated with the landlord, we can have a total span of 10 to 35 years at these locations, and we do not enter into purchase options on the underlying property. We also lease smaller satellite X-Ray locations on mutually renewable terms, usually lasting one year. Leases for advanced radiology and office equipment have terms generally lasting from 5 to 8 years. All leases are classified as operating or finance for accounting purposes, depending on the terms of the agreement. Our incremental borrowing rate used to discount the stream of lease payments is closely related to the interest rates charged on our collateralized debt obligations and our incremental borrowing rate is adjusted when those rates experience a substantial change. During 2021, we satisfied all liabilities classified as finance leases, and only operating leases remain. 84 The components of lease expense were as follows: Years ended December 31, (In thousands) 2023 2022 2021 Operating lease cost (1) $ 106,954 $ 107,475 $ 121,578 Finance lease cost: Depreciation of leased equipment $ 1,204 $ 2,896 $ 3,068 Interest on lease liabilities — — 46 Total finance lease cost $ 1,204 $ 2,896 $ 3,114 1) Operating lease cost above for the year ended December 31, 2023 and 2021 included $ 2.7 million and $ 12.6 million, respectively in lease abandonment charges. Please see our discussion in the Leases section of Note 2, Summary of Significant Accounting Policies. Supplemental cash flow information related to leases was as follows: Years ended December 31, (In thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 101,516 $ 108,004 $ 110,288 Operating cash flows from financing leases — — 46 Financing cash flows from financing leases — — 3,304 Right-of-use & Equipment assets obtained in exchange for lease obligations: Operating leases 55,852 88,080 186,695 85 Supplemental balance sheet information related to leases was as follows: (In thousands, except lease term and discount rates) December 31, 2023 2022 Operating Leases Operating lease right-of-use assets $ 596,032 $ 603,524 Current portion of operating lease liability 55,981 57,607 Long-term operating lease liability 605,097 604,117 Total operating lease liabilities $ 661,078 $ 661,724 Finance Leases Equipment at cost $ 13,971 $ 13,971 Accumulated depreciation ( 13,374 ) ( 12,171 ) Equipment, net $ 597 $ 1,801 Weighted Average Remaining Lease Term Operating leases - years 10.6 10.9 Weighted Average Discount Rate Operating leases 6.7 % 6.4 % Maturities of lease liabilities were as follows: (In thousands) Operating Leases Year Ending December 31, 2024 $ 97,603 2025 $ 92,092 2026 91,400 2027 88,977 2028 85,633 Thereafter 482,594 Total Lease Payments 938,299 Less imputed interest ( 277,221 ) Total $ 661,078 As of December 31, 2023, we have additional operating leases for facilities and medical equipment that have not yet commenced of approximately $ 4.6 million. These operating leases will commence in 2024 with lease terms of 1 to 15 years. NOTE 10 – INCOME TAXES For the years ended December 31, 2023, 2022 and 2021, we have the following income (loss) before income taxes (in thousands): 86 December 31, 2023 2022 2021 US Domestic $ 60,374 $ 59,529 $ 58,806 Foreign ( 21,564 ) ( 16,560 ) 73 Income (loss) before income taxes $ 38,810 $ 42,969 $ 58,879 For the years ended December 31, 2023, 2022 and 2021, we recognized income tax expense comprised of the following (in thousands): December 31, 2023 2022 2021 Federal current tax $ — $ — $ — State current tax 3,442 371 ( 2,191 ) Foreign current tax 638 87 18 Other current tax — — — Federal deferred tax 8,960 6,470 9,831 State deferred tax ( 2,724 ) 5,863 6,902 Foreign deferred tax ( 1,843 ) ( 3,430 ) — Currency translation — — — Income tax expense 8,473 9,361 14,560 A reconciliation of the statutory U.S. federal rate and effective rates is as follows: Years Ended December 31, 2023 2022 2021 Federal tax $ 8,150 $ 9,023 $ 12,365 State franchise tax, net of federal benefit 3,730 595 4,198 Other Non deductible expenses 196 305 ( 93 ) Officer Compensation 1,199 759 291 Noncontrolling interests in partnerships ( 5,752 ) ( 4,821 ) ( 4,114 ) Changes in valuation allowance ( 2,569 ) 6,124 ( 249 ) Return to provision 5,987 234 ( 2,530 ) Deferred true-ups and other 483 ( 1,451 ) 5,009 Foreign rate differential ( 1,083 ) ( 737 ) 4 Uncertain tax provisions ( 884 ) ( 749 ) ( 321 ) Tax rate adjustment ( 984 ) — — Other differences — 79 — Income tax expense $ 8,473 $ 9,361 $ 14,560 Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial and income tax reporting purposes and operating loss carryforwards. Our deferred tax assets and liabilities comprise the following (in thousands): 87 December 31, Deferred tax assets: 2023 2022 Net operating losses $ 43,247 $ 68,124 Accrued expenses 4,432 3,941 Operating lease liability 136,097 142,347 Equity compensation 4,179 4,387 Allowance for doubtful accounts 2,198 3,071 Other 15,755 6,541 Valuation allowance ( 9,688 ) ( 12,095 ) Total Deferred Tax Assets $ 196,220 $ 216,316 Deferred tax liabilities: Property and equipment ( 7,851 ) ( 9,214 ) Goodwill ( 42,419 ) ( 38,820 ) Intangibles ( 15,578 ) ( 18,640 ) Operating lease right-of-use asset ( 122,840 ) ( 129,802 ) Outside basis difference ( 18,547 ) ( 20,015 ) Other ( 4,761 ) ( 9,081 ) Total Deferred Tax Liabilities $ ( 211,996 ) $ ( 225,572 ) Net Deferred Tax Liability $ ( 15,776 ) $ ( 9,256 ) As of December 31, 2023, we had federal net operating loss carryforwards of approximately $ 128.9 million, which is comprised of definite and indefinite net operating losses. We had federal net operating loss carryforwards of approximately $ 63.9 million, which expire at various intervals from the years 2026 to 2037, and had carryforwards of $ 65.0 million of net operating losses which do not expire. Federal net operating losses generated in tax years following December 31, 2017 carryover indefinitely and may be used to offset up to 80% of future taxable net income. We also had state net operating loss carryforwards of approximately $ 145.3 million, which expire at various intervals from the years 2024 through 2042. As of December 31, 2023, $ 24.9 million of our federal net operating loss carryforwards acquired in connection with the 2011 acquisition of Raven Holdings U.S., Inc. and the 2019 acquisition of Nulogix Health, Inc. are subject to limitations related to their utilization under Section 382 of the Internal Revenue Code. We also had foreign net operating loss carryforwards of approximately $ 45.8 million, which do not expire and are carried over indefinitely. We considered all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations. The evaluation of this evidence requires significant judgment about the forecasts of future taxable income, based on the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. As of December 31, 2023, we have determined that deferred tax assets of $ 196.2 million are more likely-than-not to be realized. We have also determined deferred tax liabilities of $ 42.4 million are related to book basis in goodwill that has an indefinite life. We file consolidated income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We continue to reinvest earnings of the non-US entities for the foreseeable future and therefore have not recognized any U.S. tax expense on these earnings. With limited exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2018. We do not anticipate the results of any open examinations would result in a material change to our financial position. A reconciliation of the total gross amounts of unrecognized tax benefits for the years ended are as follows (in thousands): 88 December 31, 2023 2022 2021 Balance at beginning of year $ 4,144 $ 5,088 $ 5,484 Increases related to prior year tax positions 54 55 317 Increases related to current year tax positions 62 — — Expiration of the statute of limitations for the assessment of taxes ( 1,180 ) ( 999 ) ( 713 ) Increase related to change in rate 2 — — Balance at end of year $ 3,082 $ 4,144 $ 5,088 At December 31, 2023, we had unrecognized tax benefits of $ 3.1 million of which $ 2.5 million will affect the effective tax rate if recognized. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2023 the Company accrued approximately $ 47 thousand of interest and penalties. As of December 31, 2023, accrued interest and penalties amounted to approximately $ 0.4 million. We do not anticipate the uncertain tax position to change materially within the next 12 months. In 2021, the Organization for Economic Co-operation and Development ("OECD") announced an inclusive framework on base erosion and profit shifting including Pillar Two Model Rules defining the global minimum tax, which calls for taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the jurisdictions that we operate in outside of the US. The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022 was signed into law on August 9, 2022 to boost domestic semiconductor manufacturing and encourage US research activities. The act provided a 25% investment credit intended to promote domestic production of semiconductors. This act is not expected to have a material impact for us. NOTE 11 – STOCK-BASED COMPENSATION Stock Incentive Plans We have one long-term equity incentive plan, the RadNet, Inc. Equity Incentive Plan, which we first amended and restated April 20, 2015, second on March 9, 2017, third on April 15, 2021, and currently as of April 27, 2023 (the "Restated Plan”). The Restated Plan was most recently approved by our stockholders at our annual stockholders meeting on June 7, 2023. We have reserved for issuance under the Restated Plan 20,100,000 shares of common stock. We can issue options (incentive and nonstatutory), performance based options, stock awards (restricted or unrestricted), stock units, performance based stock units, and stock appreciation rights under the Restated Plan. Options Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options generally vest over one to five years and expire five to ten years from the date of grant. 89 The following summarizes all of our option transactions for the twelve months ended December 31, 2023: Outstanding Options Under the Restated Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life(in years) Aggregate Intrinsic Value Balance, December 31, 2022 678,914 $ 15.72 Granted 261,220 18.64 Exercised ( 12,723 ) 11.11 Canceled, forfeited or expired ( 16,000 ) 17.06 Balance, December 31, 2023 911,411 16.60 6.22 $ 16,561,659 Exercisable at December 31, 2023 668,809 14.75 5.24 13,387,921 Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on December 31, 2023 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on December 31, 2023. As of December 31, 2023, total unrecognized stock-based compensation expense related to non-vested employee awards was $ 1.4 million which is expected to be recognized over a weighted average period of approximately 1.23 years. DeepHealth Options During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted 412,434 options at a grant date fair value of $ 16.93 per share unit to DeepHealth employees in replacement of their stock options that were outstanding as of the closing date. As of December 31, 2023, total unrecognized stock based compensation expense related to non-vested DeepHealth options was insignificant. Outstanding Options Under the Deep Health Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Balance, December 31, 2022 116,982 Exercised ( 37,909 ) — Balance, December 31, 2023 79,073 — 5.75 $ 2,749,368 Exercisable at December 31, 2023 76,612 — 5.75 2,663,803 Options issued in replacement of original DeepHealth options as a result of our acquisition are not included in the share count under the Restated Plan. Restricted Stock Awards (“RSA’s”) The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of December 31, 2023, we have issued a total of 8,718,185 RSA’s of which 537,358 were unvested at December 31, 2023. The following summarizes all unvested RSA’s activities during the twelve months ended December 31, 2023: 90 RSA's Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value RSA's unvested at December 31, 2022 536,767 $ 23.84 Changes during the period Granted 825,255 $ 21.31 Vested ( 785,656 ) $ 22.12 Forfeited ( 39,008 ) $ 18.31 RSA's unvested at December 31, 2023 537,358 0.90 $ 22.99 We determine the fair value of all RSA’s based on the closing price of our common stock on award date. Other stock bonus awards The Restated Plan also permits the award of stock bonuses not subject to any future service period. These awards are valued and expensed based on the closing price of our common stock on the date of award. During the twelve months ended December 31, 2023 we issued 50,765 shares relating to these awards, amounting to approximately $ 1.3 million of compensation expense. Performance based stock units ("PSUs") In January 2022, we granted certain employees PSUs with a target award of 25,683 shares of our common stock. The PSUs will vest in two equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 % to 200 % of the target award) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2022 through December 31, 2022. In January of 2023, based on the performance condition achieved, the board of directors issued 12,843 units with a fair value of $ 29.44 per unit. In January 2023, we granted certain employees PSUs with a target award of 60,685 shares of our common stock. The PSUs will vest in two equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 % to 200 % of the target award) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2023 through December 31, 2023. As of December 31, 2023, 121,370 shares are expected to vest. Performance based stock options ("PSOs") In January 2022, we granted certain employees PSOs to purchase a maximum of 111,925 shares of our common stock. The PSOs will vest in three equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 shares to 111,925 shares) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2022 through December 31, 2022. In January of 2023, based on the performance condition achieved, the board of directors issued 27,981 options with a strike price of $ 29.44 per share. In January 2023, we granted certain employees PSOs with a potential to purchase a maximum of 235,227 shares of our common stock. The PSOs will vest in three equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 shares to 235,227 shares) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period January 1, 2023 through December 31, 2023. As of December 31, 2023, all 235,227 shares are expected to vest. AI Long Term Incentive Plan shares ("AI LTIPs") In addition, we issue stock-based compensation to certain employees in our AI segment in the form of Stock Units and Restricted Stock Awards, subject to certain restrictions. The awards represent a form of long term incentive and are reflective of a general practice within the software industry. The units and shares vest ratably over a two to four year period, conditioned on continued employment through the vesting periods. We determine the fair value of all AI LTIPs based on the closing price of our common stock on the award date. The following summarizes all unvested AI LTIPs activities during the twelve months ended December 31, 2023: 91 LTIPs Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value LTIPs unvested at December 31, 2022 169,471 $ 19.56 Changes during the period Granted 216,460 $ 20.24 Vested ( 66,309 ) $ 19.62 Forfeited or Canceled ( 94,897 ) $ 19.82 LTIPs unvested at December 31, 2023 224,725 2.73 $ 20.08 Plan summary In summary, of the 20,100,000 shares of common stock reserved for issuance under the Restated Plan at December 31, 2023, there remain 4,069,349 shares available for future issuance. NOTE 12 – SUBSEQUENT EVENTS Proposed acquisitions of imaging centers On February 16, 2023, we acquired Houston Medical Imaging, LLC for a purchase consideration of approximately $ 29.0 million. Houston Medical Imaging consists of seven multi modality imaging centers located in Houston, Texas. On February 1, 2024, we acquired Antelope Valley Outpatient Imaging Center, LLC for a purchase consideration of approximately $ 3.5 million. Antelope Valley Outpatient Imaging consists of four multi modality imaging centers located in Palmdale, California. 92 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.