What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2023-11-09 · 163 added, 333 removed, 202 unchanged (71% of the section changed)

1 unchanged sentence

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S.

Securities and Exchange Commission (SEC) on March 1, 2023.

Securities and Exchange Commission (SEC) on February 29, 2024.

Forward-Looking Statements

2 unchanged sentences

Actual events or results may differ materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology.

terms or other comparable terminology.

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

• expectations concerning domestic and global economic conditions, rates of inflation, or changes in interest rates;

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

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

• the anticipated impact on our business of the COVID-19 pandemic and similar events and the expected efficacy of any remediation measures that we take in response to such events;

• anticipated benefits or synergies to be derived from our acquisitions and joint ventures;

• expections concerning the timing of regulatory approval, expected benefits or market acceptance of our new AI solutions;

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

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

• expected timing and potential impact of regulatory changes affecting our business;

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

• our ability to successfully acquire and integrate new businesses, and achieve expected benefits, synergies or operating results from those acquisitions;

• economics and cost savings anticipated to be derived from our investments in artificial intelligence and machine learning products and solutions.

Forward-looking statements are neither historical facts nor assurances of future performance.

6 unchanged sentences

We are a national provider of diagnostic imaging services in the United States.

At September 30, 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.

At March 31, 2024, we operated directly or indirectly through joint ventures with hospitals, 375 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 and may reduce unnecessary invasive procedures, often reducing the cost and amount of care for patients.

Integral to the imaging center business is our software arm headed by eRAD, Inc., which sells computerized systems that distribute, display, store and retrieve digital images.

Internationally, our subsidiary Heart and Lung Imaging LLC, provides teleradiology services for remote interpretation of images on behalf of providers within the framework of the United Kingdom's National Health Service.

We have also established an Artificial Intelligence ("AI") business, that develops and deploys AI suites to enhance radiologist interpretations of breast, lung and prostate images.

The division is led by DeepHealth, and includes our acquisitions of Aidence Holding B.V.

and Quantib B.V., both based in The Netherlands.

Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Artificial Intelligence.

In addition to our imaging business, we have established a Digital Health business segment for our 2024 fiscal year, which combines our former Artificial Intelligence (“AI”) business segment with our eRad, Inc.

Prior period amounts have been adjusted retrospectively to reflect the change in reportable segment.

RadNet’s digital health segment develops and delivers AI-powered health informatics solutions to drive quality, efficiency, and outcomes in imaging and radiology.

The portfolio of software solutions are anchored by eRad, Inc.'s RIS/PACS, informatics designed specifically for outpatient radiology and DeepHealth OS, a cloud-native operating system that helps operate all aspects of the radiology service line.

DeepHealth OS addresses challenges across the entire value chain from scheduling and patient preparation to technologist workflow to interpretation and referral management.

Our current AI focus for clinical workflows is to develop solutions that employ machine learning to assist radiologists and other clinicians in interpreting images and improving radiologist efficiency and patient care, initially in the fields of screening for breast, prostate, lung and colon cancers.

Our DeepHealth, Inc.

subsidiary has received FDA clearance for use of its SaigeQ ”triage”/workflow product, SaigeDX advanced diagnostic product and Saige-Density breast density assessment software for screening breast mammography, which we have begun to roll out in certain markets as an Enhanced Breast Cancer Detection solution.

Our Aidence subsidiary is focused on developing solutions for interpretation of chest and lung CT scans for lung cancer screening.

It has received the CE mark for its solution and has existing customers in seven European countries, with its largest concentration in the United Kingdom, and plans to submit an application for FDA clearance to sell in the United States.

Our Quantib subsidiary is primarily focused on interpretation of prostate MRI for widespread prostate cancer screening.

Quantib’s prostate MRI post-processing software has both FDA clearances and European CE marking.

The digital health segment provides these solutions to RadNet and to over 400 customers in the United States, Europe, and Israel.

Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Digital Health.

For further financial information about these segments, see Note 5, Segment Reporting, in the notes accompanying our financial statements included in this report.

The following table shows our imaging centers in operation and revenues for the nine months ended September 30, 2023 and September 30, 2022:

Nine Months Ended September 30,

Recent Developments

The following table shows our imaging centers in operation and revenues for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Centers in operation 375 363

2 unchanged sentences

We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class.

Our total service fee revenue, net of contractual allowances and discounts, and implicit price concessions for the three and nine months ended September 30, 2023 and 2022 is summarized in the following table (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

In Thousands 2023 2022 2023 2022

Our total service fee revenue, net of contractual allowances and discounts, and implicit price concessions for the three months ended March 31, 2024 and 2023 is summarized in the following table (in thousands):

Three Months Ended March 31,

Commercial insurance $ 240,628 $ 213,061

4 unchanged sentences

Management fee revenue 5,908 4,248

Teleradiology and Software revenue 2,111 3,430 7,327 9,849

Heart and lung

Other 4,395 5,300

1 unchanged sentence

Imaging Center Segment Revenue 417,046 379,487

AI Segment Revenue 2,887 900 7,398 3,056

Digital Health Segment Revenue 14,661 11,077

Total service revenue 431,707 $ 390,564

Recent Developments

We have continued to advance both of our core businesses through the period ended September 30, 2023 and completed a significant capital transaction in the second quarter of 2023.

For the year to date ended September 30, 2023 we added a net of 11 additional imaging centers.

For the nine months ended September 30, 2023 compared to the same period in 2022, revenue increased 14.3% and also witnessed a 7.5% and 4.2% rise in same center revenue and procedure volumes, respectively.

Our AI segment continues to commercialize its solutions.

In December of 2022, our subsidiary DeepHealth, Inc, received FDA clearance of its mammography density assessment software that assists radiologists in interpreting visual images.

In February of 2023, we launched our Enhanced Breast Cancer Detection service, powered by DeepHealth AI, which provides patients an advanced screening mammography service along with a life time risk assessment for breast cancer and post mammography support.

The service is now fully rolled-out to all of our mammography centers on the east coast, where it is experiencing close to a 35% adoption rate.

This is expected to grow as we continue to educate patients and referring physicians about its significant advantages over current practices.

Additionally in May of 2023, our subsidiary Quantib B.V., received FDA clearance of its third generation prostate reading and reporting tool that improves the workflow and output for radiologists and urologists.

These events have resulted in revenues from our AI segment increasing 142.1% for the nine month period ended September 30, 2023, over the same period in 2022.

In June 2023, we completed a secondary public offering of our common stock.

After exercise in full of the underwriter's overallotment option, we sold an aggregate of 8,711,250 shares of our common stock to the public at a price of $29.75 per share.

The offering resulted in net proceeds of $245.8 million, after underwriting discounts.

We intend to use the net proceeds from the secondary public offering for working capital and general corporate purposes.

Acquisitions, Equity Investments and Joint Venture Activity

The following discussion summarizes certain details concerning our acquisition or disposition of centers, our equity investment and our joint venture transaction.

See Note 4, Business Combinations and Related Activity and Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included in this quarterly report on Form 10-Q for further information.

The information below updates our activity of such matters contained in our annual report on Form 10-K for the year ended December 31, 2022.

Imaging Center

During the nine months ended September 30, 2023, 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 and New York markets.

Acquisitions and Joint Venture Activity

The following discussion summarizes certain details concerning our acquisition or disposition of imaging centers, and our joint venture transaction.

See Note 4, Business Combinations and Related Activity and Note 2, Summary of Significant Accounting Policies to our financial statements included in this report for further information.

During the three months ended March 31, 2024, 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 market.

These acquisitions are reported as part of our Imaging Center segment.

1 unchanged sentence

Entity Date Acquired Total Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Assets Right of Use Liabilities

& 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)

Grossman Imaging Center of CMH, LLC* 3/31/2024 10,500 1,178 6,404 9,016 250 56 (6,404)

Providence Health System - Southern California* 3/31/2024 7,096 643 3,441 6,453 — — (3,441)

Antelope Valley Outpatient Imaging* 2/1/2024 3,530 2,794 563 687 50 — (563)

Total 21,126 4,614 10,408 16,156 300 56 (10,408)

Formation of majority owned subsidiary

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 economic interest in LAIG for 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 CSMC, the Santa Monica Imaging Group, LLC ("SMIG"), consisting of two multi-modality imaging centers located in Santa Monica, CA with RadNet holding a 40% economic interest and CSMC holding a 60% economic interest.

RadNet accounts for our share of the venture under the equity method.

On January 1, 2019, CSMC purchased from us an additional 5% economic interest in SMIG and as a result 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, CA valued at $27.2 million and purchased an additional 6% interest economic interest in SMIG for cash payment of $5.2 million.

Simultaneously, CSMC contributed five additional multi-modality imaging centers located in Santa Monica, CA.

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.

The related gain on disposal of business was calculated as the difference between the sales price and carrying value of such imaging centers which included equipment, other assets, accrued liabilities, and an allocation of goodwill to such imaging centers.

Concurrently, we made additional capital contributions of $8.5 million to the joint venture in the form of construction-in-progress.

We accounted for the transaction as an adjustment to our equity investment for the value of the assets contributed.

Equity Investments

As of September 30, 2023, we have three equity investments for which a fair value is not readily determinable and therefore the total amounts invested are recognized at cost as follows:

Medic Vision Imaging Solutions Ltd., based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans.

Our investment of $1.2 million represents a 14.21% equity interest in the company.

No observable price changes or impairment in our investment was identified as of September 30, 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 into an additional 80,000 shares effective December 21, 2019.

No observable price changes or impairment in our investment was identified as of September 30, 2023.

WhiteRabbit.ai Inc., based in California, is currently developing an artificial intelligence suite which aims to improve the speed and accuracy of cancer detection in radiology and improve patient care.

On November 5, 2019 we acquired an equity interest in the company for $1.0 million and also loaned the company $2.5 million in support of it operations.

No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of September 30, 2023.

Joint Venture Activity

The following table is a summary of our investment in joint ventures during the nine months ended September 30, 2023 (in thousands):

At March 31, 2024, 36% of our centers were operating as joint ventures with large health care providers.

We have 24 joint ventures with hospital and health system partners.

Notable joint venture relationships include MemorialCare (25 centers), RWJ Barnabas (33 Centers), Cedars Sinai (15 centers), Dignity Health (25 centers), and MedStar Health System (5 centers).

We manage the day to day operations for these joint ventures and perform most management services in exchange for a management fee.

The following table summarizes our investment in joint ventures as of March 31, 2024 (in thousands):

Balance as of December 31, 2023 $ 92,710

2 unchanged sentences

Equity contributions in existing joint ventures —

Balance as of September 30, 2023 $ 94,472

We charged management service fees from the centers underlying these joint ventures of approximately $3.9 million and $6.1 million for the three months ended September 30, 2023 and 2022 and $12.2 million and $17.2 million for the nine months ended September 30, 2023 and 2022, respectively.

The following table is a summary of key balance sheet data for these joint ventures as of September 30, 2023 and December 31, 2022 and income statement data for the nine months ended September 30, 2023 and 2022 (in thousands):

Balance as of March 31, 2024 $ 97,034

We charged management service fees from the centers underlying these joint ventures of approximately $5.9 million and $4.2 million for the three months ended March 31, 2024 and 2023, respectively.

The following table summarizes key balance sheet data for these joint ventures as of March 31, 2024 and December 31, 2023 and income statement data for the three months ended March 31, 2024 and 2023 (in thousands):

Balance Sheet Data:

September 30,

2024 December 31,

4 unchanged sentences

Total net assets $ 155,565 $ 147,334

Income statement data for the nine months ended September 30,

Income statement data for the three months ended March 31,

Net revenue $ 61,208 $ 42,086

1 unchanged sentence

Critical Accounting Policies

The Securities and Exchange Commission defines critical accounting estimates as those that are both most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

In Note 2 to our consolidated financial statements in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2022, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates.

The Securities and Exchange Commission defines critical accounting estimates as those that (a) are most important to the portrayal of a company’s financial condition and results of operations and (b) require management’s most difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

In Note 2 to our financial statements included in this report and in our annual report on Form 10-K for the year ended December 31, 2023, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates.

The most significant areas involving management’s judgments and estimates are described below.

14 unchanged sentences

As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees.

As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.

office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.

Our revenues are based upon our management's estimate of amounts we expect to be entitled to receive from patients and third-party payors.

4 unchanged sentences

Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended September 30, 2023.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended March 31, 2024.

Accounts Receivable

3 unchanged sentences

We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience.

Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended September 30, 2023.

Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended March 31, 2024.

Business Combination

7 unchanged sentences

Goodwill and Indefinite Lived Intangibles

Goodwill at September 30, 2023 totaled $676.4 million.

Indefinite Lived Intangible Assets at September 30, 2023 were $20.2 million and are associated with the value of certain trade name intangibles and in process research and development (IPR&D).

Goodwill at March 31, 2024 totaled $694.3 million.

Indefinite Lived Intangible Assets at March 31, 2024 were $20.2 million 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.

3 unchanged sentences

If multiple valuation methodologies are used, the results are weighted appropriately.

Our annual test of goodwill, trade name noted no impairment as of October 1, 2022, and we have not identified any other indicators of impairment through September 30, 2023.

On September 30, 2023, we determined that an In-process Research and Development ("IPR&D") nonamortized intangible 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 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.

We have not identified any other indicators of impairment through September 30, 2023.

Our annual test of goodwill, trade name noted no impairment as of October 1, 2023, and we have not identified any other indicators of impairment through March 31, 2024.

Recent Accounting Standards

1 unchanged sentence

Results of Operations

The following table sets forth, for the three and nine months ended September 30, 2023 and 2022, the percentage that certain items in the statements of operations bears to total service revenue, inclusive of revenue under capitation contracts.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE DATA)

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Service fee revenue 90.0 % 89.1 % 90.1 % 89.1 %

Revenue under capitation arrangements 10.0 % 10.9 % 9.9 % 10.9 %

Total service revenue 100.0 % 100.0 % 100.0 % 100.0 %

OPERATING EXPENSES

Cost of operations, excluding depreciation and amortization 85.0 % 89.7 % 86.8 % 89.3 %

Depreciation and amortization 8.0 % 8.4 % 8.0 % 8.1 %

(Gain) on contribution of imaging centers into joint venture (4.2) % — % (1.4) % — %

Loss (gain) on sale and disposal of equipment and other 0.1 % (0.1) % 0.1 % 0.1 %

Severance costs 0.3 % 0.1 % 0.3 % 0.0 %

Total operating expenses 89.2 % 98.0 % 93.8 % 97.6 %

INCOME (LOSS) FROM OPERATIONS 10.8 % 2.0 % 6.2 % 2.4 %

OTHER INCOME AND EXPENSES

Interest expense 4.0 % 3.5 % 4.0 % 3.4 %

Equity in earnings of joint ventures (0.3) % (0.9) % (0.3) % (0.8) %

Non-cash change in fair value of interest rate hedge 0.3 % (3.6) % 0.1 % (3.8) %

Other (income) expenses (1.0) % 0.4 % (0.2) % 0.1 %

Total other expense (income) 3.0 % (0.5) % 3.5 % (1.0) %

INCOME (LOSS) BEFORE INCOME TAXES 7.8 % 2.5 % 2.7 % 3.4 %

(Provision for) Benefit from income taxes (1.8) % (0.6) % (0.6) % (0.7) %

NET INCOME (LOSS) 6.0 % 1.8 % 2.0 % 2.7 %

Net income attributable to noncontrolling interests 1.6 % 1.7 % 1.6 % 1.6 %

NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC.

COMMON STOCKHOLDERS 4.4 % 0.2 % 0.4 % 1.2 %

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Imaging Center Segment

We have developed our medical imaging centers segment through a combination of organic growth, equity investments, acquisitions and joint venture formations.

We have segregated some of our information to demonstrate which is attributable to centers that were in operation through the entirety of the comparison period, and which is attributable to those that were acquired or disposed of during the period.

The discussion below shows a breakdown and analysis of revenue and expenses for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of January 1, 2024 through March 31, 2024.

Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2024 through March 31, 2024.

Total Revenue

In Thousands Three Months Ended September 30,

In Thousands Three Months Ended March 31,

Revenue 2024 2023 $ Increase/(Decrease) % Change

2 unchanged sentences

Excluded $40,391 $31,247 — —

Our 7.7% increase in same center revenue over the same period last year was driven by same center total procedure volume growth of 3.4% inclusive of rises in routine and advanced modality imaging procedures of 2.8% and 5.1%, respectively.

Excluded amounts refer to revenue contributions for the three month periods ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

Our 8.2% increase in same center revenue over the same period last year was driven by same center total procedure volume growth of 1.6% which was comprised of a 0.5% increase in routine imaging and a 5.1% increase in advanced modality imaging procedures.

The balance of increase related to product mix, as advanced imaging was a greater portion of overall procedures, as well as increases in rates charged for imaging procedures.

Operating Expenses

Total operating expenses for the three months ended September 30, 2023 increased approximately $18.9 million, or 5.6%, from $335.4 million for the three months ended September 30, 2022 to $354.3 million for the three months ended September 30, 2023.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended September 30, 2023 and 2022 (in thousands):

Total operating expenses for the three months ended March 31, 2024 increased approximately $32.4 million, or 8.7%, from $370.3 million for the three months ended March 31, 2023 to $402.7 million for the three months ended March 31, 2024.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 244,716 $ 214,656

6 unchanged sentences

Depreciation and amortization 29,974 29,448

(Gain) Loss on contribution of imaging centers into joint venture (16,808) —

Loss on sale and disposal of equipment 188 577

2 unchanged sentences

* Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended September 30, 2023 and 2022 (in thousands):

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended March 31, 2024 and 2023 (in thousands):

Salaries and professional reading fees, excluding stock-based compensation and severance

In Thousands Three Months Ended September 30,

In Thousands Three Months Ended March 31,

Salaries and Professional Fees 2024 2023 $ Increase/(Decrease) % Change

2 unchanged sentences

Excluded $16,611 $13,376 — —

Stemming from the higher procedure volumes noted above, our staffing levels were adjusted to support the influx of patients seeking radiology procedures.

Similar to other businesses, we still face inflation in employee cost as we compete for talent in the marketplace.

Excluded amounts refer to salaries and professional reading fees for the three month periods ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

Consistent with the higher procedure volumes noted above, our staffing levels were adjusted to support the influx of patients seeking radiology procedures.

We are continuing to face inflation in employee wage rates as we compete for talent in a tight labor market.

Stock-based compensation

Stock-based compensation for the three months ended September 30, 2023 increased approximately $1.3 million, or 51.2%, from $2.6 million for the three months ended September 30, 2022 to $3.9 million for the three months ended September 30, 2023.

This increase was driven by the higher fair value of RSA’s, additional and higher probability adjusted Performance Stock Options ("PSO") and Performance Stock Units ("PSU") granted and vested in the nine months of 2023 as compared the prior year’s same period.

Stock-based compensation for the three months ended March 31, 2024 decreased approximately $0.5 million, or 4.0%, from $11.5 million for the three months ended March 31, 2023 to $11.1 million for the three months ended March 31, 2024.

The decrease is primarily a result of a smaller number of shares granted in the first quarter of 2024, partially offset by higher fair value of stock awards granted and vested in the first quarter of 2024.

Building and equipment rental

In Thousands Three Months Ended September 30,

In Thousands Three Months Ended March 31,

Building & Equipment Rental 2024 2023 $ Increase/(Decrease) % Change

3 unchanged sentences

The decrease in building and equipment rental expense relates to reduced equipment rental relating to operating lease contracts which ended or were bought out during 2023.

Excluded amounts refer to building and equipment rental for the three month periods ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

Medical supplies

In Thousands Three Months Ended September 30,

Medical Supplies Expense 2023 2022 $ Increase/(Decrease) % Change

Total $21,285 $18,121 $3,164 17.5%

Same Center $19,636 $17,291 $2,345 13.6%

Excluded Sites $1,649 $830 — —

The increase in medical supplies expense was driven by higher patient volume combined with price increases for contrasting agents used in advanced radiology procedures.

In addition, we had a high utilization rate of a specialty isotope PYLARIFY which is used in our PSMA study of prostate cancer, for which we are ultimately reimbursed on a cost plus margin basis that exceeds our initial expense outlay.

Excluded amounts refer to medical supplies expense for the three month periods ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

Other operating expenses

In Thousands Three Months Ended September 30,

Other Operating Expenses 2023 2022 $ Increase/(Decrease) % Change

Total $71,972 $59,845 $12,127 20.3%

Same Center $65,518 $57,881 $7,637 13.2%

Excluded Sites $6,454 $1,964 — —

The rise in other operating expenses was experienced across all of our major categories to support the increase in volumes at inflated prices compared to the same period in the prior year.

Excluded amounts refer to other operating expenses for the three month periods ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between July 1, 2022 through September 30, 2023.

Additional segment operating and non operating expenses:

In Thousands Three Months Ended September 30,

2023 2022 $ Increase/(Decrease) % Change

Depreciation and amortization $30,379 $27,590 $2,789 10.1%

(Gain) Loss on contribution of imaging centers into joint venture ($16,808) $— (16,808) nm

Loss on disposal of equipment and other $524 ($253) $777 (307.1)%

Non-cash change in fair value of interest rate hedge $1,014 ($12,451) 13,465 (108.1)%

Other expenses (income) ($3,920) $447 (4,367) (977.0)%

Severance $1,141 $187 954 510.2%

nm= not meaningful

Interest expense

In Thousands Three Months Ended September 30,

Interest Expense 2023 2022 $ Increase/(Decrease) % Change

Total Interest Expense $16,116 $12,420 $3,696 29.8 %

Cash Paid for Interest $19,255 $10,564 $8,691 82.3 %

The rise in total interest expense is attributable to a higher overall loan balances in combination with increased variable interest rates paid on those balances compared to the same period in the prior year.

The change in cash paid for interest relates to timing of interest rate elections.

During 2022 we refinanced our Truist term loan which added an additional $108.0 million in obligations to our balance sheet in the fourth quarter.

Based on recent increases in global interest rates, we expect the effective interest rates on our senior credit facilities, and our related interest expense, to continue to rise in the near term.

See “Liquidity and Capital Resources” below for more details on our credit facilities.

To mitigate our future interest expense exposure we have entered into certain interest rate swap agreements.

During the three months ended September 30, 2023, we received cash payments from our swap agreements of approximately $4.2 million, which was offset against our overall interest expense.

See the Derivative Instruments section of Note 2, Significant Accounting Policies, to the financial statements included in this report for more details on our derivative transactions.

Equity in earnings from unconsolidated joint ventures

For the three months ended September 30, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $1.1 million and for three months ended September 30, 2022 we recognized equity in earnings from unconsolidated joint ventures of $3.1 million, a decrease of $2.0 million or 64.9%.

The decrease was mainly related to the equity in earnings received from our venture operations in Arizona.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Total Revenue

In Thousands Nine Months Ended September 30,

Revenue 2023 2022 $ Increase/(Decrease) % Change

Total Revenue $1,188,849 $1,043,129 $145,720 14.0%

Same Center Revenue $1,091,551 $1,015,799 $75,752 7.5%

Excluded $97,298 $27,330 — —

Our 7.5% increase in same center revenue over the same period last year was driven by same center total procedure volume growth of 6.1% inclusive of rises in routine and advanced modality imaging procedures of 5.8% and 7.2%, respectively.

Excluded amounts refer to revenue contributions for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

Operating Expenses

Total operating expenses for the nine months ended September 30, 2023 increased approximately $99.1 million, or 9.9%, from $999.2 million for the nine months ended September 30, 2022 to $1,098.3 million for the nine months ended September 30, 2023.

The following table sets forth a breakdown of our cost of operations and total operating expenses for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 640,459 $ 584,080

Stock-based compensation 19,484 16,993

Building and equipment rental 88,781 92,249

Medical supplies 63,829 48,200

Other operating expenses *

209,757 175,807

Cost of operations 1,022,310 917,329

Depreciation and amortization 90,204 80,496

(Gain) loss on contribution of imaging centers into joint venture (16,808) —

(Gain) loss on sale and disposal of equipment 1,185 936

Severance costs 1,417 488

Total operating expenses $ 1,098,308 $ 999,249

* Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.

Salaries and professional reading fees, excluding stock-based compensation and severance

In Thousands Nine Months Ended September 30,

Salaries and Professional Fees 2023 2022 $ Increase/(Decrease) % Change

Total Salaries $640,459 $584,080 $56,379 9.7%

Same Center Salaries $597,488 $570,275 $27,213 4.8%

Excluded $42,971 $13,805 — —

Staffing levels have been adjusted to support higher patient volumes with the corresponding rise in salaries and professional fee expense.

Excluded amounts refer to salaries and professional reading fees for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

Stock-based compensation

Stock-based compensation increased $2.5 million, or 14.7% to approximately $19.5 million for the nine months ended September 30, 2023 compared to $17.0 million for nine months ended September 30, 2022.

Building and equipment rental

In Thousands Nine Months Ended September 30,

Building & Equipment Rental 2023 2022 $ Increase/(Decrease) % Change

Total $88,781 $92,249 $(3,468) (3.8)%

Same Center $78,098 $85,358 $(7,260) (8.5)%

Excluded Sites $10,683 $6,891 — —

The decrease in building and equipment rental expenses was related to a reduction of operating lease contracts that were terminated or bought out during 2022.

Excluded amounts refer to building and equipment rental for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

Medical supplies

In Thousands Nine Months Ended September 30,

In Thousands Three Months Ended March 31,

Medical Supplies Expense 2024 2023 $ Increase/(Decrease) % Change

2 unchanged sentences

Excluded Sites $1,783 $1,614 — —

Medical supplies expense increase stems from the overall procedural volumes noted above compared to the same period in the prior year and and from the high utilization rate of a specialty isotope PYLARIFY which is used in our PSMA study of prostate cancer, for which we are ultimately reimbursed on a cost plus margin basis that exceeds our initial expense outlay.

Excluded amounts refer to medical supplies for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

The increase in medical supplies expense was consistent with our higher patient volume and product shift towards more advanced imaging modalities.

Other operating expenses

In Thousands Nine Months Ended September 30,

In Thousands Three Months Ended March 31,

Other Operating Expenses 2024 2023 $ Increase/(Decrease) % Change

2 unchanged sentences

Excluded Sites $6,604 $5,189 — —

The increase in other operating expenses is related to increased infrastructure support cost, additional new equipment, and general inflationary cost increases.

Excluded amounts refer to other operating expenses for the nine month period ending September 30, 2023 and September 30, 2022, respectively, from centers that were acquired or divested between January 1, 2022 through September 30, 2023.

Other operating expenses was relatively unchanged compared to the same period in the prior year and lower as a percentage of overall revenues.

Additional segment operating and non-operating expenses

In Thousands Nine Months Ended September 30,

In Thousands Three Months Ended March 31,

2024 2023 $ Increase/(Decrease) % Change

Depreciation and amortization $29,974 $29,448 $526 1.8%

(Gain) Loss on contribution of imaging centers into joint venture $(16,808) — $(16,808) nm

Loss on disposal of equipment and other $188 $577 $(389) (67.4)%

2 unchanged sentences

Severance $225 $122 103 84.2%

nm= not meaningful

The fair value of the 2019 swaps at March 31, 2024 was a net asset of $16.3 million compared to a net asset of $15.1 million December 31, 2023, resulting in a gain of $1.2 million during the three months ended March 31, 2024, which increased the Company’s tax provision by $0.2 million.

The change in fair value related to reduced expectations that market interest rates would decrease during the remaining term of the 2019 swaps.

Other income for the three months ended March 31, 2024 included money market interest income of $4.4 million.

Interest expense

In Thousands Nine Months Ended September 30,

In Thousands Three Months Ended March 31,

Interest Expense 2024 2023 $ Increase/(Decrease) % Change

Total Interest Expense $ 16,267 $ 15,722 $545 3.5 %

Cash Paid for Interest $59,421 $30,251 $29,170 96.4 %

The change in cash paid for interest relates to timing of interest rate elections.

During 2022 we refinanced our Truist term loan which added an additional $108.0 million in obligations to our balance sheet in the fourth quarter.

Based on recent increases in global interest rates, we expect the effective interest rates on our senior credit facilities, and our related interest expense, to continue to rise in the near term.

See “Liquidity and Capital Resources” below for more details on our credit facilities.

To mitigate our future interest expense exposure we have entered into certain interest rate swap agreements.

During the nine months ended September 30, 2023, we received cash payments from our swap agreements of approximately $10.9 million, which was offset against our overall interest expense.

See the Derivative Instruments section of Note 2, Significant Accounting Policies, to the financial statements included in this report for more details on our derivative transactions.

Interest related to derivatives* (2,435) (1,735)

Interest related to amortization** 748 746

Adjusted Interest Expense*** 17,954 16,711 1,243 7.4 %

*Includes payments from 2019 swaps

**Includes noncash amortization of deferred loan costs and discount on issuance of debt

***Includes interest related to our term loans, revolving credit line, notes, and other

The increase in interest expense was the result in the general increase in interest rates compared to the same period in the prior year, partially offset by payments from our 2019 swaps.

To mitigate our future floating rate interest expense exposure we entered into the 2019 swaps with locked in interest rates for one-month Term SOFR of 1.89% for $100 million of notional value and 1.98% for $400 million of notional value.

We are liable for premium payments to the 2019 swap counterparties if interests rates are below the arranged rates, and receive payments from the 2019 swap counterparties if interest rates exceed the arranged rates.

If interest rates were to theoretically reduce to 0%, our maximum premium payment would be the difference between the two swapped rates and 0% then multiplied by the notional value of the swaps, or $1.89 million per year for the $100 million swap and $8.0 million per year for the $400 million swap.

Payments under the 2019 swaps are settled in cash on a monthly basis.

During the three months ended March 31, 2024, interest rates were above the arranged rates for most of the year and we received payment of $3.4 million in cash payments from our 2019 swap counterparties, which was reported a component of interest expense.

See the Derivative Instruments section of Note 2, Summary of Significant Accounting Policies, in the notes accompanying in our annual report on Form 10-K for the fiscal year ended December 31, 2023 and Part 1, Item 3 — "Quantitative and Qualitative Disclosure About Market Risk" below for more details on our derivative transactions.

Equity in earnings from unconsolidated joint ventures

For the nine months ended September 30, 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.9 million and for the nine months ended September 30, 2022 we recognized equity in earnings from unconsolidated joint ventures of $8.4 million, an decrease of $4.4 million or 52.9%.

The decrease was mainly related to the equity in earnings received from our interest in the Arizona Diagnostic Radiology Group joint venture, which was formed in the fourth quarter of 2020.

Income tax expense

We recorded a provision for income tax of $7.7 million, or an effective tax rate of 24.1%, for the nine months ended September 30, 2023 compared to a provision for income tax of $7.1 million, or an effective tax rate of 19.8% for the nine months ended September 30, 2022.

The income tax rates for the three and nine months ended September 30, 2023 diverge from the federal statutory rate due to benefits related to (i) noncontrolling interests from controlled partnerships, (ii) foreign tax rate differentials, (iii) reversal of uncertain tax positions due to statute of limitation expiration, and (iv) release of state valuation allowances, offset by (i) effects of state income taxes and related prior year adjustments, (ii) share-based compensation, (iii) officer's compensation limitations, and (v) partial valuation allowance on losses in foreign jurisdictions.

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.

We are developing our AI segment initially through acquisition activity.

The breakdown of revenue and expenses of the segment for the three and nine months ended September 30, 2023 and 2022 are as follows:

In Thousands Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

For the three months ended March 31, 2024 and 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $4.3 million and $1.4 million, respectively, an increase of $2.9 million or 202.8%.

The increase was mainly due to the additional contribution made to SMIG in September 2023.

SMIG operated at a net income for the three

months ended March 31, 2024, which positively impacted our equity in earnings from unconsolidated joint ventures during the period.

Net income attributable to noncontrolling interests

At March 31, 2024, our consolidated subsidiaries operated 323 imaging centers of which 85 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests.

At March 31, 2023, our consolidated subsidiaries included 324 centers of which 83 were not wholly-owned.

For the three months ended March 31, 2024, we recognized net income attributable to noncontrolling interests of $8.2 million versus $6.7 million for the three months ended March 31, 2023, an increase of $1.6 million.

The increase in net income attributable to noncontrolling interests was primarily due to the formation of a new majority owned subsidiary, Los Angeles Imaging Group, LLC in September 2023.

We contributed the operations of three centers to Los Angeles Group, LLC and Cedars-Sinai Medical Center contributed cash.

Additionally, patient volumes for advanced modalities improved in 2024 and we closed two nonperforming centers in a majority owned subsidiary, Beach Imaging Group, LLC in December 2023.

As noncontrolling interests only represent a portion of our imaging center business, and excludes our Digital Health Segment which generated losses of $3.0 million for the three months ended March 31, 2024, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.

Digital Health Segment

The breakdown of revenue and expenses of the segment for the three months ended March 31, 2024 and 2023 are as follows:

In Thousands Three Months Ended March 31,

2024 2023 $ Change % Change

Statement of Operations

3 unchanged sentences

Other operating 5,880 4,076 1,804 44.3 %

Non-cash change to contingent consideration -7,191 — -7,191 — % -7,191 — -7,191 — %

Acquisition related to non-cash intangible adjustment 3,950 — 3,950 — % 3,950 — 3,950 — %

Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI 3,315 — 3,315 —

Depreciation & Amort.

2,394 1,867 527 28.2 %

Other operating loss (gain) 3 6 (3) (50.0) % (2) 26 (28) (107.7) %

Severance — 12 (12) (100.0) %

1 unchanged sentence

Loss from Operations $ (3,015) $ (2,518) $ (497) 19.7 %

Other expense (income) ($162) $958 ($1,120) (116.9) % $1,401 ($329) $1,730 525.6 %

Income before taxes ($1,330) ($7,786) $6,456 (82.9) % ($17,579) ($18,790) $1,211 (6.4) %

Other expense

1,499 1,416 83 5.9 %

Loss before taxes

(4,514) (3,934) (580) 14.7 %

Income taxes $ (828) $ 536 $ (1,364) (254.5) %

Segment net loss (3,686) (4,470) 784 (17.5) %

The service is now fully rolled-out to all of our mammography centers on the east coast, where it is experiencing close to a 35% adoption rate.

This is expected to grow as we continue to educate patients and referring physicians about its significant advantages over current practices.

These events have resulted in revenues from our AI segment increasing 142.1% for the nine month period ended September 30, 2023, over the same period in 2022.

However, we anticipate that our AI segment will continue to generate losses in the near term as we pursue the continued commercialization of our AI products and expansion of our various cancer detection programs.

Adjusted EBITDA

Revenues for the digital health segment increased as a result of core growth in our eRad PICS business, the rollout in 2023 of our Deephealth OS, and continued rollout of our Enhanced Breast Cancer Detection solutions across additional facilities.

The increase in operating expenses was primarily related to salary expense as we increased headcount in connection with the commercialization of our initial AI products.

Our net loss for the segment was consistent with the prior year.

We expect that our Digital Health segment will continue to generate net losses over the next several years.

Non-GAAP Financial Measures

We use both GAAP and non-GAAP metrics to measure our financial results.

We believe that, in addition to GAAP metrics, certain non-GAAP metrics, such as Adjusted EBITDA assist us in measuring our business performance, cash generated from operations, leverage capacity and ability to service our debt obligations.

We believe that, in addition to GAAP metrics, non-GAAP metrics such as Adjusted EBITDA assist us in measuring our core operations from period to period.

Adjusted EBITDA

Our Adjusted EBITDA metric removes non-cash and non-recurring charges that occur in the affected period and provides a basis for measuring the Company’s core financial performance against other periods.

We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted to exclude losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, bargain purchase gains, loss on de-consolidation of joint ventures and non-cash equity compensation.

Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries, and is adjusted for non-cash or one-time events that take place during the period.

Adjusted EBITDA is a non-GAAP financial measure used as an analytical indicator by us and the healthcare industry to assess business performance, and is a measure of leverage capacity and ability to service debt.

Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.

Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or one-time events that take place during the period.

Adjusted EBITDA is a non-GAAP financial measure used as an analytical indicator by us and the healthcare industry to assess business performance.

Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, or other financial statement data presented in the consolidated financial statements as an indicator of financial performance.

Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation and this metric, as presented, may not be comparable to other similarly titled measures of other companies.

The following is a reconciliation of GAAP net income attributable to RadNet, Inc.

common stockholders to Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

The following is a reconciliation of the nearest comparable GAAP financial measure, net income, to Adjusted EBITDA for the three months ended March 31, 2024 and 2023, respectively.

Three Months Ended March 31,

Net income attributable to RadNet, Inc.

7 unchanged sentences

Non-cash change in fair value of interest rate hedge (1,216) 4,093

Gain on contribution of imaging centers into joint venture (16,808) — (16,808) —

Other expenses (2,934) 1,432

Legal settlements — — — 2,197

Non-cash change to contingent consideration 1,974 —

Change in estimate related to refund liability — 8,089 — 8,089

Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI 3,315 —

Acquisition related non-cash intangible adjustment — 1,616

Non operational rent expenses 1,023 959

Adjusted EBITDA including EBITDA losses from AI Segment $ 57,920 $ 45,772 $ 166,531 $ 135,241

EBITDA Losses from AI Segment 2,499 4,462 10,283 12,253

Adjusted EBITDA excluding EBITDA losses from AI Segment $ 60,419 $ 50,234 $ 176,814 $ 147,494

The following table is a reconciliation of GAAP net income for our AI Segment to Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

Adjusted EBITDA - Total Company

$ 58,462 $ 48,165

Adjusted EBITDA - Digital Health Segment

Adjusted EBITDA - Imaging Center

$ 54,942 $ 48,145

The following table is a reconciliation of GAAP net income for our Digital Health Segment to Adjusted EBITDA for the three months ended March 31, 2024 and 2023, respectively.

Three Months Ended March 31,

Segment net loss $ (3,686) $ (4,470)

2 unchanged sentences

Other operating loss 1,499 1,416

Other expense (income) (162) 958 1,401 (329)

Other (income) expense (2) 2

Severance — 12

Income taxes (828) 536

Non-cash change to contingent consideration (7,191) — (7,191) —

Acquisition related to non-cash intangible adjustment 3,950 — 3,950 —

Adjusted EBITDA from AI Segment $ (2,499) $ (4,462) $ (10,283) $ (12,253)

Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI 3,315 —

Adjusted EBITDA - Digital Health Segment

Liquidity and Capital Resources

The following table summarizes key balance sheet data related to our liquidity as of September 30, 2023 and December 31, 2022 and income statement data for the nine months ended September 30, 2023 and 2022 (in thousands):

We expect our existing capital resources, anticipated cash from operations and our borrowing capacity under our credit facilities will be sufficient to sustain our operations for the next twelve months and the foreseeable future.

Our principal capital requirements are for the initial start-up and development of new diagnostic imaging centers, the acquisition of additional centers and the acquisition of new diagnostic imaging equipment.

On a continuing basis, we evaluate various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures and joint ventures.

We expect to fund any future acquisitions primarily with cash flow from operations and borrowings, including borrowing from amounts available under our senior secured credit facilities or through new equity or debt issuances.

We and our subsidiaries or affiliates may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise.

The following table summarizes key balance sheet data related to our liquidity as of March 31, 2024 and December 31, 2023 and income statement data for the three months ended March 31, 2024 and 2023 (in thousands):

Balance Sheet Data:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 526,980 $ 342,570

2 unchanged sentences

Stockholders' equity 1,077,325 813,359

Income statement data for the nine months ended September 30,

Income statement data for the three months ended March 31,

Total net revenue $ 431,707 $ 390,564

Net income attributable to RadNet common stockholders (2,779) (21,005)

We operate in a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations.

In addition to operations, we require a significant amount of capital for the initial start-up and development of new diagnostic imaging centers, the acquisition of additional centers and new diagnostic imaging equipment.

Because our cash flows from operations have been insufficient to fund all of these capital requirements, we have depended on the availability of financing under credit arrangements with third parties to fund our working capital requirements.

We have credit available from our current credit facilities and borrowing under those facilities is subject to continued compliance with lending covenants.

We currently meet those requirements, and expect that we will continue to do so for the foreseeable future, but substantial and sustained operating losses could impact our ability to borrow under those facilities.

If we are not able to meet such requirements, we may be required to seek additional financing and there can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.

On a continuing basis, we also consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures and joint ventures.

These types of transactions may result in future cash proceeds or payments but the general timing, size or success of any acquisition, divestiture or joint venture effort and the related potential capital commitments cannot be predicted.

Sources and Uses of Cash

The following table summarizes key components of our sources and uses of cash (in thousands) for the nine months ended:

Cash Flow Data September 30, 2023 September 30, 2022

The following table summarizes key components of our sources and uses of cash for the three months ended March 31, 2024 and 2023 (in thousands):

Cash Flow Data March 31, 2024 March 31, 2023

Cash provided by (used in) operating activities $ 17,085 $ 32,616

1 unchanged sentence

Cash provided by (used in) financing activities 228,298 (3,821)

Our cash provided by operating activities for the nine months ended September 30, 2022 was affected by the non-cash change in fair value of our interest rate hedge of $39.6 million.

Cash used in investing activities for the nine months ended September 30, 2023, included purchases of property and equipment for approximately $136.5 million and the acquisition of imaging business and other assets for $10.9 million.

As part of our business operations we continually evaluate investment opportunities.

Cash provided by financing activities of $231.1 million for the nine months ended September 30, 2023, was due to net proceeds of the $245.8 million received from the issuance of 8,711,250 shares of common stock and offset by payments on our term loan obligations and equipment notes.

Please see Note 6, Credit Facilities and Notes Payable in the notes to consolidated financial statements included in this report for more information.

Cash provided by operating activities for the three months ended March 31, 2024 decreased by $15.5 million compared to March 31, 2023 primarily driven by the timing of payments, as a $17.8 million increase in net income was offset by a $51.7 million change in assets and liabilities, primarily related to a pay down of accounts receivable and accrued expenses.

Cash used in investing activities for the three months ended March 31, 2024 decreased from March 31, 2023 by $4.6 million.

Purchases of imaging centers during the period was $3.5 million, a $6.1 million decrease from the prior period.

Capital expenditures for property and equipment during the period was $57.4 million, a $1.5 million increase from the prior period.

Cash provided by financing activities for the three months ended March 31, 2024 related primarily to a secondary public offering of our common stock, offset by payments including prepayments on our term loan, and payments of contingent consideration on recent acquisition transactions.

In March 2024, we completed a public offering of 5,232,500 shares of our common stock, which included 682,500 shares sold pursuant to an underwriters overallotment option, at a price to the public of $44.00 per share, resulting in net proceeds after underwriting discounts, commissions, and expenses of $218.3 million.

Additional cash provided by financing activities included $8.7 million received from sale of economic interest in majority owned subsidiary and a $4.2 million contribution from noncontrolling partners.

Senior Secured Credit Facilities

We maintain secured credit facilities with Barclays Bank PLC and with Truist Bank.

The Barclays credit facilities are comprised of first lien term loans and a revolving credit facility of $195.0 million.

The Truist credit facilities are comprised of a term loan and a revolving credit facility of $50.0 million.

As of September 30, 2023, we were in compliance with all covenants under our credit facilities.

Deferred financing costs at September 30, 2023, net of accumulated amortization, were $1.8 million and are specifically related to our revolving credit facilities.

Included in our condensed consolidated balance sheets at September 30, 2023 are $853.1 million of total term loan debt (exclusive of unamortized discounts of $10.6 million) in thousands:

Our condensed consolidated balance sheets at March 31, 2024 include $821.2 million of total term loan debt (exclusive of unamortized discounts of $10.6 million) in thousands:

Face Value Discount Total Carrying

First Lien Term Loans $ 708,688 $ (9,563) $ 699,125

Barclays Term Loan $ 678,687 $ (8,519) $ 670,168

Truist Term Loan 142,500 (924) 141,576

Total Term Loans $ 821,187 $ (9,443) $ 811,744

At September 30, 2023, we had no borrowings under our Barclays or Truist revolving credit facilities.

After reserves for outstanding letters of credit of $7.6 million, we have $187.4 million available for borrowing under our Barclays Credit Facility and $50.0 million available under our Truist Revolving Credit Facility.

Please see Note 6, Credit Facilities and Notes Payable in the notes to consolidated financial statements included in this report for more information on our secured credit facilities.

At March 31, 2024, we had no borrowings under our Barclays or Truist revolving credit facilities.

After reserves for outstanding letters of credit of $7.6 million, we had $187.4 million available for borrowing under our Barclays revolving credit facility and $50.0 million available under our Truist revolving credit facility.

On April 18, 2024, after the period covered by this report, we refinanced our Barclays term loan and credit facility, replacing the prior facility with an $875.0 million term loan and a $282.0 million revolving credit facility.

The refinance transaction reduced out interest rates on the Barclays term loan and revolving credit facility and extended the maturity date for the term loan to April 18, 2031 and for the revolving credit facility to April 18, 2029.

The new term loan calls for quarterly principal payments of $2.2 million, compared to $1.8 million under the prior credit facility.

After paying off the balance on the prior facility, payment of accrued interest through the closing of the refinance transaction, and payment of transaction fees and expenses, we added approximately $167.9 million in cash to the balance sheet.

Please see Note 6, Credit Facilities and Notes Payable in the notes to financial statements included in this report for more information on our secured credit facilities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis