What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-10 · 233 added, 108 removed, 257 unchanged (57% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 February 29, 2024.

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 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 (the "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.

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

13 unchanged sentences

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

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.

At June 30, 2024, we operated directly or indirectly through joint ventures with hospitals, 398 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, New York and Texas.

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.

1 unchanged sentence

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.

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 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 from scheduling and patient preparation to technologist workflow to interpretation and referral management.

In addition we are using AI 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.

Our Aidence Holding B.V.

subsidiary is 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.

Our Quantib B.V.

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 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.

Prior period amounts in the financial statements included in this report have been adjusted retrospectively to reflect the change in reportable segment.

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,

During the second quarter of 2024 we continued to expand our imaging business entering the Houston, Texas with the completion of two acquisitions for an aggregate of 13 imaging centers.

With a population of approximately 7.3 million people, Houston is the fourth largest city in the United States.

The following table shows our imaging centers in operation and revenues for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

Centers in operation 398 363

Net revenues (millions) $ 891 $ 794

Our imaging 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 key point of differentiation from our competitors.

The multi-modality offering provides a “one-stop” solution for our customers and referral sources.

It also diversifies our revenue base, and reduces our exposure to changes in reimbursement rates for certain imaging modalities.

The following charts summarize our procedure volumes for various imaging modalities for the three months ended June 30, 2024 and 2023:

Our revenue is derived from a diverse mix of payors, including private, managed care capitated and government payors.

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 months ended March 31, 2024 and 2023 is summarized in the following table (in thousands):

Three Months Ended March 31,

Our total service fee revenue, net of contractual allowances and discounts, and implicit price concessions for the three and six months ended June 30, 2024 and 2023 received from our various payors is summarized in the following table (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Commercial insurance $ 256,517 $ 220,618 $ 497,145 $ 433,673

5 unchanged sentences

Heart and lung

3,936 2,123 7,857 3,936

Other 4,209 5,180 8,604 10,480

4 unchanged sentences

Acquisitions and Joint Venture Activity

We have developed our imaging business through a combination or organic growth, acquisitions and joint ventures.

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.

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

During the six months ended June 30, 2024, we completed the acquisition of certain assets of the following entities, which engage directly in the practice of radiology or in associated businesses.

The acquisitions were to expand our imaging business into Houston, Texas a new market, and 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

Imaging, Inc.

6/1/2024 4,200 4,025 5,597 — 175 — (5,597)

Houston Medical Imaging, LLC 4/1/2024 22,703 13,267 5,461 15,394 250 90 (5,461)

Grossman Imaging Center of CMH, LLC 3/31/2024 10,500 1,717 6,194 8,657 280 56 (6,404)

2 unchanged sentences

Total 48,029 22,445 21,256 31,191 755 146 (21,466)

*The valuation of assets acquired and liabilities assumed has not yet been finalized as of June 30, 2024, fair value determination is preliminary and subject to change.

Joint Venture Activity

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).

At June 30, 2024, 37% of our imaging centers were operating as joint ventures with large health care providers.

We have joint venture arrangements with 24 hospital and health system partners (inclusive of consolidated and unconsolidated joint ventures), including MemorialCare (24 centers), RWJ Barnabas (35 Centers), Cedars Sinai (17 centers), Dignity Health (28 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):

We charged management service fees from the centers underlying these joint ventures of approximately $6.1 million and $4.0 million for the three months ended June 30, 2024 and 2023, respectively.

The following table summarizes our investment in unconsolidated joint ventures as of June 30, 2024 (in thousands):

Balance as of December 31, 2023 $ 92,710

2 unchanged sentences

Equity contributions in existing joint ventures 1,421

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 as of June 30, 2024 $ 100,844

The following table summarizes key balance sheet data for these unconsolidated joint ventures as of June 30, 2024 and December 31, 2023 and income statement data for the six months ended June 30, 2024 and 2023 (in thousands):

Balance Sheet Data:

5 unchanged sentences

Total net assets $ 153,108 $ 147,334

Income statement data for the three months ended March 31,

Income statement data for the six months ended June 30,

Net revenue $ 130,546 $ 84,699

19 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.

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

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

Our revenues are based upon 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 March 31, 2024.

Our estimates and assumptions related to revenue recognition did not change materially for the quarter ended June 30, 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 March 31, 2024.

Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended June 30, 2024.

Business Combination

7 unchanged sentences

Goodwill and Indefinite Lived Intangibles

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 at June 30, 2024 totaled $709.0 million.

Indefinite Lived Intangible Assets at June 30, 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, 2023, and we have not identified any other indicators of impairment through March 31, 2024.

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 June 30, 2024.

Recent Accounting Standards

1 unchanged sentence

Results of Operations

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

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 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.

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.

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

In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of April 1, 2023 through June 30, 2024.

Excluded amounts relate to imaging centers that were acquired or divested between April 1, 2023 through June 30, 2024.

Total Revenue

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

Revenue 2024 2023 $ Increase/(Decrease) % Change

Total Revenue $417,046 $379,487 $37,559 9.9%

Same Center Revenue $376,655 $348,240 $28,415 8.2%

Total $443,886 $392,112 $51,774 13.2%

Same Center $425,532 $382,241 $43,291 11.3%

Excluded $18,354 $9,871 — —

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.

Our 11.3% increase in same center revenue over the same period last year was driven by an increase in procedures volumes.

Same center total procedure volume grew at an overall rate of 4.3% which was comprised of a 2.86% increase in routine imaging and a 8.72% 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 fees charged per imaging procedure.

A significant contributor to the change in product mix was the increase in PETHC procedures related to prostate cancer and suspect Alzheimer’s studies, which are included in advanced modality imaging procedures.

Operating Expenses

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):

Total operating expenses for the three months ended June 30, 2024 increased approximately $41.8 million, or 11.5%, to $406.2 million for the three months ended June 30, 2024 from $364.4 million for the three months ended June 30, 2023.

The following table breaks down our cost of operations and total operating expenses for the three months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended

11 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 March 31, 2024 and 2023 (in thousands):

The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended June 30, 2024 and 2023 (in thousands):

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

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

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

Total Salaries $244,716 $214,656 $30,060 14.0%

Same Center Salaries $228,105 $201,280 $26,825 13.3%

Total $243,356 $210,044 $33,312 15.9%

Same Center $232,571 $205,971 $26,600 12.9%

Excluded $10,785 $4,073 — —

2 unchanged sentences

Stock-based compensation

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.

Stock-based compensation for the three months ended June 30, 2024 increased approximately $0.3 million, or 8.3%, to $4.3 million for the three months ended June 30, 2024 from $4.0 million for the three months ended June 30, 2023.

The increase is primarily due to higher fair value of stock awards granted in the first quarter of 2024.

Building and equipment rental

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

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

1 unchanged sentence

Same Center $27,050 $27,805 $(755) (2.7)%

Excluded Sites $3,627 $3,510 — —

Excluded $2,846 $2,179 — —

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.

Medical supplies

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

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

1 unchanged sentence

Same Center $24,483 $20,964 $3,519 16.8%

Excluded Sites $1,783 $1,614 — —

Excluded $2,040 $1,447 — —

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

The increase in PETHC procedures related to prostate cancer and suspected Alzheimer studies also raised medical supplies expense due to the requirement for high-cost isotope tracers.

Other operating expenses

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

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

1 unchanged sentence

Same Center $64,605 $65,766 $(1,161) (1.8)%

Excluded Sites $6,604 $5,189 — —

Excluded $4,720 $1,860 — —

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 Three Months Ended March 31,

In Thousands Three Months Ended June 30,

2024 2023 $ Increase/(Decrease) % Change

4 unchanged sentences

Severance $225 $154 71 46.1%

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 increase in depreciation expense was the result of our higher depreciable asset base.

The fair value of the 2019 Swaps at June 30, 2024 was a net asset of $14.4 million compared to a net asset of $16.3 million March 31, 2024, resulting in a loss of $1.9 million during the three months ended June 30, 2024.

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.

Other income for the three months ended June 30, 2024 included money market interest income of $8.7 million and other income of $0.2 million, substantially offset by debt extinguishment and restructuring charges of $8.8 million, which related to refinancing of our credit facilities with Barclays.

See Note 6 Credit Facilities and Notes Payable included in the notes to our condensed consolidated financial statements.

Interest expense

In Thousands Three Months Ended March 31,

In Thousands Three Months Ended June 30,

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

6 unchanged sentences

***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.

The increase in interest expense was the result in of refinancing of our Barclays credit facility, which added approximately $196.3 million in additional term loan debt to the facility.

The effect of the additional term loan was partially offset by lower interest rates compared to the same period in the prior year.

During the three months ended June 30, 2024, interest rates were above the arranged rates in our 2019 Swaps 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.

Also, the 2019 Swaps for $100 million of notional value matured in October 2023, so they were in effect for the second quarter of 2023, but not 2024.

See the Derivative Instruments section of Note 2, 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 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%.

For the three months ended June 30, 2024 and 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.4 million and $1.4 million, respectively, an increase of $2.0 million or 138.2%.

The increase was mainly due to the additional contribution made to Santa Monica Imaging Group, LLC in September 2023.

Santa Monica Imaging Group operated at a net income for the three months ended June 30, 2024, which positively impacted our equity in earnings from unconsolidated joint ventures during the period.

Net income attributable to noncontrolling interests

At June 30, 2024, our consolidated subsidiaries operated 344 imaging centers of which 95 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests.

At June 30, 2023, our consolidated subsidiaries included 322 centers of which 82 were not wholly-owned.

For the three months ended June 30, 2024, we recognized net income attributable to noncontrolling interests of $9.9 million versus $6.2 million for the three months ended June 30, 2023, an increase of $3.7 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 and Tri Valley Imaging Group, LLC in March 2024.

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 $2.9 million for the three months ended June 30, 2024, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of January 1, 2023 through June 30, 2024.

Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2023 through June 30, 2024.

Total Revenue

In Thousands Six Months Ended June 30,

Revenue 2024 2023 $ Increase/(Decrease) % Change

Total $860,933 $771,599 $89,334 11.6%

Same Center $817,540 $739,151 $78,389 10.6%

Excluded $43,393 $32,448 — —

Our 10.6% increase in same center revenue over the same period last year was driven by same center total procedure volume growth of 3.1% inclusive of rises in routine and advanced modality imaging procedures of 1.72% and 7.51%, respectively.

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

A significant contributor to the change in product mix was the increase in PETHC procedures related to prostate cancer and suspected Alzheimer studies, which are included in advanced modality imaging procedures.

Operating Expenses

Total operating expenses for the six months ended June 30, 2024 increased approximately $74.2 million, or 10.1%, to $808.9 million for the six months ended June 30, 2024 from $734.7 million for the six months ended June 30, 2023.

The following table breaks down our cost of operations and total operating expenses for the six months ended June 30, 2024 and 2023 (in thousands):

Six Months Ended June 30,

Salaries and professional reading fees, excluding stock-based compensation $ 488,071 $ 424,702

Stock-based compensation 15,418 15,546

Building and equipment rental 58,722 58,871

Medical supplies 48,478 42,544

Other operating expenses *

135,066 132,570

Cost of operations 745,755 674,233

Depreciation and amortization 62,063 59,522

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

(Gain) loss on sale and disposal of equipment 586 661

Severance costs 450 276

Total operating expenses $ 808,854 $ 734,692

* 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 Six Months Ended June 30,

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

Total $488,071 $424,702 $63,369 14.9%

Same Center $467,900 $410,523 $57,377 14.0%

Excluded $20,171 $14,179 — —

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

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 was relatively unchanged at $15.4 million for the six months ended June 30, 2024 compared to $15.5 million for six months ended June 30, 2023.

Building and equipment rental

In Thousands Six Months Ended June 30,

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

Total $58,722 $58,871 $(149) (0.3)%

Same Center $52,918 $53,867 $(949) (1.8)%

Excluded $5,804 $5,004 — —

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.

Medical supplies

In Thousands Six Months Ended June 30,

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

Total $48,478 $42,544 $5,934 13.9%

Same Center $45,626 $40,590 $5,036 12.4%

Excluded $2,852 $1,954 — —

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

The increase in PETHC procedures related to prostate cancer and suspected Alzheimer studies also raised medical supplies expense due to the requirement for high-cost isotope tracers.

Other operating expenses

In Thousands Six Months Ended June 30,

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

Total $135,066 $132,570 $2,496 1.9%

Same Center $127,089 $127,532 $(443) (0.3)%

Excluded Sites $7,977 $5,038 — —

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 Six Months Ended June 30,

2024 2023 $ Increase/(Decrease) % Change

Depreciation and amortization $62,063 $59,522 $2,541 4.3%

(Gain) Loss on contribution of imaging centers into joint venture $0 $0 $0 nm

Loss on disposal of equipment and other $586 $661 $(75) (11.3)%

Non-cash change in fair value of interest rate hedge $674 -$66 $740 (1121.2)%

Other expenses (income) $(4,520) $(1,650) $(2,870) 173.9%

Severance $450 $276 $174 63.0%

The increase in depreciation expense was the result of our higher depreciable asset base.

Other income for the six months ended June 30, 2024 included money market interest income of $13.1 million, partially offset by debt extinguishment and restructuring charges of $8.8 million, which related to refinancing of our credit facilities with Barclays.

See Note 6 Credit Facilities and Notes Payable included in the notes to our condensed consolidated financial statements.

nm= not meaningful

Interest expense

In Thousands Six Months Ended June 30,

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

Total Interest Expense $ 42,349 $ 31,761 $10,588 33.3 %

Interest related to derivatives* 2,844 (4,225)

Interest related to amortization** 1,541 1,494

Adjusted Interest Expense*** 37,964 34,492 3,472 10.1 %

*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 term loan debt as a result of refinancing of our Barclays credit facility, partially offset by lower interest rates compared to the same period in the prior year.

During the six months ended June 30, 2024, interest rates were above the arranged rates in our 2019 Swaps 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.

Also, the 2019 Swaps for $100 million of notional value matured in October 2023, so they were in effect for the second quarter of 2023, but not 2024.

Equity in earnings from unconsolidated joint ventures

For the six months ended June 30, 2024 we recognized equity in earnings from unconsolidated joint ventures in the amount of $7.7 million and for the six months ended June 30, 2023 we recognized equity in earnings from unconsolidated joint ventures of $2.9 million, an increase of $4.9 million or 170.5%.

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.

SMIG operated at a net income for the three months ended June 30, 2024, which positively impacted our equity in earnings from unconsolidated joint ventures during the period.

Income tax expense

We recorded income tax expense of $0.6 million, or an effective tax rate of 4.6%, for the six months ended June 30, 2024 and $0.5 million, or an effective tax rate of 65.5% for the six months ended June 30, 2023.

The income tax rates for the six months ended June 30, 2024 diverge from the federal statutory rate due to (i) effects of state income taxes ;

(ii) officer's compensation limitations;

(iii) partial valuation allowance on losses in foreign jurisdictions, partially offset by (iv) excess tax benefits attributable to share based compensation;

and (v) noncontrolling interests from controlled partnerships.

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.

At June 30, 2023, our consolidated subsidiaries included 322 centers of which 82 were not wholly-owned.

For the six months ended June 30, 2024, we recognized net income attributable to noncontrolling interests of $18.1 million versus $12.9 million for the six months ended June 30, 2024, an increase of $5.2 million.

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.

As noncontrolling interests only represent a portion of our imaging center business, and excludes our Digital Health Segment which generated losses of $5.9 million for the six months ended June 30, 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

The breakdown of revenue and expenses of the segment for the three and six months ended June 30, 2024 and 2023 are as follows:

In Thousands Three Months Ended June 30, Six Months Ended June 30,

2024 2023 $ Change % Change 2024 2023 $ Change % Change

Statement of Operations

6 unchanged sentences

2,386 2,106 280 13.3 % 4,780 3,973 807 20.3 %

Other operating (gain) loss

3 (7) 10 (142.9) % 1 (5) 6 (120.0) %

Severance 43 1,716 (1,673) (97.5) % 43 1,728 (1,685) (97.5) %

8 unchanged sentences

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.

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 and higher non-capitalized research and development expenses with respect to our new DeepHealth cloud OS and generative AI.

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.

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

Non-GAAP Financial Measures

8 unchanged sentences

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 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,

The following is a reconciliation of the nearest comparable GAAP financial measure, net income, to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023, respectively.

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net income attributable to RadNet, Inc.

5 unchanged sentences

Non-cash employee stock-based compensation 4,749 4,871 16,646 17,056

(Gain) loss on sale and disposal of equipment and other 186 579

Loss (gain) on sale and disposal of equipment and other 401 77 587 656

Non-cash change in fair value of interest rate hedge 1,890 (4,159) 674 (66)

Other expenses (7,900) 40 (10,834) 1,472

Non-cash change to contingent consideration 1,974 —

Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI 3,317 — 6,632 —

Acquisition related non-cash intangible adjustment — 1,616

Loss (gain) on extinguishment of debt and related expenses 8,762 — 8,762 —

Non-cash change to contingent consideration — 1,014 1,974 2,630

Non-operational rent expenses 809 759 1,832 1,718

4 unchanged sentences

$ 69,058 $ 59,056 $ 124,000 $ 107,201

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,

The following table is a reconciliation of GAAP net income for our Digital Health Segment to Adjusted EBITDA for the three months ended June 30, 2024 and 2023, respectively.

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Segment net loss $ (4,346) $ (3,090) $ (8,032) $ (7,560)

7 unchanged sentences

Adjusted EBITDA - Digital Health Segment

$ 3,269 $ 1,390 $ 6,789 $ 1,410

Liquidity and Capital Resources

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.

Our principal capital requirements are for the initial start-up and development of new diagnostic imaging centers, the acquisition of additional imaging 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 expect to fund any future acquisitions primarily with cash flow from operations and borrowings, including borrowing 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):

The following table summarizes key balance sheet data related to our liquidity as of June 30, 2024 and December 31, 2023 and income statement data for the six months ended June 30, 2024 and 2023 (in thousands):

Balance Sheet Data:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Cash and cash equivalents $ 741,679 $ 342,570

2 unchanged sentences

Stockholders' equity 1,092,840 813,359

Income statement data for the three months ended March 31,

Income statement data for the six months ended June 30,

Total net revenue $ 891,421 $ 794,279

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

Net loss attributable to RadNet common stockholders (5,761) (12,636)

Sources and Uses of Cash

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

The following table summarizes key components of our sources and uses of cash for the six months ended June 30, 2024 and 2023 (in thousands):

Cash Flow Data June 30, 2024 June 30, 2023

Cash provided by (used in) operating activities $ 133,090 $ 100,691

1 unchanged sentence

Cash provided by (used in) financing activities 404,404 234,302

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.

Cash provided by operating activities for the six months ended June 30, 2024 increased by $32.4 million compared to June 30, 2023 primarily driven by the a $12.1 million increase in net income and a $24.7 million change in assets and liabilities, primarily related to a pay down of accounts payable and accrued expenses.

Cash used in investing activities for the six months ended June 30, 2024 increased from June 30, 2023 by $32.4 million.

Purchases of imaging centers during the period was $32.8 million, a $22.5 million increase from the prior period.

Capital expenditures for property and equipment during the period was $104.1 million, a $8.7 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.

Cash provided by financing activities for the six months ended June 30, 2024 resulted from a secondary public offering of our common stock and a refinancing of our Barclays credit facility.

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.

In April 2024, we refinanced our Barclays credit facility replacing the prior facility with an $875 million term loan.

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.

Senior Secured Credit Facilities

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

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:

On April 18, 2024, we refinanced our Barclays 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 our 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.

Our condensed consolidated balance sheets at June 30, 2024 include $1,015.6 million of total term loan debt (exclusive of unamortized discounts of $15.8 million) in thousands:

Face Value Discount Total Carrying

2 unchanged sentences

Total Term Loans $ 1,015,625 $ (16,678) $ 998,947

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

At June 30, 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 $274.4 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.

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