RadNet, Inc. 10-Q

Item 1 – Financial Statements RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) June 30, 2024 December 31, 2023 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 741,679 $ 342,570 Accounts receivable 195,288 163,707 Due from affiliates 29,221 25,342 Prepaid expenses and other current assets 38,536 47,657 Total current assets 1,004,724 579,276 PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS Property and equipment, net 652,882 604,401 Operating lease right-of-use assets 624,081 596,032 Total property, equipment and right-of-use assets 1,276,963 1,200,433 OTHER ASSETS Goodwill 708,980 679,463 Other intangible assets 84,049 90,615 Deferred financing costs 2,505 1,643 Investment in joint ventures 100,844 92,710 Deposits and other 51,358 46,333 Total assets $ 3,229,423 $ 2,690,473 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable, accrued expenses and other $ 353,898 $ 342,940 Due to affiliates 32,375 15,910 Deferred revenue 4,462 4,647 Current operating lease liability 59,251 55,981 Current portion of notes payable 24,215 17,974 Total current liabilities 474,201 437,452 LONG-TERM LIABILITIES Long-term operating lease liability 632,385 605,097 Notes payable, net of current portion 1,002,392 812,068 Deferred tax liability, net 17,471 15,776 Other non-current liabilities 10,134 6,721 Total liabilities 2,136,583 1,877,114 EQUITY Common stock - $ 0.0001 par value, 200,000,000 shares authorized; 73,968,042 and 67,956,318 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively 7 7 Additional paid-in-capital 974,355 722,750 Accumulated other comprehensive loss ( 8,057 ) ( 12,484 ) Accumulated deficit ( 85,339 ) ( 79,578 ) Total RadNet, Inc.'s Stockholders' equity: 880,966 630,695 Noncontrolling interests 211,874 182,664 Total equity 1,092,840 813,359 Total liabilities and equity $ 3,229,423 $ 2,690,473 The accompanying notes are an integral part of these financial statements. 1 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 REVENUE Service fee revenue $ 422,745 $ 363,918 $ 819,934 $ 716,338 Revenue under capitation arrangements 36,969 39,797 71,487 77,941 Total service revenue 459,714 403,715 891,421 794,279 OPERATING EXPENSES Cost of operations, excluding depreciation and amortization 389,724 345,147 777,313 697,012 Depreciation and amortization 34,475 32,180 66,843 63,495 Loss on sale and disposal of equipment and other 401 77 587 656 Severance costs 268 1,870 493 2,004 Total operating expenses 424,868 379,274 845,236 763,167 INCOME FROM OPERATIONS 34,846 24,441 46,185 31,112 OTHER INCOME AND EXPENSES Interest expense 26,082 16,039 42,349 31,761 Equity in earnings of joint ventures ( 3,389 ) ( 1,423 ) ( 7,713 ) ( 2,851 ) Non-cash change in fair value of interest rate hedge 1,890 ( 4,159 ) 674 ( 66 ) Debt restructuring and extinguishment expenses 8,762 — 8,762 — Other (income) expenses ( 7,900 ) 40 ( 10,834 ) 1,472 Total other expense 25,445 10,497 33,238 30,316 INCOME BEFORE INCOME TAXES 9,401 13,944 12,947 796 (Provision for) benefit from for income taxes ( 2,456 ) 614 ( 592 ) ( 521 ) NET INCOME 6,945 14,558 12,355 275 Net income attributable to noncontrolling interest 9,927 6,189 18,116 12,911 NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ ( 2,982 ) $ 8,369 $ ( 5,761 ) $ ( 12,636 ) BASIC NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ ( 0.04 ) $ 0.14 $ ( 0.08 ) $ ( 0.21 ) DILUTED NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ ( 0.04 ) $ 0.12 $ ( 0.08 ) $ ( 0.21 ) WEIGHTED AVERAGE SHARES OUTSTANDING Basic 73,419,124 59,880,803 71,795,080 59,221,453 Diluted 73,419,124 60,916,985 71,795,080 59,221,453 The accompanying notes are an integral part of these financial statements. 2 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 NET INCOME $ 6,945 $ 14,558 $ 12,355 $ 275 Foreign currency translation adjustments ( 631 ) 873 ( 2,829 ) 3,650 Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes 6,517 922 7,256 1,844 COMPREHENSIVE INCOME 12,831 16,353 16,782 5,769 Less comprehensive income attributable to noncontrolling interests 9,927 6,189 18,116 12,911 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 2,904 $ 10,164 $ ( 1,334 ) $ ( 7,142 ) The accompanying notes are an integral part of these financial statements. 3 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE DATA) (unaudited) The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the three months ended June 30, 2024 and June 30, 2023. Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Radnet, Inc.'s Equity Noncontrolling Interests Total Equity Shares Amount BALANCE - MARCH 31, 2024 73,901,654 $ 7 $ 969,248 $ ( 13,943 ) $ ( 82,357 ) $ 872,955 $ 204,370 $ 1,077,325 Issuance of common stock upon exercise of options 59,306 — 359 — — 359 — 359 Shares issued under the equity compensation plan 41,120 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 4,984 — — — — — — — Stock-based compensation expense — — 4,773 — — 4,773 — 4,773 Forfeiture of restricted stock and share cancellation ( 39,022 ) — ( 25 ) — — ( 25 ) — ( 25 ) Distributions paid to noncontrolling interests — — — — — — ( 2,423 ) ( 2,423 ) Change in cumulative foreign currency translation adjustment — — — ( 631 ) — ( 631 ) — ( 631 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 6,517 — 6,517 — 6,517 Net (loss) income — — — — ( 2,982 ) ( 2,982 ) 9,927 6,945 BALANCE - JUNE 30, 2024 73,968,042 $ 7 $ 974,355 $ ( 8,057 ) $ ( 85,339 ) $ 880,966 $ 211,874 $ 1,092,840 BALANCE - MARCH 31, 2023 58,270,290 $ 6 $ 448,522 $ ( 16,978 ) $ ( 103,628 ) $ 327,922 $ 165,179 $ 493,101 Issuance of common stock under the equity compensation plan 538,185 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 5,612 — — — — — — — Stock-based compensation expense — — 4,870 — — 4,870 — 4,870 Issuance of common stock, net of issuance costs 8,711,250 1 246,201 — — 246,202 — 246,202 Issuance of common stock for sale of unregistered securities for acquisition 144,227 — 4,000 — — 4,000 — 4,000 Distributions paid to noncontrolling interests — — — — — — ( 3,523 ) ( 3,523 ) Change in cumulative foreign currency translation adjustment — — — 873 — 873 — 873 Change in fair value of cash flow hedge from prior periods reclassifed to earnings — — — 922 — 922 — 922 Other — — — — 1 1 — 1 Net income — — — — 8,369 8,369 6,189 14,558 BALANCE - JUNE 30, 2023 67,669,564 $ 7 $ 703,593 $ ( 15,183 ) $ ( 95,258 ) $ 593,159 $ 167,845 $ 761,004 The accompanying notes are an integral part of these financial statements. 4 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE DATA) (unaudited) The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the six months ended June 30, 2024 and June 30, 2023. 5 Table of Contents Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Radnet, Inc.'s Equity Noncontrolling Interests Total Equity Shares Amount BALANCE - DECEMBER 31, 2023 67,956,318 $ 7 $ 722,750 $ ( 12,484 ) $ ( 79,578 ) $ 630,695 $ 182,664 $ 813,359 Issuance of common stock upon exercise of options 60,605 — 367 — — 367 — 367 Issuance of common stock under the equity compensation plan 657,887 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 9,377 — — — — — — — Stock-based compensation expense — — 16,679 — — 16,679 — 16,679 Issuance of common stock 5,232,500 — 218,385 — — 218,385 — 218,385 Issuance of common stock in connection with acquisitions 95,019 — 4,607 — — 4,607 — 4,607 Forfeiture of restricted stock and share cancellation ( 43,664 ) — ( 34 ) — — ( 34 ) — ( 34 ) Distributions paid to noncontrolling interests — — — — — — ( 2,423 ) ( 2,423 ) Contributions from noncontrolling interests — — 11,601 — — 11,601 — 11,601 Sale of economic interests in majority owned subsidiary, net of taxes — — — — — — 13,517 13,517 Change in cumulative foreign currency translation adjustment — — — ( 2,829 ) — ( 2,829 ) — ( 2,829 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 7,256 — 7,256 — 7,256 Net (loss) income — — — — ( 5,761 ) ( 5,761 ) 18,116 12,355 BALANCE-JUNE 30, 2024 73,968,042 $ 7 $ 974,355 $ ( 8,057 ) $ ( 85,339 ) $ 880,966 $ 211,874 $ 1,092,840 BALANCE - DECEMBER 31, 2022 57,723,125 $ 6 $ 436,288 $ ( 20,677 ) $ ( 82,622 ) $ 332,995 $ 158,457 $ 491,452 Issuance of common stock upon exercise of options 5,000 — 51 — — 51 — 51 Issuance of common stock under the equity compensation plan 1,065,877 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 20,085 — — — — — — — Stock-based compensation expense — — 17,055 — — 17,055 — 17,055 Issuance of common stock 8,711,250 1 246,201 — — 246,202 — 246,202 Issuance of common stock for sale of unregistered securities 144,227 — 4,000 — — 4,000 — 4,000 Distributions paid to noncontrolling interests — — — — — — ( 3,523 ) ( 3,523 ) Change in cumulative foreign currency translation adjustment — — — 3,650 — 3,650 — 3,650 Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 1,844 — 1,844 — 1,844 Other — — ( 2 ) — — ( 2 ) — ( 2 ) Net (loss) income — — — — ( 12,636 ) ( 12,636 ) 12,911 275 BALANCE-JUNE 30, 2023 67,669,564 $ 7 $ 703,593 $ ( 15,183 ) $ ( 95,258 ) $ 593,159 $ 167,845 $ 761,004 The accompanying notes are an integral part of these financial statements. 6 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (unaudited) Six Months Ended June 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 12,355 $ 275 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 66,843 63,495 Noncash operating lease expense 30,006 31,601 Equity in earnings of joint ventures, net of dividends ( 6,713 ) 6,096 Amortization of deferred financing costs and loan discount 1,541 1,494 Loss on sale and disposal of equipment 587 656 Loss on extinguishment of debt 2,080 — Amortization of cash flow hedge, net of taxes 7,256 1,844 Non-cash change in fair value of interest rate hedge 674 ( 66 ) Stock-based compensation 16,645 17,055 Change in fair value of contingent consideration 1,974 3,098 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: Accounts receivable ( 31,581 ) ( 8,124 ) Other current assets 5,242 4,703 Other assets ( 5,553 ) ( 6,590 ) Deferred taxes 1,791 ( 2,249 ) Operating leases ( 27,707 ) ( 28,582 ) Deferred revenue ( 185 ) 1,033 Accounts payable, accrued expenses and other 57,835 14,952 Net cash provided by operating activities 133,090 100,691 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of imaging facilities and other acquisitions ( 32,771 ) ( 10,315 ) Purchase of property and equipment and other ( 104,095 ) ( 95,380 ) Proceeds from sale of equipment 9 73 Equity contributions in existing and purchase of interest in joint ventures ( 1,421 ) ( 288 ) Net cash used in investing activities ( 138,278 ) ( 105,910 ) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes and leases payable ( 2,624 ) ( 1,052 ) Payments on Term Loan Debt ( 682,438 ) ( 7,376 ) Proceeds from debt refinancing, net of issuing costs 863,869 — Contribution from noncontrolling partners 4,169 — Payments on contingent consideration ( 3,614 ) — Distributions paid to noncontrolling interests ( 2,423 ) ( 3,523 ) Proceeds from sale of economic interests in majority owned subsidiary, net of taxes 8,713 — Proceeds from issuance of common stock 218,385 246,202 Proceeds from issuance of common stock upon exercise of options 367 51 Net cash provided by financing activities 404,404 234,302 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 107 ) ( 266 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 399,109 228,817 CASH AND CASH EQUIVALENTS, beginning of period 342,570 127,834 CASH AND CASH EQUIVALENTS, end of period $ 741,679 $ 356,651 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 34,203 $ 39,301 Cash paid during the period for income taxes $ 705 $ 201 The accompanying notes are an integral part of these financial statements. 7 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (unaudited) Supplemental Schedule of Non-Cash Investing and Financing Activities We acquired equipment and certain leasehold improvements for approximately $ 45.4 million and $ 61.3 million during the six months ended June 30, 2024 and 2023, respectively, which were not paid for as of June 30, 2024 and 2023 , respectively. The amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other. On April 1, 2024, we issued promissory notes in the amount of $ 6.3 million to acquire radiology equipment previously leased under operating leases. On March 29, 2024, we received $ 0.6 million in fixed assets, imaging equipment, and $ 6.5 million in goodwill from our partner in Tri Valley Imaging Group, LLC. See Note 4, Business Combinations and Related Activity. On March 27, 2024, we issued 95,019 shares of common stock to settle the stock contingent liabilities as part of our purchase of Heart & Lung Imaging Limited. The shares were ascribed a value of $ 4.6 million. On January 15, 2024, we issued promissory notes in the amount of $ 6.9 million to acquire radiology equipment previously leased under operating leases. 8 Table of Contents RADNET, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States. 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. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. In the first quarter of 2024, we revised our reportable segments to combine our eRad business, which was included in the Imaging Center segment, with our AI segment to form a new Digital Health reportable segment. Prior period amounts were adjusted retrospectively to reflect the change in reportable segment. For further financial information about these segments, see Note 5, Segment Reporting. In March 2024, we closed on a public offering of 5,232,500 shares of our common stock, including 682,500 shares sold pursuant to the exercise of an underwriter's overallotment option, at a price to the public of $ 44.00 per share. The gross proceeds as a result of this public offering was $ 230.2 million before underwriting discounts, commissions, and costs totaling $ 11.8 million. The consolidated financial statements include the accounts of RadNet, Inc as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report. Accounting regulations stipulate that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics which evidence a controlling financial interest, is considered a Variable Interest Entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. VIEs that we consolidate as the primary beneficiary include professional corporations which are owned or controlled by individuals within our senior management and provide professional medical services for centers in Arizona, California, Delaware, Maryland, New Jersey and New York. These VIEs are collectively referred to as the consolidated medical group ("the Group"). RadNet provides non-medical, technical and administrative services to the Group for which it receives a management fee, pursuant to the related management agreements. Through the management agreements we have exclusive authority over all non-medical decision making related to the ongoing business operations and we determine the annual budget. The Group has insignificant operating assets and liabilities, and de minimis equity. Substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group. The creditors of the Group do not have recourse to our general credit and there are no other arrangements that could expose us to losses on behalf of the Group. However, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. The Group on a combined basis recognized $ 54.9 million and $ 51.4 million of revenue, net of management services fees to RadNet, for the three months ended June 30, 2024 and 2023, respectively and $ 54.9 million and $ 51.4 million of operating expenses for the three months ended June 30, 2024 and 2023, respectively. RadNet recognized $ 231.1 million and $ 216.2 million of total billed net service fee revenue for the three months ended June 30, 2024, and 2023, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. The Group on a combined basis recognized $ 107.2 million and $ 100.2 million of revenue, net of management services fees to RadNet, for the six months ended June 30, 2024 and 2023, respectively and $ 107.2 million and $ 100.2 million of operating expenses for the six months ended June 30, 2024 and 2023, respectively. RadNet recognized $ 465.9 million and 9 Table of Contents six months ended June 30, 2024 $ 423.6 million of total billed net service fee revenue for the six months ended June 30, 2024, and 2023, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. In our condensed consolidated balance sheets at June 30, 2024 and December 31, 2023, we have included approximately $ 113.4 million and $ 94.1 million, respectively, of accounts receivable and approximately $ 22.5 million and $ 16.7 million of accounts payable and accrued liabilities related to the Group, respectively.The cash flows of the Group are included in the accompanying condensed consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. At all of our centers not serviced by the Group we have entered into long-term contracts with medical groups to provide professional services at those centers, including supervision and interpretation of diagnostic imaging procedures. The medical groups maintain full control over the physicians they employ. Through our management agreements, we make available to the medical groups the imaging centers, including all furniture, fixtures and medical equipment therein. The medical groups are compensated for their services from the professional component of the global net service fee revenue and after deducting management service fees paid to us, we have no economic controlling interest in these medical groups. As such, the financial results of these groups are not consolidated in our financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for conformity with U.S. generally accepted accounting principles for complete financial statements; however, in the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended June 30, 2024 and 2023 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2023. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES There have been no material changes to the significant accounting policies we use and have explained in our annual report on Form 10-K for the fiscal year ended December 31, 2023. The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2023. REVENUES - Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period when our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the fees for the services provided are dependent upon the terms provided by Medicare and Medicaid, or negotiated with managed care health plans and commercial insurance companies. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by the Group as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. 10 Table of Contents Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans. Our total service revenues during the three and six months ended June 30, 2024 and 2023 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Commercial insurance $ 256,517 $ 220,618 $ 497,145 $ 433,673 Medicare 101,719 87,787 195,186 172,757 Medicaid 11,001 9,798 21,906 19,763 Workers' compensation/personal injury 10,997 12,580 22,837 25,017 Other patient revenue 12,432 10,196 23,897 19,751 Management fee revenue 6,106 4,033 12,014 8,281 Heart and lung 3,936 2,123 7,857 3,936 Other 4,209 5,180 8,604 10,480 Revenue under capitation arrangements 36,969 39,797 71,487 77,941 Imaging Center Segment Revenue 443,886 392,112 860,933 860933000 771,599 Digital Health Segment Revenue 15,828 11,603 30,488 22,680 Total service revenue $ 459,714 $ 403,715 $ 891,421 $ 794,279 ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience. We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Proceeds on notes receivables are reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. Amounts remaining to be collected on these agreements were $ 4.9 million and $ 14.3 million at June 30, 2024 and December 31, 2023, respectively. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis. DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method and are related to our revolving credit facilities. Deferred financing costs, net of accumulated amortization, were $ 2.5 million and $ 1.6 million, as of June 30, 2024 and December 31, 2023, respectively. See Note 6, Credit Facilities and Notes Payable for more information. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years. Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred. BUSINESS COMBINATION - When the qualifications for business combination accounting treatment are met, it requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we 11 Table of Contents record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. GOODWILL - Goodwill at June 30, 2024 totaled $ 709.0 million. Goodwill is recorded as a result of business combinations. If we determine the carrying value of a reporting unit exceeds its fair value an impairment charge would be recognized and should not exceed the total amount of goodwill allocated to that reporting unit. We tested goodwill and indefinite lived intangibles for impairment on October 1, 2023 noting no impairment, and we have not identified any indicators of impairment through June 30, 2024. Activity in goodwill for the six months ended June 30, 2024 is provided below (in thousands): Imaging Center Digital Health Total Balance as of December 31, 2023 606,557 $ 72,906 $ 679,463 Goodwill from acquisitions 31,549 — 31,549 Valuation adjustment ( 358 ) — ( 358 ) Currency translation ( 184 ) ( 1,490 ) ( 1,674 ) Segment reorganization ( 12,300 ) 12,300 — Balance as of June 30, 2024 $ 625,264 $ 83,716 $ 708,980 INTANGIBLE ASSETS - Intangible assets are primarily related to our business combinations and software development. They include the estimated fair values of such items as service agreements, customer lists, covenants not to compete, acquired technologies, and trade names. The components of intangible assets, both finite and indefinite, along with annual amortization expense that will be recorded over the next five years at June 30, 2024 and December 31, 2023 are as follows (in thousands): As of June 30, 2024: 2024* 2025 2026 2027 2028 Thereafter Total Weighted average amortization period remaining in years Management service contracts $ 1,144 $ 2,287 $ 2,287 $ 2,287 $ 2,287 $ 6,671 $ 16,963 7.4 Covenant not to compete and other contracts 517 865 578 283 193 48 2,484 3.2 Customer lists 612 1,093 971 795 758 10,481 14,710 17.5 Patent and trademarks 150 301 301 301 301 180 1,534 5.5 Developed technology 3,738 7,476 7,436 6,902 6,902 6,620 39,074 6.0 Trade names amortized 39 77 77 77 63 27 360 4.8 Trade names indefinite life — — — — — 7,100 7,100 — IPR&D — — — — — 1,824 1,824 — Total annual amortization $ 6,200 $ 12,099 $ 11,650 $ 10,645 $ 10,504 $ 32,951 $ 84,049 *Excluding the six months ended June 30, 2024 12 Table of Contents As of December 31, 2023: 2024 2025 2026 2027 2028 Thereafter Total Weighted average amortization period remaining in years Management service contracts $ 2,287 $ 2,287 $ 2,287 $ 2,287 $ 2,287 $ 6,671 $ 18,106 7.9 Covenant not to compete and other contracts 946 714 427 132 45 6 2,270 3.4 Customer lists 1,234 1,104 981 797 764 10,564 15,444 17.7 Patent and trademarks 316 316 316 315 300 164 1,727 5.8 Developed technology 7,785 7,785 7,745 7,210 7,046 6,117 43,688 5.7 Trade names amortized 77 77 77 77 63 27 398 5.3 Trade names indefinite life — — — — — 7,100 7,100 — IPR&D — — — — — 1,882 1,882 — Total annual amortization $ 12,645 $ 12,283 $ 11,833 $ 10,818 $ 10,505 $ 32,531 $ 90,615 Total intangible asset amortization expense was $ 3.1 million and $ 6.2 million for the three and six months ended June 30, 2024, respectively. Total amortization expense was $ 3.0 million and $ 6.0 million for the three and six months ended June 30, 2023, respectively. Intangible assets are amortized using the straight-line method over their useful life determined at acquisition. Management service contracts are amortized over 25 years using the straight line method. Developed technology is capitalized and amortized over the useful life of the software when placed into service. Trade names are reviewed annually for impairment. INCOME TAXES - Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized. In 2021, the Organization for Economic Co-operation and Development ("OECD") announced an inclusive framework on base erosion and profit shifting including Pillar Two Model Rules defining the global minimum tax, which calls for taxation of large multinational corporations at a minimum rate of 15%. Subsequently, multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to support certain components of Pillar Two Model Rules beginning 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. The model rules provide a framework for applying the minimum tax, countries may enact Pillar Two Model Rules slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar Two Model Rules. On a long-term basis, we will continue to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in all countries applicable to us. For 2024, we expect that we will meet one or more transactional safe harbor rules, and as such, we do not believe Pillar Two model will have an impact on our annual effective tax rate for the year ending December 31, 2024. We recorded an income tax expense of $ 2.5 million, or an effective tax rate of 26.1 %, for the three months ended June 30, 2024 and a benefit of $ 0.6 million, or an effective tax rate of ( 4.4 )% for the three months ended June 30, 2023. 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 three and 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. LEASES - We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our condensed consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have 13 Table of Contents elected to account for the components as a single lease component. ROU assets are tested for impairment if circumstances suggest that the carrying amount may not be recoverable. Our ROU assets consist of facility and equipment assets on operating leases. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets as of June 30, 2024. Our facility leases require us to maintain insurance policies which would cover major damage to our facilities. We maintain business interruption insurance to cover loss of business due to a facility becoming non-operational under certain circumstances. Our equipment leases are covered by warranty and service contracts which cover repairs and provide regular maintenance to keep the equipment in functioning order. EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we have amended and restated at various points in time: first on April 20, 2015, second on March 9, 2017, third on April 15, 2021 and fourth on April 27, 2023 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 7, 2023. We have reserved 20,100,000 shares of common stock for issuance under the Restated Plan which can be issued in the form of incentive and/or nonstatutory stock options, restricted and/or unrestricted stock, stock units, and stock appreciation rights. Terms and conditions of awards can be direct grants or based on achieving a performance metric. We evaluate performance-based awards to determine if it is probable that the vesting conditions will be met. We also consider probability of achievement of performance conditions when determining expense recognition. For the awards where vesting is probable, equity-based compensation is recognized over the related vesting period. Stock options generally vest over three years to five years and expire five years to ten years from date of grant. We determine the compensation expense for each stock option award using the Black Scholes model. This model requires that our management make certain estimates concerning risk free interest rates and volatility in the trading price of our common stock. The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. In connection with our acquisition of DeepHealth Inc. on June 1, 2020, we assumed the DeepHealth, Inc. 2017 Equity Incentive Plan, including outstanding options awards that can be exercised for our common stock. No additional awards will be granted under the DeepHealth, Inc. 2017 Equity Incentive Plan. See Note 7, Stock-Based Compensation, for more information. COMPREHENSIVE INCOME (LOSS) - Accounting guidance establishes rules for reporting and displaying other comprehensive income (loss) and its components. Our foreign currency translation adjustments and the amortization of balances associated with derivatives previously classified as cash flow hedges are included in other comprehensive income (loss). The components of other comprehensive income (loss) for the three and six months ended June 30, 2024 and June 30, 2023 are included in the consolidated statements of comprehensive income (loss). COMMITMENTS AND CONTINGENCIES - We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Based on current information, we do not believe that reasonably possible or probable losses associated with pending legal proceedings would either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. DERIVATIVE INSTRUMENTS - In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $ 500.0 million, consisting of two agreements of $ 50.0 million each and two agreements of $ 200.0 million each. The 2019 Swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They matured in October 2023 for the smaller notional and will mature in October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month Term SOFR rates at 1.89 % for the $ 100.0 million notional and at 1.98 % for the $ 400.0 million notional. As of the effective date, we are liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates are above the arranged rates. At inception, we designated our 2019 Swaps as cash flow hedges of floating-rate borrowings. In accordance with accounting guidance, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is reported as a component of comprehensive gain or loss in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. The cash flows for both our $ 400.0 million notional interest rate swap contract locked in at 1.98 % due October 2025 and our $ 100.0 million notional interest rate swap contract locked in at 1.89 % do not match the cash flows for our Term Loans (the “Barclays Term Loans”) under our Second Amended and Restated First Lien Credit and Guaranty Agreement with Barclays (the “Barclays Credit Agreement”), and so we have determined that they are not currently effective as cash flow 14 Table of Contents hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $ 400.0 million notional and after July 1, 2020 for the $ 100.0 million notional are being recognized in earnings. As of July 1, 2020, the total change in fair value relating to swaps included in other comprehensive income was approximately $ 24.4 million, net of taxes. This amount was amortized to interest expense through October 2023 at approximately $ 0.4 million per month and continuing at approximately $ 0.3 million through October 2025. The effect for the release of the taxes from other comprehensive income is based on current tax rate. A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive income of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): For the three months ended June 30, 2024 Account March 31, 2024 Balance Amount of comprehensive loss recognized on derivative net of taxes Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes* June 30, 2024 Balance Location Accumulated Other Comprehensive Loss, net of taxes $( 10,886 ) $ — $ 6,517 $( 4,369 ) Equity *Net of taxes of $ 2.2 million for the three months ended June 30, 2024. For the six months ended June 30, 2024 Account December 31, 2023 Balance Amount of comprehensive loss recognized on derivative net of taxes Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes* June 30, 2024 Balance Location Accumulated Other Comprehensive Loss, net of taxes $( 11,625 ) $ — $ 7,256 $( 4,369 ) Equity *Net of taxes of $ 2.4 million for the six months ended June 30, 2024. A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): For the three months ended June 30, 2024 Ineffective interest rate swap Amount of loss recognized in income on derivative (current period ineffective portion) Location of loss recognized in Income on derivative (current period ineffective portion) Amount of loss reclassified from accumulated OCI into income (prior period effective portion) Location of loss reclassified from accumulated OCI into income (prior period effective portion) Interest rate contracts $ ( 1,890 ) Other income (expense) $ 6,517 Interest Expense 15 Table of Contents For the six months ended June 30, 2024 Ineffective interest rate swap Amount of gain recognized in income on derivative (current period ineffective portion) Location of gain recognized in Income on derivative (current period ineffective portion) Amount of loss reclassified from accumulated OCI into income (prior period effective portion) Location of loss reclassified from accumulated OCI into income (prior period effective portion) Interest rate contracts $ ( 674 ) Other income (expense) $ 7,256 Interest Expense See Fair Value Measurements section below for the fair value of the 2019 Swaps at June 30, 2024. CONTINGENT CONSIDERATION - Heart and Lung Imaging Limited On November 1, 2022, we completed our acquisition of 75 % of the equity interests of Heart and Lung Imaging Limited. The purchase included up to $ 10.2 million in contingent milestone consideration and cash holdback of $ 0.6 million to be issued 24 months after acquisition subject to adjustment for any indemnification claims, which will be adjusted to fair value in subsequent periods. The holdback had a value of approximately $ 0.6 million as of June 30, 2024. The contingent consideration is determined by the achievement of a specific number of physician reads. On September 20, 2023, we settled a milestone contingent liability by issuing 56,600 shares of our common stock at an ascribed value of $ 1.6 million and cash of $ 1.8 million. On December 12, 2023, we settled a milestone contingent liability by issuing 64,569 shares of our common stock at an ascribed value of $ 2.3 million and cash of $ 2.1 million. On March 27, 2024, we partially settled a milestone contingent liability by issuing 95,019 shares of our common stock at an ascribed value of $ 4.6 million. On April 1, 2024, we settled the remaining milestone contingent liability in cash of $ 3.6 million. A tabular rollforward of contingent consideration is as follows (amounts in thousands): 16 Table of Contents For the three months ended June 30, 2024 Entity Account March 31, 2024 Balance Settlement of contingent consideration Change in valuation of contingent consideration Currency translation June 30, 2024 Balance Heart and Lung Accrued expenses 4,246 $ ( 3,614 ) $ — $ — $ 632 For the three months ended June 30, 2023 Entity Account March 31, 2023 Balance Settlement of contingent consideration Change in valuation of contingent consideration Currency translation June 30, 2023 Balance Heart and Lung Accrued Expenses & Other Long Term Liabilities 13,130 $ — $ 867 $ 361 $ 14,358 For the six months ended June 30, 2024 Entity Account January 1, 2024 Balance Settlement of contingent consideration Change in valuation of contingent consideration Currency translation June 30, 2024 Balance Heart and Lung Accrued expenses 6,879 $ ( 8,221 ) $ 1,060 $ 914 $ 632 For the six months ended June 30, 2023 Entity Account January 1, 2023 Balance Settlement of contingent consideration Change in valuation of contingent consideration Currency translation June 30, 2023 Balance Heart and Lung Accrued Expenses & Other Long Term Liabilities 11,656 $ — $ 1,991 $ 711 $ 14,358 See Fair Value Measurements section below for the fair value of contingent consideration at June 30, 2024. FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement: Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data. Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment. Derivatives: The tables below summarize the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our condensed consolidated balance sheets, as follows (in thousands): 17 Table of Contents As of June 30, 2024 Level 1 Level 2 Level 3 Total Current and long term assets 2019 Swaps - Interest Rate Contracts $ — $ 14,443 $ — $ 14,443 As of December 31, 2023 Level 1 Level 2 Level 3 Total Current and long term assets 2019 Swaps - Interest Rate Contracts $ — $ 15,118 $ — $ 15,118 The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward SOFR curve. The forward SOFR curve is readily available in the public markets or can be derived from information available in the public markets. Contingent Consideration: The table below summarizes the estimated fair values of holdback relating to our Heart and Lung Imaging Limited acquisition on November 1, 2022 that are subject to fair value measurements and the classification of these liabilities on our condensed consolidated balance sheets, as follows (in thousands): As of June 30, 2024 Level 1 Level 2 Level 3 Total Accrued expenses Heart and Lung $ — $ — $ 632 $ 632 As of December 31, 2023 Level 1 Level 2 Level 3 Total Accrued expenses Heart & Lung Imaging Limited $ — $ — $ 6,879 $ 6,879 The estimated fair value of these liabilities was determined using Level 3 inputs. For Heart Lung Imaging Limited the contingent consideration is determined by the achievement of a specific number of physician reads. The fair value is measured based upon the probability adjusted amount expected to be paid. As significant inputs for the contingent consideration of Heart Lung Imaging Limited are not observable and cannot be corroborated by observable market data they are classified as Level 3. Long Term Debt: The table below summarizes the estimated fair value compared to our face value of our long-term debt as follows (in thousands): As of June 30, 2024 Level 1 Level 2 Level 3 Total Fair Value Total Face Value Barclays Term Loans and Truist Term Loan $ — $ 1,017,813 $ — $ 1,017,813 $ 1,015,625 As of December 31, 2023 Level 1 Level 2 Level 3 Total Fair Value Total Face Value Barclays Term Loans and Truist Term Loan $ — $ 824,759 $ — $ 824,759 $ 823,063 The estimated fair value of our long-term debt, which is discussed in Note 6, Credit Facilities and Notes Payable, was determined using Level 2 inputs primarily related to comparable market prices. 18 Table of Contents We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment. EARNINGS PER SHARE - Earnings per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding, net of common stock held in treasury, as follows (in thousands except share and per share data): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ ( 2,982 ) $ 8,369 $ ( 5,761 ) $ ( 12,636 ) BASIC NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 73,419,124 59,880,803 71,795,080 59,221,453 Basic and diluted net loss per share attributable to RadNet, Inc.'s common stockholders $ ( 0.04 ) $ 0.14 $ ( 0.08 ) $ ( 0.21 ) DILUTED NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 73,419,124 59,880,803 71,795,080 59,221,453 Add non-vested restricted stock subject only to service vesting — 205,413 — — Add additional shares issuable upon exercise of stock options and contingently issuable shares — 830,769 — — Weighted average number of common shares used in calculating diluted net income per share 73,419,124 60,916,985 71,795,080 59,221,453 Changes in FV associated with contingently issuable shares $ — $ ( 934 ) $ — $ — Net (loss) income attributable to RadNet, Inc's common stockholders for diluted share calculation $ ( 2,982 ) $ 7,435 $ ( 5,761 ) $ — $ ( 12,636 ) Diluted net (loss) income per share attributable to RadNet, Inc.'s common stockholders $ ( 0.04 ) $ 0.12 $ ( 0.08 ) $ ( 0.21 ) Earnings per share disclosures: Fair value change for contingently issuable shares excluded from the computation of diluted per share amounts as its effect would be antidilutive $ — $ — $ — $ 1,696,000 Stock options and non-vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive: Non-vested restricted stock subject to service vesting 670,486 — 685,104 644,623 Shares issuable upon the exercise of stock options 799,502 82,775 831,647 759,313 Contingently issuable shares — — — 193,207 INVESTMENTS IN EQUITY SECURITIES–Accounting guidance requires entities to measure equity investments at fair value, with any changes in fair value recognized in net income. If there is no readily determinable fair value, the guidance 19 Table of Contents allows entities the ability to measure investments at cost, adjusted for observable price changes and impairments, with changes recognized in net income. As of June 30, 2024, we have four equity investments for an aggregate of $ 9.2 million. No observable price changes or impairments in our investments were identified as of June 30, 2024. INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35 % to 55 %. These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling financial interest in such ventures. We evaluate our investment in joint ventures, including cost in excess of book value (equity method goodwill) for impairment whenever indicators of impairment exist. No indicators of impairment existed as of June 30, 2024. Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the six months ended June 30, 2024 (in thousands): Balance as of December 31, 2023 $ 92,710 Equity in earnings in these joint ventures 7,713 Distribution of earnings ( 1,000 ) Equity contributions in existing joint ventures 1,421 Balance as of June 30, 2024 $ 100,844 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 and $ 12.0 million and $ 8.2 million for the six months ended June 30, 2024 and 2023, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures. As we have the ability to exercise significant influence over our joint venture entities, we consider them related parties. Amounts transacted between ourselves and the entities in the ordinary course of business are disclosed on our balance sheet in the due from/to affiliate accounts. The following table is a summary of key balance sheet data for these 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: June 30, 2024 December 31, 2023 Current assets $ 55,812 $ 39,819 Noncurrent assets 221,521 224,936 Current liabilities ( 50,151 ) ( 46,587 ) Noncurrent liabilities ( 74,074 ) ( 70,834 ) Total net assets $ 153,108 $ 147,334 Income statement data for the six months ended June 30, 2024 2023 Net revenue $ 130,546 $ 84,699 Net income $ 14,657 $ 5,827 NOTE 3 – RECENT ACCOUNTING AND REPORTING STANDARDS Recently Issued Accounting Pronouncements 20 Table of Contents We monitor new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") and do not believe any accounting pronouncements issued through the date of this report will have a material impact on our financial statements. NOTE 4 – BUSINESS COMBINATIONS AND RELATED ACTIVITY Acquisitions Imaging Center Segment During the six months ended June 30, 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 and Texas market. These acquisitions are reported as part of our Imaging Center segment. As of June 30, 2024, we made a preliminary fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands). 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. : Entity Date Acquired Total Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Assets Right of Use Liabilities Notes payable U.S. 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 ) ( 6,297 ) Grossman Imaging Center of CMH, LLC 3/31/2024 10,500 1,717 6,194 8,657 280 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 48,029 22,445 21,256 31,191 755 146 ( 21,466 ) ( 6,297 ) Formation of majority owned subsidiary and sale of economic interest On February 23, 2024, we formed Tri Valley Imaging Group, LLC ("TVIG"), a partnership with Providence Health System - Southern California ("PHS"). The operation offers multi-modality services out of seven locations in Southern California. On March 29, 2024, we contributed the operations of four centers to the enterprise and PHS contributed a business comprising three centers including $ 0.6 million of fixed assets and $ 6.5 million in goodwill. Simultaneously, PHS purchased from us an additional economic interest in TVIG for cash payment of $ 9.6 million. As a result of the transaction, we recognized a gain of $ 7.6 million to additional paid in capital and retained a 52 % controlling economic interest in TVIG and PHS retains and $ 7.8 million or 48 % noncontrolling economic interest in TVIG. In determining the fair value of the imaging centers contributed to TVIG, we used an income approach which is considered a level 3 valuation technique. See Fair Value Measurements above for further detail on the valuation hierarchy. Key assumptions used in measuring the fair value are financial forecasts and a discount rate. We also utilized the cash paid for an additional interest in the joint venture to substantiate the fair value of the contributed assets. NOTE 5 – SEGMENT REPORTING 21 Table of Contents In the first quarter of 2024, we revised our reportable segments to combine our eRad business, which was included in the Imaging Center segment, with our AI segment to form a new Digital Health reportable segment. Prior period amounts were adjusted retrospectively to reflect the change in reportable segment. Our reportable segments are described below: Imaging Center Our Imaging Center segment provides physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. Services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services, a strategy that diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. Digital Health Our Digital Health 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. Included in the segment is our eRad subsidiary, which designs the underlying critical scheduling, data storage and retrieval systems necessary for imaging center operation. Our chief operating decision maker ("CODM"), who is also our CEO, evaluates the financial performance of our segments based upon their respective revenue and segmented internal profit and loss statements prepared on a basis not consistent with GAAP. We do not report balance sheet information by segment since it is not reviewed by our CODM. In the normal course of business, our reportable segments enter into transactions with each other. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues recognized by a segment and expenses incurred by the counterparty are eliminated in consolidation and do not affect consolidated results. Three Months Ended June 30, 2024 Imaging Centers Digital Health Intersegment Elimination Consolidated Total Revenue: Third Party $ 450,248 $ 9,466 $ — $ 459,714 Intersegment — 6,362 ( 6,362 ) — Total revenue $ 450,248 $ 15,828 $ ( 6,362 ) $ 459,714 Three months ended June 30, 2023 Imaging Centers Digital Health Intersegment Elimination Consolidated Total Revenue: Third Party $ 398,010 $ 5,705 $ — $ 403,715 Intersegment — 5,898 ( 5,898 ) — Total revenue $ 398,010 398010 $ 11,603 $ ( 5,898 ) $ 403,715 Six Months Ended June 30, 2024 Imaging Centers Digital Health Intersegment Elimination Consolidated Total Revenue: Third Party $ 873,458 $ 17,963 $ — $ 891,421 Intersegment — 12,525 ( 12,525 ) — Total revenue $ 873,458 873458000 $ 30,488 $ ( 12,525 ) $ 891,421 22 Table of Contents Six Months Ended June 30, 2023 Imaging Centers Digital Health Intersegment Elimination Consolidated Total Revenue: Third Party $ 783,261 $ 11,018 $ — $ 794,279 Intersegment — 11,662 ( 11,662 ) — Total revenue $ 783,261 783261 $ 22,680 $ ( 11,662 ) $ 794,279 The table below presents segment information reconciled to our financial results, with segment operating income or loss including revenue less cost of operations, depreciation and amortization, and other operating expenses to the extent specifically identified by segment (in thousands): Three months ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue: Imaging Centers 443,886 392,112 $ 860,933 $ 771,599 Digital Health 15,828 11,603 30,488 22,680 Total revenue $ 459,714 403,715 $ 891,421 $ 794,279 Cost of Operations Imaging Centers $ 373,449 $ 334,082 $ 745,755 $ 674,233 Digital Health 16,275 11,065 31,558 22,779 Total cost of operations $ 389,724 $ 345,147 $ 777,313 $ 697,012 Depreciation and Amortization: Imaging Centers $ 32,089 $ 30,074 $ 62,063 $ 59,522 Digital Health 2,386 2,106 4,780 3,973 Total depreciation and amortization $ 34,475 $ 32,180 $ 66,843 $ 63,495 Loss (gain) on Disposal of Equipment: Imaging Centers $ 398 $ 84 $ 586 $ 661 Digital Health 3 ( 7 ) 1 ( 5 ) Total loss on disposal of equipment $ 401 $ 77 $ 587 $ 656 Severance Imaging Centers $ 225 $ 154 $ 450 $ 276 Digital Health 43 1,716 43 1,728 Total severance $ 268 $ 1,870 $ 493 $ 2,004 Income (Loss) from Operations Imaging Centers $ 37,725 $ 27,718 $ 52,079 $ 36,907 Digital Health ( 2,879 ) ( 3,277 ) ( 5,894 ) ( 5,795 ) Total income from operations $ 34,846 $ 24,441 $ 46,185 $ 31,112 23 Table of Contents NOTE 6 – CREDIT FACILITIES AND NOTES PAYABLE At June 30, 2024 we had two principal secured credit facilities consisting of our Barclays credit facility and our Truist credit facility. Each facility includes a term loan component and a revolving credit facility. At June 30, 2024, we were in compliance with all covenants under our credit facilities. Barclays Credit Facility On April 18, 2024, we entered into a Third Amended and Restated First Lien Credit and Guaranty Agreement (the “Barclays Credit Agreement”), with Barclays Bank Plc and the lenders and financial institutions named therein, which provides for $ 875.0 million of senior secured term loans and a $ 282.0 million senior secured revolving credit facility. Our borrowing under the Barclays credit facility is secured by a lien on all of our assets. The proceeds from the April 18, 2024 restatement of the Barclays Credit Agreement were used to refinance the $ 678.7 million of term loans outstanding under the prior credit facility, to pay accrued interest through the date of closing, and to pay fees and expenses associated with the refinancing transaction. Total costs incurred in connection with the restatement amounted to approximately $ 19.9 million segregated as follows: $ 11.1 million recognized as discount and deferred finance cost, $ 2.1 million charged to loss on early extinguishment of debt and $ 6.7 million to related expenses. Amounts capitalized will be amortized over the remaining terms of the respective credit facilities under the Barclays Credit Agreement. Barclays Term Loan: The Barclays term loan provides for interest payments based on a base rate, plus an applicable margin. During the periods covered by this report, the base rates, margins and effective interest rates (without giving effect to our 2019 Swaps) were as follows for the periods indicated: Period Base Rate plus Margin Effective Rate Through March 31, 2023 Eurodollar plus 2.50 % Alternative Base Rate plus 2.00 % 4.63 % 8.00 % April 1, 2023 to April 18, 2024 SOFR plus 3.00 % Alternative Base Rate plus 2.00 % 8.33 % (credit spread adjustment of 0.11 %) 10.5 % After April 18, 2024 SOFR plus 2.5 % Prime Rate plus 1.5 % 7.83 % (credit spread adjustment of 0.26 % ) 9.5 % With the recent restatement, we are required to make quarterly principal payments of $ 2.2 million (up from $ 1.8 million under the prior credit agreement). The Barclays term loan will mature on April 18, 2031 unless otherwise accelerated under the terms of the Barclays Credit Agreement. Barclays Revolving Credit Facility: The Barclays revolving credit facility is a $ 282.0 million senior secured revolving credit facility. Associated with the Barclays revolving credit facility is deferred financing costs, net of accumulated amortization, of $ 2.1 million at June 30, 2024. Amounts borrowed under the Barclays revolving credit facility bear interest at either SOFR plus 3.00 % or the Prime Rate plus 2 % (with step-downs based on attainment of certain first lien net leverage ratio benchmarks). As of June 30, 2024, the effective interest rate payable on revolving loans under the Barclays revolving credit facility was 10.50 %. In addition, a commitment fee of 0.50 % per annum accrues on the unused revolver commitments under the Barclays revolving credit facility. We had no outstanding balance under our $ 282.0 million Barclays Revolving Credit Facility at June 30, 2024. After reserves of $ 7.6 million for certain letters of credit, $ 274.4 million was available to draw upon as of June 30, 2024. The Barclays revolving credit facility terminates on April 18, 2029, unless otherwise accelerated under the terms of the Barclays Credit Agreement. 24 Table of Contents Truist Credit Facility On October 7, 2022 our subsidiary New Jersey Imaging Network, Inc.("NJIN") entered into Second Amended and Restated Revolving Credit and Term Loan Agreement (the “Truist Credit Agreement”), with Truist Bank and the lenders and financial institutions named therein, which provides for a $ 150.0 million term loan and a $ 50.0 million revolving credit facility. The Truist Credit agreement is secured by the assets of NJIN. Truist Term Loan: The Truist Term Loan currently bears interest at a SOFR Bate or a Base Rate plus an applicable margin and fees which step down based on a leverage ratio. At June 30, 2024 the applicable margin for the SOFR Rate was 1.5 %. We are required to make quarterly principal payments of $ 1.9 million, which increases by $ 0.9 million at scheduled intervals, with the remaining balance to be paid at maturity. The Truist term loan will mature on October 10, 2027 unless otherwise accelerated under the terms of the Truist Credit Agreement. Truist Revolving Credit Facility: The Truist revolving credit facility is a $ 50.0 million secured revolving credit facility. Associated with the Truist revolving credit facility are deferred financing costs, net of accumulated amortization, of $ 0.4 million at June 30, 2024. Amounts borrowed under the Truist revolving credit facility bear interest at either a SOFR Bate or a Base Rate plus an applicable margin and fees which step down based on a leverage ratio. In addition, a commitment fee of 0.40 % per annum accrues on the unused revolver commitments under the Truist revolving credit facility. We had no balance under our $ 50.0 million Truist revolving credit facility at June 30, 2024. With no letters of credit reserved against the facility, the full $ 50.0 million was available to draw upon as of June 30, 2024. The Truist revolving credit facility terminates on October 7, 2027, unless otherwise accelerated under the terms of the Truist Credit Agreement. Notes Payable We have issued certain notes payable in connection with the purchase of equipment previously leased under operating leases. On April 1, 2024, January 15, 2024, and February 1, 2023 we issued promissory notes in the amount of $ 6.3 million, $ 6.9 million and $ 19.8 million, respectively, to purchase previously leased equipment. Debt Obligations As of June 30, 2024 and December 31, 2023 our term loan debt and other obligations are as follows (in thousands): June 30, 2024 December 31, 2023 Barclays Term Loans collateralized by RadNet's tangible and intangible assets $ 875,000 $ 678,687 Discount on Barclays Term Loans ( 15,820 ) ( 9,041 ) Truist Term Loan Agreement collateralized by NJIN's tangible and intangible assets 140,625 144,375 Discount on Truist Term Loan Agreement ( 858 ) ( 990 ) Equipment notes payable at 3.6 % to 7.2 %, due through 2029, collateralized by medical equipment 27,660 17,011 Total debt obligations 1,026,607 830,042 Less: current portion ( 24,215 ) ( 17,974 ) Long term portion of debt obligations $ 1,002,392 $ 812,068 NOTE 7 – STOCK-BASED COMPENSATION Stock Incentive Plans We have one long-term equity incentive plan, the RadNet, Inc. Equity Incentive Plan, which we first amended and restated April 20, 2015, second on March 9, 2017, third on April 15, 2021, and fourth on April 27, 2023 (the "Restated Plan”). 25 Table of Contents The Restated Plan was most recently approved by our stockholders at our annual stockholders meeting on June 7, 2023. We have reserved for issuance under the Restated Plan 20,100,000 shares of common stock. We can issue options (incentive and nonstatutory), performance based options, stock awards (restricted or unrestricted), stock units, performance based stock units, and stock appreciation rights under the Restated Plan. Options Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options generally vest over 3 to 5 years and expire 5 to 10 years from the date of grant. The following summarizes all of our option transactions for the six months ended June 30, 2024: Outstanding Options Under the 2006 Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Balance, December 31, 2023 911,411 $ 16.60 Granted — — Exercised ( 60,306 ) 6.15 Balance, June 30, 2024 851,105 17.34 5.94 $ 35,390 Exercisable at June 30, 2024 729,806 16.62 5.56 30,874 Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on June 30, 2024 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on June 30, 2024. As of June 30, 2024, total unrecognized stock-based compensation expense related to non-vested employee awards was $ 0.8 million, which is expected to be recognized over a weighted average period of approximately 0.63 years. DeepHealth Options During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted options to acquire 412,434 shares at a grant date fair value of $ 16.93 per share unit to DeepHealth employees in replacement of their stock options that were outstanding as of the closing date. As of June 30, 2024, total unrecognized stock based compensation expense related to non-vested DeepHealth options was insignificant. Outstanding Options Under the Deep Health Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Balance December 31, 2023 79,073 $ — Exercised ( 9,377 ) — Balance, June 30, 2024 69,696 — 5.3 $ 4,106 Exercisable at June 30, 2024 69,696 — 5.3 4,106 Options issued in replacement of original DeepHealth options as a result of our acquisition are not included in the share count under the Restated Plan. Restricted Stock Awards ("RSAs") and Restricted Stock Units ("RSUs") The Restated Plan permits the award of RSAs and RSUs. The following summarizes all unvested RSA's and RSU's activities during the six months ended June 30, 2024: 26 Table of Contents RSAs and RSUs Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value per Share RSAs and RSUs unvested at December 31, 2023 762,083 $ 22.13 Changes during the period Granted 786,382 $ 37.00 Vested ( 866,651 ) $ 27.82 Forfeited or Canceled ( 11,328 ) $ 27.36 RSAs and RSUs unvested at June 30, 2024 670,486 2.0 $ 31.67 We determine the fair value of all RSAs and RSUs based on the closing price of our common stock on the award date. Other stock bonus awards The Restated Plan also permits share awards not subject to any future service period. These are valued and expensed based on the closing price of our common stock on the date of award. During the six months ended June 30, 2024, 1,852 shares were issued with a value of $ 0.1 million. Performance based stock units ("PSUs") In January 2023, we granted certain employees PSUs with a target award of 60,685 shares of our common stock. The PSUs will vest in two equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 % to 200 % of the target award) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2023 through December 31, 2023. In March of 2024, based on the performance condition being achieved, the board of directors issued 121,370 units with a fair value of $ 18.64 per unit. Performance based stock options ("PSOs") In January 2023, we granted certain employees PSOs with a potential to option a maximum of 235,227 shares of our common stock. The PSOs will vest in three equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 % to 100 % of the target award) depending upon the extent to which we achieve a performance condition as determined the board of directors over the period from January 1, 2023 through December 31, 2023. In March 2024, based on the performance condition being achieved, the board of directors issued 235,227 options with a strike price of $ 18.64 per share. Restated Plan summary In summary, of the 20,100,000 shares of common stock reserved for issuance under the Restated Plan, at June 30, 2024, there remain approximately 3,292,443 shares available under the Restated Plan for future issuance.