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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-09 · 166 added, 150 removed, 340 unchanged (48% of the section changed)

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We are a national provider of 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.

At September 30, 2024, we operated directly or indirectly through joint ventures with hospitals, 399 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.

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

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

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.

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Recent Developments

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,

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

Nine Months Ended September 30,

Centers in operation 399 363

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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:

The following charts summarize our procedure volumes for various imaging modalities for the three months ended September 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 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,

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

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

2024 2023 2024 2023

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Total service revenue 461,142 $ 401,968 $ 1,352,563 $ 1,196,247

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, 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.

We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):

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)

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

During the nine months ended September 30, 2024, we completed the acquisition of certain assets of entities which engage directly in the practice of radiology or in associated businesses for an aggregate consideration of $54.0 million.

These acquisitions include:

Antelope Valley Outpatient Imaging:

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.

1 imaging center in California;

Providence Health System Southern California:

3 imaging centers in California;

Grossman Imaging Center of CMH, LLC:

4 imaging centers in California;

Houston Medical Imaging, LLC:

9 imaging centers in Houston, Texas;

Imaging, Inc.:

6 imaging centers in Houston, Texas;

Stanislaus Surgical Hospital:

1 imaging center in Modesto, California;

Global Imaging LLP:

1 imaging center in Sugar Land, Texas.

The purpose of these acquisitions was to expand our imaging business into Houston, Texas a new market, and to strengthen our presence in the California market.

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

See Note 4, Business Combinations and Related Activity to the financial statements in this report for additional information, including the fair value determination of the acquired assets and assumed liabilities, associated with these acquisitions.

Joint Venture Activity

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

At September 30, 2024, 38% 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 (18 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.

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

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

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:

2024 December 31,

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,

Net revenue $ 130,546 $ 84,699

Net income $ 14,657 $ 5,827

We charged management service fees from the centers underlying these joint ventures of approximately $5.9 million and $3.9 million for the three months ended September 30, 2024 and 2023, respectively.

For information on our investment in unconsolidated joint ventures, key balance sheet data and income

statement data for the unconsolidated joint ventures, see Note 2, Significant Accounting Policies – Investment in Joint Ventures

to the financial statements included in this report.

Critical Accounting Policies

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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 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.

Revenues are recorded during the period our obligations to provide diagnostic services are satisfied, which is generally over a period of less than one day.

The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors.

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Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations, changes in business and economic conditions, and the frequent changes in managed care contractual terms resulting from contract re-negotiations and renewals.

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

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

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

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Estimates of contractual allowances under Medicare, Medicaid, managed care and commercial insurance plans are based upon historical collection experience of the payments received from such payors in accordance with the underlying contractual agreements.

Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have price concessions applied.

Revenues related to uninsured patients and uninsured copayment and deductible amounts

for patients who have health care coverage may have price concessions applied.

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.

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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 June 30, 2024.

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

Accounts Receivable

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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 June 30, 2024.

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

Business Combination

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Goodwill and Indefinite Lived Intangibles

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 at September 30, 2024 totaled $711.8 million.

Indefinite Lived Intangible Assets at September 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.

When we determine the carrying value of goodwill exceeds its fair value, an impairment charge would be recognized which should not exceed the total amount of goodwill allocated to that reporting unit.

When we determine the carrying value of goodwill for a reporting unit exceeds its fair value, an impairment charge would be recognized which should not exceed the total amount of goodwill allocated to that reporting unit.

We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both.

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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 June 30, 2024.

Our annual impairment test of goodwill and trade name noted no impairment as of October 1, 2023, and we have not identified any other indicators of impairment through September 30, 2024.

Recent Accounting Standards

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Results of Operations

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

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Imaging Center Segment

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.

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

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

Total Revenue

In Thousands Three Months Ended June 30,

Revenue 2024 2023 $ Increase/(Decrease) % Change

In Thousands Three Months Ended September 30,

Revenue 2024 2023 $ Increase % Change

Total $444,775 $389,783 $54,992 14.1%

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Excluded $21,894 $8,163 — —

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.

Our 10.8% increase in same center revenue over the same period last year was driven by increases in fees charged per imaging procedure and an increase in procedures volumes.

Same center total procedure volume grew at an overall rate of 4.0% which was comprised of a 2.55% increase in routine imaging and an 8.6% increase in advanced modality imaging procedures.

The increase in revenue was largely attributable to product mix, as advanced imaging was a greater portion of overall procedures.

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 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):

Total operating expenses for the three months ended September 30, 2024 increased approximately $57.6 million, or 16.5%, to $407.2 million for the three months ended September 30, 2024 from $349.7 million for the three months ended September 30, 2023.

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

Three Months Ended

September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 243,066 $ 210,314

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Depreciation and amortization 32,032 30,221

Gain on contribution of imaging centers into joint venture — (16,811)

Loss on sale and disposal of equipment 153 524

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* 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 June 30, 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 September 30, 2024 and 2023 (in thousands):

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

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

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

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Stock-based compensation

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.

Stock-based compensation for the three months ended September 30, 2024 increased approximately $0.3 million, or 6.6%, to $4.2 million from $3.9 million for the three months ended September 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 June 30,

In Thousands Three Months Ended September 30,

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

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Excluded $3,341 $2,208 — —

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.

Building and equipment rental expense on a same center basis was relatively unchanged from the prior period.

Medical supplies

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

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

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Excluded $1,455 $671 — —

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

The increase in medical supplies expense was driven by 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 June 30,

In Thousands Three Months Ended September 30,

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

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Additional segment operating and non-operating expenses

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

2024 2023 $ Increase/(Decrease) % Change

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Non-cash change in fair value of interest rate hedge $6,754 $1,014 5,740 566.1%

Other expenses (income) ($87) ($1,666) 1,579 (94.8)%

Other income ($8,233) ($4,673) (3,560) 76.2%

Severance $271 $1,141 (870) (76.2)%

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 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.

The fair value of the 2019 Swaps at September 30, 2024 was a net asset of $7.7 million compared to a net asset of $14.4 million June 30, 2024, resulting in a loss of $6.8 million during the three months ended September 30, 2024.

This change in fair value was driven by market expectations of continued declines in interest rates over the remaining term of the 2019 Swaps.

Other income for the three months ended September 30, 2024 included money market interest income of $9.6 million, partially offset by a impairment of non-marketable securities of $1.2 million.

Interest income for the three months ended September 30, 2024 increased approximately $6.0 million, or 164.9%, to $9.6 million from $3.6 million for the three months ended September 30, 2023.

The increase is primarily due to higher average cash balance in our money market account for the three months ended September 30, 2023

In Thousands Nine Months Ended September 30,

2024 2023 $ Increase/(Decrease) % Change

Interest income (9,580) (3,616) $(5,964) 164.9%

Debt restructuring and extinguishment expenses 147 0 $147 nm

Other non-operating losses (income) 1,200 (1,057) $2,257 (213.5)%

Total other income $(8,233) $(4,673) $(3,560) 76.2%

In Thousands Three Months Ended September 30,

2024 2023 $ Increase/(Decrease) % Change

Total other income ($8,233) ($4,673) (3,560) 76.2%

Interest expense

In Thousands Three Months Ended June 30,

In Thousands Three Months Ended September 30,

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

Total Interest Expense $ 19,427 $ 16,115 $3,312 20.6 %

Interest related to derivatives* 4,837 (2,490)

Interest related to amortization** 793 748

Interest expense related to derivatives* (2,068) (2,913)

Interest expense related to amortization** 795 746

Adjusted Interest Expense*** 20,700 18,282 2,418 13.2 %

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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.

During the three months ended September 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 as 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 third 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 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%.

For the three months ended September 30, 2024 and 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.6 million and $1.1 million, respectively, an increase of $2.5 million or 231.6%.

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.

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

Additionally, we experienced improved earnings from our interest in the Arizona Diagnostic Radiology Group joint venture, which was established in the fourth quarter of 2020.

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.

At September 30, 2024, our consolidated subsidiaries operated 345 imaging centers of which 98 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests.

At September 30, 2023, our consolidated subsidiaries included 320 centers of which 83 were not wholly-owned.

For the three months ended September 30, 2024, we recognized net income attributable to noncontrolling interests of $9.0 million versus $6.5 million for the three months ended September 30, 2023, an increase of $2.6 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 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.

Additionally, patient volumes for advanced modalities improved in 2024 and we closed two underperforming 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 $3.6 million for the three months ended September 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.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 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 September 30, 2024.

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

Total Revenue

In Thousands Six Months Ended June 30,

Revenue 2024 2023 $ Increase/(Decrease) % Change

In Thousands Nine Months Ended September 30,

Revenue 2024 2023 $ Increase % Change

Total $1,305,707 $1,161,381 $144,326 12.4%

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Excluded $80,761 $54,173 — —

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.

Our 10.6% increase in same center revenue over the same period last year was driven by increases in fees charged per imaging procedure and same center total procedure volume growth of 3.3% inclusive of rises in routine and advanced modality imaging procedures of 1.82% and 7.76%, respectively.

The increase in revenue was largely attributable to product mix product mix, as advanced imaging was a greater portion of overall procedures.

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,

Total operating expenses for the nine months ended September 30, 2024 increased approximately $131.7 million, or 12.1%, to $1,216.1 million for the nine months ended September 30, 2024 from $1,084.4 million for the nine months ended September 30, 2023.

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

Nine Months Ended September 30,

Salaries and professional reading fees, excluding stock-based compensation $ 731,134 $ 635,016

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Depreciation and amortization 94,095 89,743

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

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

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

Loss on sale and disposal of equipment 739 1,185

Severance costs 720 1,417

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

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

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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.

Stock-based compensation was relatively unchanged at $19.6 million for the nine months ended September 30, 2024 compared to $19.5 million for nine months ended September 30, 2023.

Building and equipment rental

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

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Medical supplies

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

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Other operating expenses

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

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Additional segment operating and non operating expenses:

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

2024 2023 $ Increase/(Decrease) % Change

Depreciation and amortization $94,095 $89,743 $4,352 4.8%

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

Gain on contribution of imaging centers into joint venture $0 $(16,808) $16,808 nm

Loss on disposal of equipment and other $739 $1,185 $(446) (37.6)%

Non-cash change in fair value of interest rate hedge $7,429 $949 $6,480 682.8%

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

Other income $(12,753) $(6,323) $(6,430) 101.7%

Severance $720 $1,417 $(697) (49.2)%

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.

The fair value of the 2019 Swaps at September 30, 2024 was a net asset of $7.7 million compared to a net asset of $15.1 million December 31, 2023, resulting in a loss of $7.4 million during the nine months ended September 30, 2024.

This change in fair value was driven by market expectations of continued declines in interest rates over the remaining term of the 2019 Swaps.

Other income for the nine months ended September 30, 2024 included money market interest income of $22.7 million, partially offset by an impairment of non-marketable securities of $1.2 million and a debt extinguishment and restructuring charges of $8.9 million, which related to refinancing of our Barclays credit facility.

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

Interest income for the nine months ended September 30, 2024 increased approximately $16.4 million, or 260.2%, to $22.7 million from $6.3 million for the nine months ended September 30, 2024.

The increase is primarily due to higher average cash balance in our money market account for the nine months ended September 30, 2024

In Thousands Nine Months Ended September 30,

2024 2023 $ Increase/(Decrease) % Change

Interest income (22,681) (6,297) $(16,384) 260.2%

Debt restructuring and extinguishment expenses 8,909 0 $8,909 nm

Other non-operating losses (income) 1,019 (26) $1,045 (4019.2)%

Total other income $(12,753) $(6,323) $(6,430) 101.7%

nm= not meaningful

Interest expense

In Thousands Six Months Ended June 30,

In Thousands Nine Months Ended September 30,

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

Total Interest Expense $ 61,776 $ 47,876 $13,900 29.0 %

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

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

Interest expense related to derivatives* 776 (7,138)

Interest expense related to amortization** 2,336 2,240

Adjusted Interest Expense*** 58,664 52,774 5,890 11.2 %

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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.

During the nine months ended September 30, 2024, interest rates were above the arranged rates in our 2019 Swaps for most of the year and we received payment of $10.2 million in cash payments from our 2019 swap counterparties, which was reported as 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 third 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%.

For the nine months ended September 30, 2024 we recognized equity in earnings from unconsolidated joint ventures in the amount of $11.3 million compared to $3.9 million for the prior period, an increase of $7.4 million or 187.4%.

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 June 30, 2024, which positively impacted our equity in earnings from unconsolidated joint ventures during the period.

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

Additionally, the increase was supported by improved earnings from our interest in the Arizona Diagnostic Radiology Group joint venture, which was established in the fourth quarter of 2020.

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 ;

We recorded income tax expense of $4.9 million, or an effective tax rate of 16.7%, for the nine months ended September 30, 2024 and $7.7 million, or an effective tax rate of 24.1% for the nine months ended September 30, 2023.

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

(ii) officer's compensation limitations;

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Net income attributable to noncontrolling interests

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.

At September 30, 2023, our consolidated subsidiaries included 320 centers of which 83 were not wholly-owned.

For the nine months ended September 30, 2024, we recognized net income attributable to noncontrolling interests of $27.2 million versus $19.4 million for the nine months ended September 30, 2024, an increase of $7.8 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 $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.

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

Net income attributable to noncontrolling interests was also impacted by an increase in patient volumes for advanced modalities in 2024 and the closure of two underperforming 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 $9.5 million for the nine months ended September 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 and six months ended June 30, 2024 and 2023 are as follows:

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

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

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

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

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2,947 1,989 958 48.2 % 7,727 5,962 1,765 29.6 %

Other operating (gain) loss

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

(Gain) loss on sale and disposal of equipment and other (5) 3 (8) (266.7) % (4) (2) (2) 100.0 %

Severance 33 12 21 175.0 % 77 1,740 (1,663) (95.6) %

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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 Healt h segment will continue to generate net losses over the next several years.

In the three months ended September 30, 2023, we recognized a non-recurring gain of $7.2 million from change in fair value of contingent consideration, offsetting against other operating expense.

Aside from the effect of that one-time gain and increased non-capitalized research and development expenses, our net loss for the segment was consistent with the prior year.

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

Non-GAAP Financial Measures

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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 and six months ended June 30, 2024 and 2023, respectively.

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

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

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

2024 2023 2024 2023

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Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI 3,345 — 9,977 —

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

Loss (gain) on extinguishment of debt and related expenses 147 — 8,909 —

Non-cash change to contingent consideration — (6,276) 1,974 (3,646)

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

Non-operational rent expenses 1,287 1,030 3,119 2,748

Acquisition transaction costs 417 — 417 —

Adjusted EBITDA - Total Company

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$ 70,433 $ 55,641 $ 194,433 $ 162,842

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,

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

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

2024 2023 2024 2023

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Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI 3,345 — 9,977 —

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

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

Adjusted EBITDA - Digital Health Segment

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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 imaging centers and the acquisition of new diagnostic imaging equipment.

Our principal capital requirements are for the development of new diagnostic imaging centers, the acquisition of existing diagnostic 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 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 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 June 30, 2024 and December 31, 2023 and income statement data for the six months ended June 30, 2024 and 2023 (in thousands):

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

Balance Sheet Data:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Cash and cash equivalents $ 748,916 $ 342,570

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Stockholders' equity 1,119,634 813,359

Income statement data for the six months ended June 30,

Income statement data for the nine months ended September 30,

Total net revenue $ 1,352,563 $ 1,196,247

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

Net (loss) income attributable to RadNet common stockholders

(2,552) 4,904

Sources and Uses of Cash

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

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

Cash Flow Data September 30, 2024 September 30, 2023

Cash provided by (used in) operating activities $ 190,494 $ 131,943

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Cash provided by (used in) financing activities 400,069 231,101

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.

Cash provided by operating activities for the nine months ended September 30, 2024 increased by $58.6 million compared to September 30, 2023 primarily driven by a $35.7 million change in assets and liabilities, primarily due to the timing of payments for accounts payable and accrued expenses.

Cash used in investing activities for the nine months ended September 30, 2024 increased from September 30, 2023 by $31.4 million.

Purchases of imaging centers during the period was $37.7 million, a $26.8 million increase from the prior period.

Capital expenditures for property and equipment during the period was $145.2 million, a $8.6 million increase from the prior period.

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.

Cash provided by financing activities for the nine months ended September 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.

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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

Secured Credit Facilities

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

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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:

Our condensed consolidated balance sheets at September 30, 2024 include $1,009.7 million of total term loan debt (exclusive of unamortized discounts of $15.8 million) in thousands:

Face Value Discount Total Carrying

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Total Term Loans $ 1,009,687 $ (16,026) $ 993,661

At June 30, 2024, we had no borrowings under our Barclays or Truist revolving credit facilities.

At September 30, 2024, we had no borrowings under our Barclays or Truist revolving credit facilities.

After reserves for outstanding letters of credit of $8.3 million, we had $273.7 million available for borrowing under our Barclays Revolving Credit Facility and $50.0 million available under our Truist Revolving Credit Facility.

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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