RadNet, Inc. 10-Q

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Foreign Currency Exchange Risk: We are exposed to foreign exchange risk with respect to revenues and expenses denominated in the Pound Sterling, Euro, Canadian Dollar and Hungarian Forint. We provide radiological services in the United Kingdom, conduct Artificial Intelligence operations in the Netherlands, and maintain research and development centers in Canada, Hungary and India. We 48 Table of Contents do not have any foreign currency exchange contracts to mitigate this risk. At September 30, 2024, a hypothetical 1% decline in the currency exchange rates between the U.S. dollar against these currencies, would have resulted in an annual increase of approximately $0.3 million in operating expenses. Interest Rate Sensitivity : Our debt instruments, including borrowings under our Barclays credit facility and our Truist credit facility, bear interest at variable rates. Accordingly, our interest expense and our earnings are affected by changes in short term interest rates. To mitigate our future floating rate interest expense exposure we entered into the 2019 Swaps with locked in interest rates for one-month Term SOFR of 1.89% for $100 million of notional value and 1.98% for $400 million of notional value. We are liable for premium payments to the 2019 swap counterparties if interests rates are below the arranged rates, and receive payments from the 2019 swap counterparties if interest rates exceed the arranged rates. If interest rates were to theoretically reduce to 0%, our maximum premium payment would be the difference between the two swapped rates and 0% then multiplied by the notional value of the swaps, or $1.89 million per year for the $100 million swap and $8.0 million per year for the $400 million swap. Payments under the 2019 Swaps are settled in cash on a monthly basis. The 2019 Swaps for the $100 million of notional value matured in October 2023, so they were in effect for the third quarter of 2023, but not 2024. The 2019 Swaps for the $400 million notional amount will expire in October 2025. We can elect SOFR or Alternative Base Rate interest options on amounts outstanding under the Barclays Term Loan. At September 30, 2024, we had $872.8 million outstanding subject to an SOFR election on the Barclays Term Loan. At September 30, 2024, our effective SOFR interest rate plus applicable margin was 7.78%. The 2019 Swaps secure a $1.98% SOFR rate for a $400 million notional amount. After giving effect to our 2019 Swaps, we had $472.8 million outstanding under the Barclays Term Loan that is unprotected by the 2019 Swaps at September 30, 2024. Consequently, a hypothetical 1% increase in the SOFR rates under the Barclay's credit facility would result in an increase of $4.7 million in annual interest expense and a corresponding decrease in income before taxes. The 2019 Swaps will mature in October 2025. We can elect SOFR or Base Rate interest rate options on amounts outstanding under the Truist credit facility. At September 30, 2024, we had $136.9 million outstanding subject to an adjusted SOFR election on the Truist Term Loan. At September 30, 2024, our effective SOFR rate plus applicable margin was 6.20%. A hypothetical 1% increase in the adjusted Eurodollar rates under the Truist credit facility would result in an increase of approximately $1.4 million in annual interest expense and a corresponding decrease in income before taxes.