RadNet, Inc. 10-K

Item 8. Financial Statements and Supplementary Data 57 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of RadNet, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of RadNet, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 3, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 58 Valuation of Accounts Receivable Description of the Matter For the year ended December 31, 2024, the Company’s accounts receivable was $185.8 million. As discussed in Note 2 to the consolidated financial statements, substantially all of accounts receivable is due under fee-for-service contracts from third-party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. The valuation of accounts receivable is determined based upon the estimated amounts the Company expects to be entitled to receive from patients and third-party payors. Estimates of contractual allowances and implicit price concessions associated with third-party payors and any amounts due directly from patients are based upon historical collection experience from such payors. The contractual allowance estimation process is periodically reviewed to consider and incorporate updates to the laws and regulations, and contractual terms resulting from contract negotiations and renewals. The estimated implicit price concessions (based primarily on historical collection experience) are related to amounts due directly from patients to record accounts receivable at the estimated amounts the Company expects to collect. Auditing management’s estimates of contractual allowances and implicit price concessions was complex and judgmental due to the significant data inputs and subjective assumptions utilized in determining related amounts. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the valuation of accounts receivable. This included testing controls related to management’s review of the significant assumptions and inputs used in the determination of the estimated amount that would be collected for services rendered during the period. We also tested controls over the current and historical data used by management in determining this estimate, including the completeness and accuracy of the data. To test the estimated contractual allowances and implicit price concessions, we performed audit procedures that included, among others, assessing methodologies and evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its estimates. We also assessed the historical accuracy of management’s estimates as a source of potential corroborative or contrary evidence. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2007. Los Angeles, California March 3, 2025 59 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) As of December 31, 2024 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 740,020 $ 342,570 Accounts receivable, net 185,821 163,707 Due from affiliates 41,869 25,342 Prepaid expenses and other current assets 51,542 47,657 Total current assets 1,019,252 579,276 PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS Property and equipment, net 694,791 604,401 Operating lease right-of-use assets 639,740 596,032 Total property, equipment and right-of-use assets 1,334,531 1,200,433 OTHER ASSETS Goodwill 710,663 679,463 Other intangible assets 81,351 90,615 Deferred financing costs 2,265 1,643 Investment in joint ventures 104,057 92,710 Deposits and other 34,571 46,333 Total assets $ 3,286,690 $ 2,690,473 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable, accrued expenses and other $ 351,464 $ 342,940 Due to affiliates 43,650 15,910 Deferred revenue 3,288 4,647 Current portion of operating lease liability 56,618 55,981 Current portion of notes payable 24,692 17,974 Total current liabilities 479,712 437,452 LONG-TERM LIABILITIES Long-term operating lease liability 655,979 605,097 Notes payable, net of current portion 991,574 812,068 Deferred tax liability, net 22,230 15,776 Other non-current liabilities 3,785 6,721 Total liabilities 2,153,280 1,877,114 EQUITY RadNet, Inc. stockholders' equity: Common stock - $ .0001 par value, 200,000,000 shares authorized; 74,036,993 and 67,956,318 shares issued and outstanding at December 31, 2024 and 2023 respectively 7 7 Additional paid-in-capital 988,147 722,750 Accumulated other comprehensive loss ( 9,061 ) ( 12,484 ) Accumulated deficit ( 76,785 ) ( 79,578 ) Total RadNet, Inc.'s stockholders' equity 902,308 630,695 Noncontrolling interests 231,102 182,664 Total equity 1,133,410 813,359 Total liabilities and equity $ 3,286,690 $ 2,690,473 The accompanying notes are an integral part of these financial statements. 60 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Years Ended December 31, 2024 2023 2022 REVENUE Service fee revenue $ 1,693,089 $ 1,463,197 1,278,016 Revenue under capitation arrangements 136,575 153,433 152,045 Total service revenue 1,829,664 1,616,630 1,430,061 OPERATING EXPENSES Cost of operations, excluding depreciation and amortization 1,580,549 1,395,239 1,264,346 Lease abandonment charges 2,478 5,146 — Depreciation and amortization 137,838 128,391 115,877 Gain on contribution of imaging centers into joint venture — ( 16,808 ) — Loss on sale and disposal of equipment 2,276 2,187 2,529 Severance costs 1,902 3,778 946 Total operating expenses 1,725,043 1,517,933 1,383,698 INCOME FROM OPERATIONS 104,621 98,697 46,363 OTHER INCOME AND EXPENSES Interest expense 79,849 64,483 50,841 Equity in earnings of joint ventures ( 14,472 ) ( 6,427 ) ( 10,390 ) Non-cash change in fair value of interest rate swaps 8,006 8,185 ( 39,621 ) Debt restructuring and extinguishment expenses 11,292 — 731 Other income ( 24,916 ) ( 6,354 ) 1,833 Total other expenses, net 59,759 59,887 3,394 INCOME BEFORE INCOME TAXES 44,862 38,810 42,969 Provision for income taxes ( 6,026 ) ( 8,473 ) ( 9,361 ) NET INCOME 38,836 30,337 33,608 Net income attributable to noncontrolling interest 36,043 27,293 22,958 NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 2,793 $ 3,044 $ 10,650 BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.04 $ 0.05 $ 0.19 DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.04 $ 0.05 $ 0.17 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 73,037,237 63,580,059 56,293,336 Diluted 74,762,332 64,658,299 57,320,870 The accompanying notes are an integral part of these financial statements. 61 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) Years Ended December 31, 2024 2023 2022 NET INCOME $ 38,836 $ 30,337 $ 33,608 Currency translation adjustments ( 5,929 ) 4,617 ( 3,943 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings 9,352 3,576 3,687 COMPREHENSIVE INCOME 42,259 38,530 33,352 Less comprehensive income attributable to noncontrolling interests 36,043 27,293 22,958 COMPREHENSIVE INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 6,216 $ 11,237 $ 10,394 The accompanying notes are an integral part of these financial statements. 62 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY (IN THOUSANDS EXCEPT SHARE DATA) Common Stock Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total RadNet, Inc.'s Equity Noncontrolling Interests Total Equity BALANCE - December 31, 2021 53,548,227 $ 5 $ 342,592 $ ( 20,421 ) $ ( 93,272 ) $ 228,904 $ 117,253 $ 346,157 Issuance of common stock upon exercise of options 25,000 1 294 — — 295 — 295 Issuance of common stock under the equity compensation plan 725,577 — — — — — — — Issuance of common stock to settle DeepHealth contingent consideration 781,577 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 204,160 — — — — — — — Stock-based compensation expense — — 23,543 — — 23,543 — 23,543 Forfeiture of restricted stock ( 26,710 ) — ( 75 ) — — ( 75 ) — ( 75 ) Distributions paid to noncontrolling interests — — — — — — ( 893 ) ( 893 ) Contributions from noncontrolling interests — — — — — — 19,139 19,139 Sale of economic interests in controlled subsidiary, net of taxes — — 6,623 — — 6,623 — 6,623 Issuance of common stock in connection with acquisitions 2,465,294 — 63,311 — — 63,311 — 63,311 Change in cumulative currency translation adjustment — — — ( 3,943 ) — ( 3,943 ) — ( 3,943 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 3,687 — 3,687 — 3,687 Net income — — — — 10,650 10,650 22,958 33,608 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 12,424 — 142 — — 142 — 142 Issuance of common stock under the equity compensation plan 1,128,453 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 37,909 — — — — — — — Stock-based compensation expense — — 26,785 — — 26,785 — 26,785 Issuance of common stock, net of issuance costs 8,711,250 1 245,831 — — 245,832 — 245,832 Forfeiture of restricted stock ( 35,542 ) — — — — — — — Distributions paid to noncontrolling interests — — — — — — ( 5,972 ) ( 5,972 ) 63 Contributions from noncontrolling interests — — — — — — 2,885 2,885 Sale of economic interests in controlled subsidiary, net of taxes — — 2,236 — — 2,236 — 2,236 Issuance of common stock in connection with acquisitions 378,699 — 11,470 — — 11,470 — 11,470 Change in cumulative currency translation adjustment — — — 4,617 — 4,617 — 4,617 Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 3,576 — 3,576 — 3,576 Other — — ( 2 ) — — ( 2 ) 1 ( 1 ) Net income — — — — 3,044 3,044 27,293 30,337 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 70,793 — 667 — — 667 — 667 Issuance of common stock under the equity compensation plan 719,762 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 10,427 — — — — — — — Stock-based compensation expense — — 29,986 — — 29,986 — 29,986 Issuance of common stock, net of issuance costs 5,232,500 — 218,385 — — 218,385 — 218,385 Forfeiture of restricted stock ( 47,826 ) — ( 153 ) — — ( 153 ) — ( 153 ) Distributions paid to noncontrolling interests — — — — — — ( 4,522 ) ( 4,522 ) Sale of economic interests in controlled subsidiary, net of taxes — — 11,905 — — 11,905 16,917 28,822 Issuance of common stock in connection with acquisitions 95,019 — 4,607 — — 4,607 — 4,607 Change in cumulative currency translation adjustment — — — ( 5,929 ) — ( 5,929 ) — ( 5,929 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 9,352 — 9,352 — 9,352 Net income — — — — 2,793 2,793 36,043 38,836 BALANCE - December 31, 2024 74,036,993 $ 7 $ 988,147 $ ( 9,061 ) $ ( 76,785 ) $ 902,308 $ 231,102 $ 1,133,410 The accompanying notes are an integral part of these financial statements. 64 RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Years Ended December 31, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 38,836 $ 30,337 $ 33,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 137,838 128,391 115,877 Non-cash lease expense 60,552 61,102 68,847 Equity in earnings of joint ventures, net of dividend ( 9,926 ) 9,176 ( 5,952 ) Amortization of deferred financing costs and loan discount 3,093 2,987 2,693 Loss on sale and disposal of equipment 2,276 2,187 2,529 Loss on extinguishment of debt 3,903 — — Gain on contribution of imaging centers into joint venture — ( 16,808 ) — Lease abandonment charges 2,478 5,146 — Amortization of cash flow hedge 9,352 3,576 3,687 Non-cash change in fair value of interest rate swaps 8,006 8,185 ( 39,621 ) Stock-based compensation 29,833 26,785 23,770 Loss on impairment 1,275 3,949 — Change in fair value of contingent consideration 1,995 ( 3,880 ) ( 325 ) Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: Accounts receivable ( 21,767 ) 2,650 ( 30,078 ) Other current assets ( 32,790 ) ( 8,441 ) ( 3,327 ) Other assets 10,723 ( 1,484 ) ( 12,166 ) Deferred taxes 6,454 6,056 13,356 Operating lease liability ( 54,866 ) ( 54,763 ) ( 68,943 ) Deferred revenue ( 1,359 ) 626 ( 7,316 ) Accounts payable, accrued expenses and other 37,117 15,086 49,778 Net cash provided by operating activities 233,023 220,863 146,417 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of imaging facilities and other acquisitions ( 43,661 ) ( 10,918 ) ( 129,961 ) Purchase of property and equipment ( 188,070 ) ( 176,600 ) ( 119,451 ) Proceeds from sale of equipment 157 83 3,904 Equity contributions in existing and purchase of interest in joint ventures ( 1,496 ) ( 14,035 ) ( 1,441 ) Net cash used in investing activities ( 233,070 ) ( 201,470 ) ( 246,949 ) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes and leases payable ( 5,989 ) ( 2,930 ) — Payments on term loan debt ( 692,437 ) ( 41,063 ) ( 53,750 ) Proceeds from issuance of debt, net of issuance costs 863,757 — 147,996 Sale of noncontrolling interests 22,357 5,121 — Payments of contingent consideration and holdbacks ( 4,268 ) ( 5,495 ) — Distributions paid to noncontrolling interests ( 4,522 ) ( 5,972 ) ( 893 ) Proceeds from issuance of common stock 218,385 245,832 — Proceeds from issuance of common stock upon exercise of options 667 142 294 Net cash provided by financing activities 397,950 195,635 93,647 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 453 ) ( 292 ) 113 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 397,450 214,736 ( 6,772 ) CASH AND CASH EQUIVALENTS, beginning of period 342,570 127,834 134,606 CASH AND CASH EQUIVALENTS, end of period $ 740,020 $ 342,570 $ 127,834 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 84,601 $ 64,695 $ 39,151 Cash paid during the period for income taxes $ 4,170 $ 1,587 $ 587 The accompanying notes are an integral part of these financial statements. RADNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Supplemental Schedule of Non-Cash Investing and Financing Activities We acquired equipment and certain leasehold improvements for approximately $ 65.6 million, $ 67.7 million, and $ 111.8 million during the years ended December 31, 2024, 2023 and 2022, respectively, that we had not paid for as of December 31, 2024, 2023 and 2022, respectively. The accrual for such amounts is included in our consolidated balance sheets under accounts payable, accrued expenses and other. During the year ended 2024, we acquired certain assets from entities engaged in the practice of radiology or related businesses. These acquisitions included holdbacks and other liabilities totaling $ 10.4 million that we had not paid for as of December 31, 2024. The accrued amounts are reflected in our consolidated balance sheets under accrued expenses and other non-current liabilities. On April 1, 2024, we issued promissory notes in the amount of $ 6.3 million to acquire radiology equipment previously leased under operating leases, related to the acquisition of Houston Medical Imaging, LLC. On March 29, 2024, we received $ 1.4 million in fixed assets, imaging equipment, and $ 6.0 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. On December 12, 2023, we issued 64,569 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 $ 2.3 million. On September 20, 2023, we issued 56,600 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 $ 1.6 million. On September 1, 2023, we made a contribution of a business with a fair value of $ 27.2 million to our Santa Monica Imaging Group, LLC joint venture. On July 7, 2023, we issued 113,303 shares of common stock to settle the stock holdback contingent liabilities as part of our purchase of Quantib B.V.. The shares were ascribed a value of $ 3.5 million. On April 13, 2023, we issued 144,227 shares of common stock to settle the general holdback contingent liabilities as part of our purchase of Aidence Holding B.V.. The shares were ascribed a value of $ 4.0 million. On February 1, 2023, we issued a promissory note in the amount of $ 19.8 million to acquire radiology equipment previously leased under operating leases. On November 1, 2022, we issued 359,002 shares of common stock to complete our purchase of Heart & Lung Imaging Limited. The shares were ascribed a value of $ 6.8 million. On November 1, 2022 we made a contribution to our joint venture Arizona Diagnostic Radiology Group of $ 12.7 million in equipment and other assets. We recorded an offset to due to affiliates of $ 4.5 million to reduce our overall investment to $ 8.3 million. On April 1, 2022 we received $ 8.4 million in fixed assets and equipment from our partner in Frederick County Radiology, LLC. On January 20, 2022, we issued 1,141,234 shares of common stock to complete our purchase of Aidence Holding B.V. The shares were ascribed a value of $ 30.6 million. On January 20, 2022, we issued 965,058 shares of common stock to complete our purchase of Quantib B.V. The shares were ascribed a value of $ 25.9 million. 65 RADNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – NATURE OF BUSINESS We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States. At December 31, 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 addition to our center operations, we have certain other subsidiaries that develop Artificial Intelligence ("AI") products and solutions that are designed to enhance interpretation of radiographic images. Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Digital Health. For further financial information about these segments, see Note 5, Segment Reporting. In the first quarter of 2024, we revised our reportable segments to combine our eRad, Inc. ("eRad") business, which was previously included in the Imaging Center segment, with our former AI segment to form a new Digital Health reportable segment. Prior period amounts were adjusted retrospectively to reflect the change in reportable segments. 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 were $ 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 and in which we have a variable interest. 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 that are owned or controlled by individuals within our senior management and provide professional medical services for centers in Arizona, California, Delaware, [Florida], Maryland, New Jersey, Texas, and New York. These VIEs are collectively referred to as the “Consolidated Medical Group". RadNet provides non-medical, technical and administrative services to the Consolidated Medical 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 Consolidated Medical Group has insignificant operating assets and liabilities, and de minimis equity. Substantially all cash flows of the Consolidated Medical Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Consolidated Medical Group. The creditors of the Consolidated Medical 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 Consolidated Medical Group. However, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. 66 The Consolidated Medical Group on a combined basis recognized $ 221.1 million, $ 205.6 million, and $ 189.1 million of revenue, net of management services fees to RadNet, for the years ended December 31, 2024, 2023, and 2022, respectively and $ 221.1 million, $ 205.6 million, and $ 189.1 million of operating expenses for the years ended December 31, 2024, 2023, and 2022, respectively. RadNet, Inc. recognized $ 928.1 million, $ 849.4 million, and $ 786.5 million of total billed net service fee revenue for the years ended December 31, 2024, 2023, and 2022, respectively, for management services provided to the Consolidated Medical Group relating primarily to the technical portion of billed revenue. In our consolidated balance sheets at December 31, 2024 and December 31, 2023, we have included approximately $ 103.0 million and $ 94.1 million, respectively, of accounts receivable and approximately $ 22.7 million and $ 16.7 million of accounts payable and accrued liabilities related to the Consolidated Medical Group, respectively. The cash flows of the Consolidated Medical Group are included in the accompanying consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. At all of our centers not serviced by the Consolidated Medical 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. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION – The operating activities of subsidiaries are included in the accompanying consolidated financial statements (“financial statements”) from the date of acquisition. Investments in companies in which we have the ability to exercise significant influence, but not control, are accounted for by the equity method. All intercompany transactions and balances, with our consolidated entities and the unsettled amount of intercompany transactions with our equity method investees, have been eliminated in consolidation. As stated in Note 1 above, the Consolidated Medical Group consists of VIEs and we consolidate the operating activities and balance sheets of each. USE OF ESTIMATES - The financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our consolidated statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could materially differ from these estimates. 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 ( e.g., 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 Consolidated Medical Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by the Consolidated Medical 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 other 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 67 and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities. Our service fee 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 co-payment 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. 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 revenues for the years ended December 31, 2024, 2023, and 2022 are presented in the table below. Our patient service revenue is displayed as the estimated service fee, broken down by classification of insurance coverage type, along with revenue generated from our management services and other sources such as software and AI.. In Thousands 2024 2023 2022 Commercial insurance $ 1,018,327 $ 879,792 $ 769,753 Medicare 410,072 356,506 305,031 Medicaid 44,736 42,302 37,530 Workers' compensation/personal injury 43,666 46,406 50,333 Other payors 104,888 87,675 65,911 Management fee revenue 24,676 17,936 22,235 Other revenue 46,724 32,580 27,223 Revenue under capitation arrangements 136,575 153,433 152,045 Total revenue $ 1,829,664 $ 1,616,630 $ 1,430,061 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 credit losses 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 $ 4.2 million and $ 14.3 million at December 31, 2024 and 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. ACCOUNTS PAYABLE AND ACCRUED EXPENSES - Accounts payable and accrued expenses were comprised of the following (in thousands): 68 December 31, 2024 2023 Accounts payable $ 96,450 $ 122,888 Accrued expenses 153,252 124,059 Accrued salary and benefits 68,242 71,297 Accrued professional fees 33,520 24,696 Total $ 351,464 $ 342,940 SOFTWARE REVENUE RECOGNITION – We have developed and sell Picture Archiving Communications Systems (“PACS”) and related services. The PACS sales are made primarily through our sales force and generally include hardware, software, installation, training and first-year warranty support. Hardware, which is not unique or special purpose, is purchased from a third-party and resold to customers with a small mark-up. We have determined that our core software products, such as PACS, are essential to most of our arrangements as hardware, software and related services are sold as an integrated package. Revenue is recognized when a performance obligation is satisfied by transferring a promised good or service to a customer. For the years ended December 31, 2024, 2023, and 2022, we recorded approximately $ 27.8 million, $ 20.2 million, and $ 13.2 million, respectively, in revenue related to our software business which is included in service fee revenue in our consolidated statements of operations. At December 31, 2024 we had deferred revenue of approximately $ 1.2 million associated with these sales which we expect to recognize into revenue over the next 12 months. SOFTWARE DEVELOPMENT COSTS – When we develop our own software and artificial intelligence solutions we capitalize and amortize those costs over their useful life of 1 to 12 years. Costs related to the research and development of new software products and enhancements to existing software intended for resale to our customers are expensed as incurred. CONCENTRATION OF CREDIT RISKS – Financial instruments that potentially subject us to credit risk are primarily cash equivalents and accounts receivable. We have placed our cash and cash equivalents with one major financial institution. The cash in the financial institution is in excess of the amount insured by the Federal Deposit Insurance Corporation, or FDIC. 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. We continuously monitor collections and maintain an allowance for credit losses based upon our historical collection experience. In addition, we have notes receivable stemming from our factoring of accounts receivable as stated above. CASH AND CASH EQUIVALENTS – We consider all highly liquid investments that mature in three months or less when purchased to be cash equivalents. The carrying amount of cash and cash equivalents approximates the fair market value. DEFERRED FINANCING COSTS – Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs are related to our revolving credit facilities. Deferred financing costs, net of accumulated amortization, were $ 2.3 million and $ 1.6 million as of December 31, 2024 and 2023, respectively. See Note 8, Credit Facilities and Notes Payable for more information on our revolving lines of credit. PROPERTY AND EQUIPMENT – Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over their estimated useful lives, which range from 3 to 15 years. Leasehold improvements are amortized at the lesser of the lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred. BUSINESS COMBINATIONS – 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 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. 69 GOODWILL AND INDEFINITE LIVED INTANGIBLES – Goodwill totaled $ 710.7 million and $ 679.5 million at December 31, 2024 and 2023, respectively. Indefinite lived intangible assets were $ 13.0 million at December 31, 2024 and $ 9.0 million at 2023 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. If we determine that the carrying value of a reporting unit exceeds its fair value, an impairment charge equal to such excess, not to exceed the total amount of goodwill allocated to that reporting unit, is recognized. We determine 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. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately. We tested goodwill, trade name and IPR&D for impairment on October 1, 2024. In September 2023, we determined that an IPR&D indefinite-lived intangible asset related to Aidence's Ai Veye Lung Nodule and Veye Clinic would not receive FDA authorizations for sale in the US without a new submission and additional expenditures for rework in the original projected timeline. The additional expenditures, delay and reduction of US sales affected the estimated fair value of the related IPR&D intangible asset and resulted in impairment charges of $ 3.9 million within Cost of operations in our Consolidated Statements of Operations . The estimated fair value of the IPR&D intangible asset was determined using the multi-period excess earnings method under the income approach, which estimates the present value of the free cash flows associated with the asset and tax amortization benefit to arrive at the fair value of the asset. Our annual impairment test as of October 1, 2024 noted no other impairment, and we have not identified any indicators of impairment through December 31, 2024. LONG-LIVED ASSETS – We evaluate our long-lived assets (property and equipment) and intangibles, other than goodwill and indefinite lived intangible assets, for impairment when events or changes indicate the carrying amount of an asset may not be recoverable. Accounting standards require that if the sum of the undiscounted expected future cash flows from a long-lived asset or definite-lived intangible is less than the carrying value of that asset, an asset impairment charge must be recognized. The amount of the impairment charge is calculated as the excess of the asset’s carrying value over its fair value, which generally represents the discounted future cash flows from that asset or in the case of assets we expect to sell, at fair value less costs to sell. For the years ended December 31, 2024 and 2023, we recorded lease abandonment of $ 0.7 million and $ 2.5 million, respectively pertaining to leasehold improvements at facilities that we shut down. See the Leases discussion below for more information. Other than this, we determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired during any periods presented. 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. See Note 10, Income Taxes, for more information. 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 consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. 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 elected to account for the components as a single lease component, as permitted. ROU assets are tested for impairment if circumstances suggest that the carrying amount may not be recoverable. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets as of December 31, 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. We closely monitor patient levels at our imaging centers and occasionally divest or shut down centers to maximize utilization rates. We may abandon low utilization leases and divert the patients to nearby centers. During the years ended 2024 70 and 2023, we experienced lower utilization at various imaging centers which resulted in the closure of these locations and the recognition of lease abandonment charges of approximately $ 2.5 million and $ 5.1 million at December 31, 2024 and 2023, respectively in our Imaging Center segment. Of these amounts, $ 1.8 million and $ 2.7 million were related to right-of-use assets impairment and $ 0.7 million and $ 2.5 million were related to the write-off of leasehold improvements for the years ending December 31, 2024 and 2023, respectively. UNINSURED RISKS – We maintain a high-deductible workers’ compensation insurance policy. We have recorded liabilities of $ 5.6 million and $ 3.4 million at December 31, 2024 and 2023, respectively, for the estimated future cash obligations associated with the unpaid portion of the workers compensation claims incurred. We and our affiliated physicians carry an annual medical malpractice insurance policy that protects us for claims that are filed during the policy year and that fall within policy limits. The policy has a deductible which is $ 10,000 per incidence for all years covered by this report. In order to eliminate the exposure for claims not reported during the regular malpractice policy period, we have purchased a medical malpractice claims made tail policy, which provides coverage for any claims reported in the event that our medical malpractice policy expires. As of December 31, 2024, this policy remained in effect. We have entered into an arrangement with Blue Shield to administer and process claims under a self-insured plan that provides health insurance coverage for our employees and dependents. We have recorded liabilities as of December 31, 2024 and 2023 of $ 7.8 million and $ 7.2 million, respectively, for the estimated future cash obligations associated with the unpaid portion of the medical and dental claims incurred by our participants. Additionally, we entered into an agreement with Blue Shield for a stop loss policy that provides coverage for any claims that exceed $ 250,000 up to a maximum of $ 1.0 million in order for us to limit our exposure for unusual or catastrophic claims. EMPLOYEE BENEFIT PLAN – We adopted a profit-sharing/savings plan pursuant to Section 401(k) of the Internal Revenue Code that covers substantially all non-professional employees. Eligible employees may contribute on a tax-deferred basis a percentage of compensation, up to the maximum allowable under tax law. Employee contributions vest immediately. We can elect to provide a matching contribution in the amount to a maximum of 1.0 % per 4.0 % of employee contributions. We contributed $ 3.6 million and $ 3.3 million in matching for the years ended December 31, 2024 and 2023. EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we amended and restated at various points in time: first on April 20, 2015, second on March 9, 2017, third on April 15, 2021 and currently as of April 27, 2023 (the “Restated Plan”). The Restated Plan was most recently 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 3 years to five years and expire 5 years to ten years from date of grant. We determine the compensation expense for each stock option award using the Black Scholes, or similar, valuation model. Those models require 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 11, Stock-Based Compensation, for more information. FOREIGN CURRENCY TRANSLATION – For our operations in Canada, Europe and the United Kingdom, the functional currency of our foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rate at the balance sheet dates. Revenues and expenses are translated using average exchange rates prevailing during the reporting period. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive loss. Gains and losses related to the foreign currency portion of international transactions are included in the determination of net income. The following is a reconciliation of Foreign Currency Translation amounts for the years ended December 31, 2024, 2023 and 2022 is provided below (in thousands): 71 Currency Translation Balance as of Balance as of December 31, 2021 $ ( 442 ) Currency Translation Adjustments ( 3,943 ) Balance as of Balance as of December 31, 2022 ( 4,385 ) Currency Translation Adjustments 4,617 Balance as of Balance as of December 31, 2023 232 Currency Translation Adjustments ( 5,929 ) Balance as of Balance as of December 31, 2024 $ ( 5,697 ) OTHER COMPREHENSIVE INCOME (LOSS) – Accounting guidance establishes rules for reporting and displaying other comprehensive income (loss) ("OCI") 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 OCI. The components of OCI for the years ended December 31, 2024, 2023, and 2022 are included in the consolidated statements of comprehensive income. INTEREST ON SECURITIES - We recognized income from interest on securities of approximately $ 31.4 million and $ 10.9 million for the year ended December 31, 2024 and 2023, respectively. This income is recorded within Other non-operating income in our Consolidated Statements of Operations . 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 2019 swaps : In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 swaps"). The 2019 swaps have total notional amounts of $ 500,000,000 , consisting of two agreements of $ 50,000,000 each and two agreements of $ 200,000,000 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 two smaller notional and will mature in October 2025 for the two larger notional. Under these arrangements, we arranged the 2019 swaps with locked in 1 month Term Secured Overnight Financing Rate ("SOFR") rates at 1.89 % for the $ 100,000,000 notional and at 1.98 % for the $ 400,000,000 notional. In October of 2023, the two agreements of $ 50,000,000 each matured and the remaining 2019 swaps have a total notional amount of $ 400,000,000 as of December 31, 2024. As of the effective date, we are liable for premium payments if interest rates decline below arranged rates but receive interest payments if rates remain 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 other accumulated comprehensive 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 $ 400,000,000 notional interest rate swap contract locked in at 1.98 % due October 2025 and our $ 100,000,000 notional interest rate swap contract locked in at 1.89 % did not match the cash flows for our Barclays term loans and so we determined that they were not currently effective as cash flow hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $ 400,000,000 notional and after July 1, 2020 for the $ 100,000,000 notional was 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 will be amortized to interest expense through October 2023 at approximately $ 0.4 million per month and continuing at approximately $ 0.3 million per month through October 2025. 72 A tabular presentation of the effect of derivative instruments on our other comprehensive income of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): For the years ended Account Beginning 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* Ending Balance December 31, 2024 Accumulated Other Comprehensive Loss, net of taxes $ ( 11,625 ) $ — $ 9,352 $ ( 2,273 ) December 31, 2023 Accumulated Other Comprehensive Loss, net of taxes $ ( 15,201 ) $ — $ 3,576 $ ( 11,625 ) December 31, 2022 Accumulated Other Comprehensive Loss, net of taxes $ ( 18,888 ) $ — $ 3,687 $ ( 15,201 ) *Net of taxes of $ 3.0 million, $ 1.4 million and $ 1.3 million for the years ended December 31, 2024, 2023, and 2022, respectively. A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps for the Swaps that became ineffective in 2020 is as follows (amounts in thousands): For the year ended Amount of gain (loss) recognized in income on derivative (current period ineffective portion) Location of gain (loss) recognized in Income on derivative (current period ineffective portion) Amount of loss reclassified from accumulated other comprehensive income (loss) into income (prior period effective portion) Net receipts (payments) associated with swap Location of loss reclassified from accumulated other comprehensive income (loss) into income (prior period effective portion) and net receipts (payments) associated with swap December 31, 2024 $( 8,006 ) Non-cash change in fair value of interest rate swaps $( 9,352 ) $ 13,126 Interest Expense December 31, 2023 $( 8,185 ) Non-cash change in fair value of interest rate swaps $( 3,576 ) $ 14,541 Interest Expense December 31, 2022 $ 39,621 Non-cash change in fair value of interest rate swaps $( 3,687 ) $( 2,826 ) Interest Expense Net receipts (payments) associated with swap are reported as operating activities in the statement of cash flows. Contingent Consideration : Aidence Holding B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Aidence Holding B.V. ("Aidence"), an artificial intelligence enterprise centered on lung cancer screening. As part of the purchase agreement, we agreed to pay up to $ 10.0 million consideration upon the completion of two identified milestones in RadNet common shares or cash at our election. The fair value is based on the yield rate of S&P B-rated corporate bonds and the probability of meeting the milestones which were tied to FDA authorizations of artificial intelligence screening solutions. In September 2023, we determined that the milestones could not be achieved under the contractual terms of the stock purchase agreement because the original submissions of artificial intelligence screening solutions did not receive regulatory clearance. A new submission would be required; and therefore, the probability of the milestones being achieved became zero. Accordingly, we recognized a gain of $ 7.2 million in 2023 representing the change in fair value of contingent consideration within Cost of operations in our Consolidated Statements of Operations . In addition, there was a general holdback of $ 4.0 million for any indemnification claims, which was settled on April 30, 2023 by the issuance of 144,227 shares of our common stock. Quantib B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V. ("Quantib"), an artificial intelligence enterprise centered on prostate cancer screening. As part of the purchase agreement, we agreed to issue 18 months after acquisition, 113,303 shares of our common stock with an initial fair value at the date of close of $ 3.0 million subject to adjustment for any indemnification claims. In addition, there is a general holdback of $ 1.6 million to be 73 issued in cash subject to adjustment for any indemnification claims. On July 7, 2023, we settled the stock holdback contingent liabilities by issuing 113,303 shares of our common stock at an ascribed value of $ 3.5 million and also settled the general holdback for $ 1.6 million in cash. Montclair. On October 1, 2022, we completed our acquisition of Montclair Radiological Associates ("Montclair"). As part of the purchase agreement, we recorded $ 1.2 million in contingent consideration which was based on the anticipated achievement of specific EBITDA targets within a defined time frame. In June 2023, we determined that the contingent consideration thresholds were not achieved and, as such, we recognized a gain of $ 1.2 million representing the change in fair value of the contingent consideration within Cost of operations in our Consolidated Statements of Operations . The HLH Imaging Group Limited fka Heart and Lung Imaging Limited. On November 1, 2022, we completed our acquisition of 75 % of the equity interests of Heart & Lung Imaging Limited. The purchase included $ 10.2 million in contingent milestone consideration and a cash holdback of $ 0.6 million to be issued 24 months after acquisition subject to adjustment for any indemnification claims. The milestone contingencies had a value of approximately $ 0 and $ 6.2 million as of December 31, 2024 and 2023, respectively. 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. On November 6, 2024, we settled the remaining holdback in cash of $ 0.6 million. We recognized a loss of $ 1.1 million and $ 2.5 million for the year ended December 31, 2024 and 2023, respectively, representing the change in fair value of the contingent consideration within Cost of operations in our Consolidated Statements of Operations . A tabular roll-forward of contingent consideration is as follows (amounts in thousands): For the year ended December 31, 2024 Entity Account December 31, 2023 Balance Settlement of Contingent Consideration Change in Valuation of Contingent Consideration Currency Translation December 31, 2024 Balance Heart & Lung Limited Accrued Expenses & Other Long Term Liabilities $ 6,242 $ ( 8,221 ) $ 1,060 $ 919 $ — For the year ended December 31, 2023 Entity Account January 1, 2023 Balance Settlement of Contingent Consideration Change in Valuation of Contingent Consideration Currency Translation December 31, 2023 Balance Aidence Other Long Term Liabilities $ 7,158 $ — $ ( 7,158 ) $ — $ — Quantib Accrued Expenses & Other Long Term Liabilities $ 2,134 $ ( 3,535 ) $ 1,401 $ — $ — Montclair Accrued Expenses $ 1,200 $ — $ ( 1,200 ) $ — $ — Heart & Lung Limited Accrued Expenses & Other Long Term Liabilities $ 11,053 $ ( 7,854 ) $ 2,476 $ 567 $ 6,242 74 For the year ended December 31, 2022 Entity January 1, 2022 Balance Addition Change in Valuation of Contingent Consideration Currency Translation December 31, 2022 Balance Aidence $ — $ 7,477 $ ( 362 ) $ 43 $ 7,158 Quantib $ — $ 3,019 $ ( 903 ) $ 18 $ 2,134 Montclair $ — $ 1,200 $ — $ — $ 1,200 Heart & Lung Limited $ — $ 10,225 $ 566 $ 262 $ 11,053 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 table below summarizes the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets in our consolidated balance sheets, as follows (in thousands): As of December 31, 2024 Level 1 Level 2 Level 3 Total Other Current Assets 2019 SWAPS - Interest Rate Contracts $ — $ 7,112 $ — $ 7,112 As of December 31, 2023 Level 1 Level 2 Level 3 Total Deposits and Other 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 in 2024 and 2023. respectively. The forward SOFR curve and forward LIBOR curve are readily available in the public markets or can be derived from information available in the public markets. Contingent Consideration: The tables below summarize the estimated fair values of contingencies and holdbacks relating to our acquisitions that are subject to fair value measurements and the classification of these liabilities on our consolidated balance sheets, as follows (in thousands): 75 As of December 31, 2024 Level 1 Level 2 Level 3 Total Accrued expenses and other non-current liabilities Heart & Lung Imaging Limited $ — $ — $ — $ — As of December 31, 2023 Level 1 Level 2 Level 3 Total Accrued expenses and other non-current liabilities Heart & Lung Imaging Limited $ — $ — $ 6,242 $ 6,242 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. 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 and carrying amount of our Barclays Term Loans and Trust Term Loan long-term debt as follows (in thousands): As of December 31, 2024 Level 1 Level 2 Level 3 Total Fair Value Total Face Value Barclays Term Loans and Truist Term Loan $ — $ 1,006,713 $ — $ 1,006,713 $ 1,005,625 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 Our Barclays revolving credit facility had no aggregate principal amount outstanding as of December 31, 2024 and 2023, respectively. Our Truist revolving credit facility had no aggregate principal amount outstanding as of December 31, 2024 and 2023, respectively. The estimated fair values of our long-term debt, which is discussed in Note 8, was determined using Level 2 inputs for the Barclays and Truist term loans. Level 2 inputs primarily relate to comparable market prices. We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, and current liabilities 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. Additionally, we consider the carrying amount of our and other notes payable to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates. 76 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): Years Ended December 31, 2024 2023 2022 Net income attributable to RadNet, Inc. common stockholders $ 2,793 $ 3,044 $ 10,650 BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 73,037,237 63,580,059 56,293,336 Basic net income per share attributable to RadNet, Inc. common stockholders $ 0.04 $ 0.05 $ 0.19 DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 73,037,237 63,580,059 56,293,336 Add nonvested restricted stock subject only to service vesting 296,849 202,995 172,139 Add additional shares issuable upon exercise of stock options, warrants and holdback shares 1,428,246 875,245 855,395 Weighted average number of common shares used in calculating diluted net income per share 74,762,332 64,658,299 57,320,870 Changes in fair value associated with contingently issuable shares $ — $ — $ ( 724 ) Net income attributable to RadNet, Inc's common stockholders for diluted share calculation $ 2,793 $ 3,044 $ 9,926 Diluted net income per share attributable to RadNet, Inc. common stockholders $ 0.04 $ 0.05 $ 0.17 Stock options and non-vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive: Shares issuable upon the exercise of stock options — 754,131 152,723 Weighted average shares for which the exercise price exceeds the average market price of common stock — 70,760 — 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 allows entities the ability to measure investments at cost, adjusted for observable price changes and impairments, with changes recognized in net income. As of December 31, 2024, we have three equity investments with an aggregate carry value of $ 8.0 million. No observable price changes or impairments in our investments were identified as of December 31, 2024, 2023, and 2022, except as disclosed below. During the year ended December 31, 2024, we recognized a $ 1.2 million impairment loss on our investment in Israel-based Medic Vision in our Imaging Center segment. This was driven by the escalating geopolitical tensions in Israel, which adversely affected market conditions, along with a bona fide offer we received for a similar investment. The offer, which was below the carrying value of our investment, provided a reliable indication of the current fair value of our Medic Vision investment. As a result, we determined that the carrying amount of the investment exceeded its fair value, and the impairment loss has been recorded within "Other income " in our Consolidated Statements of Operations. INVESTMENT IN JOINT VENTURES – We have 12 unconsolidated joint ventures that represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging 77 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, as we do 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 December 31, 2024. The table below summarizes our ownership interest in these joint ventures as of December 31, 2024: Joint Venture Percentage Ownership Franklin Imaging, LLC 49 % Greater Baltimore Diagnostic Imaging 50 % Advanced Imaging at St. Joseph Medical Center, LLC 49 % Carroll County Radiology, LLC 40 % Baltimore Washington Imaging Center, LLC 35 % Calvert Medical Imaging Centers, LLC 50 % Montgomery Community Magnetic Imaging Ctr LP 49 % Mt. Airy Imaging Center, LLC 40 % Orange County Radiation Oncology, LLC 40 % Arizona Diagnostic Radiology Group LLC 49 % Glendale Advanced Imaging Center, LLC 55 % Santa Monica Imaging Group LLC 49 % Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the years ended December 31, 2024 and 2023 (in thousands): Balance as of December 31, 2022 $ 57,893 Equity in earnings in these joint ventures 6,427 Distribution of earnings ( 15,603 ) Equity contributions in existing and purchase of interest in joint ventures 43,993 Balance as of December 31, 2023 $ 92,710 Equity in earnings in these joint ventures 14,472 Distribution of earnings ( 4,546 ) Equity contributions in existing and purchase of interest in joint ventures 1,496 Impairment loss ( 75 ) Balance as of December 31, 2024 $ 104,057 We charged management service fees from the imaging centers underlying these joint ventures of approximately $ 24.1 million , $ 17.9 million, and $ 22.2 million for the years ended December 31, 2024, 2023 and 2022, 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. During the year ended December 31, 2024, we have identified an other than temporary impairment in certain of our investments in joint ventures. As a result, we have recognized a $ 0.1 million impairment loss on certain of our joint venture investment in our Imaging Center segment, which has been recorded within "Other income " in our Consolidated Statements of Operations. 78 The following table is a summary of key financial data for these joint ventures as of December 31, 2024 and 2023, respectively, and for the years ended December 31, 2024, 2023 and 2022, respectively, (in thousands): December 31, Balance Sheet Data: 2024 2023 Current assets $ 61,158 $ 39,819 Noncurrent assets 232,750 224,936 Current liabilities ( 53,182 ) ( 46,587 ) Noncurrent liabilities ( 70,241 ) ( 70,834 ) Total net assets $ 170,485 $ 147,334 2024 2023 2022 Net revenue $ 264,471 $ 184,194 $ 145,256 Net income $ 30,833 $ 12,968 $ 21,169 During the years ended December 31, 2024 and 2023, we made additional equity contributions of $ 1.4 million and $ 2.4 million, respectively, to Arizona Diagnostic Radiology Group ("ADRG", our joint venture with Dignity Health). On November 1, 2022, we contributed eight of our imaging centers to ADRG of $ 12.7 million and recorded a loss of $ 0.5 million, which was calculated as the difference between the sale price and carrying value of such imaging centers which included equipment and other assets and an allocation of goodwill to such imaging centers. We recorded $ 4.5 million of the sale price as an offset to due to affiliates while the remaining $ 8.3 million was recorded as investment in joint venture on our balance sheet. We accounted for the transaction as an adjustment to our equity investment for the value of the assets contributed. To maintain our 49 % economic interest in ADRG, we received a distribution from the partnership of $ 4.5 million to reduce our overall investment to $ 8.3 million. Joint venture investment contribution Santa Monica Imaging Group, LLC. Santa Monica Imaging Group, LLC ("SMIG") is a joint venture between RadNet ( 49 % economic interest) and Cedars-Sinai Medical Center ("CSMC") ( 51 % economic interest), consisting of multiple multi-modality imaging centers in Santa Monica and Beverly Hills, California. RadNet initially held a 40 % economic interest, which was later reduced to 35 % in 2019. In September 2023, RadNet increased its economic to 35 % by contributing two imaging centers (one newly constructed in Beverly Hills) valued at $ 27.2 million and purchasing an additional interest for cash payment of $ 11.3 million. Simultaneously, CSMC contributed five additional imaging centers in Santa Monica. As a result of this transaction, RadNet recognized a $ 16.8 million gain, recorded under (Gain) on contribution of imaging centers into joint venture in the Consolidated Statements of Operations, reflecting the difference between the fair value and carrying value of the contributed businesses. The related gain on disposal of business was calculated as the difference between the fair value and carrying value of such imaging centers which included equipment, other assets, accrued liabilities, and an allocation of goodwill to such imaging centers. In determining the fair value of the imaging centers contributed to SMIG, 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 3 - RECENT ACCOUNTING STANDARDS Recently Issued Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Updates (ASUs) 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures . The guidance requires entities to provide enhanced disclosures about significant segment expenses. For entities that have adopted the amendments in ASU 2023-07, the updated guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and is applicable to the Company in fiscal 2024. Early adoption is permitted. We adopted this ASU for the 79 year ended December 31, 2024, and applied the amendments retrospectively to all prior periods presented in our consolidated financial statements. In December 2023, the FASB issued Accounting Standards Updates (ASUs) 2023-09 ("ASU 2023-09"), Income Tax (Topic 740) Improvements to Income Tax Disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, and is applicable to the Company in fiscal 2025. Early adoption is permitted. We will adopt this ASU prospectively for the period ending December 31, 2025, and it will impact only our disclosures with no impacts to our financial condition and results of operations. In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-03 (“ASU 2024-03”), Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, to enhance the transparency of certain expense disclosures. The amendments in this Update require disclosure of specific expense categories in the notes to the financial statements for both interim and annual reporting periods. The Update also requires disaggregated information about certain prescribed expense categories underlying any relevant income statement expense caption. The amendments in this Update are effective for public entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be adopted either prospectively or retrospectively. We are currently evaluating the impact of this ASU on our consolidated financial statements. NOTE 4 – BUSINESS COMBINATIONS AND RELATED ACTIVITY Acquisitions Imaging Center Segment During the years ended 2024, 2023 and 2022, we completed the acquisition of certain assets of the following entities, which either engage directly in the practice of radiology or associated businesses. The primary reason for these acquisitions was to strengthen our presence in the California, Delaware, Maryland, New Jersey, Texas and New York markets. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands): 2024: Entity Date Acquired Total Purchase Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Right of Use Liabilities Notes payable and other liabilities Antelope Valley Outpatient Imaging* 2/1/2024 3,530 2,793 563 687 50 — ( 563 ) — Grossman Imaging Center of CMH, LLC* 3/31/2024 10,343 1,717 6,304 8,500 280 56 ( 6,514 ) — Providence Health System - Southern California* 3/31/2024 7,369 1,378 3,441 5,991 — — ( 3,441 ) — Houston Medical Imaging, LLC* 4/1/2024 22,703 15,826 7,929 11,584 1,660 90 ( 8,089 ) ( 6,297 ) U.S. Imaging, Inc.* 6/1/2024 4,200 4,025 5,597 — 175 — ( 5,597 ) — Global Imaging LLP* 9/1/2024 2,900 1,266 — 1,584 50 — — — Stanislaus Surgical Hospital, LLC* 9/16/2024 3,000 503 1,468 2,382 100 15 ( 1,468 ) — Pink Perception, LLC* 10/7/2024 4,000 494 407 3,306 200 — ( 407 ) — AV Imaging PLLC* 11/1/2024 1,000 287 — 663 50 — — — Total $ 59,045 $ 28,289 $ 25,709 $ 34,697 $ 2,565 $ 161 $ ( 26,079 ) $ ( 6,297 ) In connection with these acquisitions, we have added $ 1.2 million of covenant not to compete, which is subject to amortization, and $ 1.4 million of indefinite-lived trade names to our intangible assets. 80 2023: Entity Date Acquired Total Purchase Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Right of Use Liabilities C.C.D.G.L.R. & S Services Inc.* 1/1/2023 3,500 435 1,689 3,015 50 — ( 1,689 ) Southern California Diagnostic Imaging, Inc.* 1/1/2023 1,815 466 1,184 1,272 50 27 ( 1,184 ) Inglewood Imaging Center, LLC* 2/1/2023 2,600 877 1,188 1,658 50 15 ( 1,188 ) Ramapo Radiology Associates, P.C.* 2/1/2023 2,000 1,663 3,775 229 100 8 ( 3,775 ) Madison Radiology Medical Group, Inc.* 4/1/2023 250 100 — 150 — — — Delaware Diagnostic Imaging, P.A.* 8/1/2023 600 401 337 149 50 — ( 337 ) Total $ 10,765 $ 3,942 $ 8,173 $ 6,473 $ 300 $ 50 $( 8,173 ) *Fair Value Determination is Final Factors contributing to the recognition of the amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the acquisition. Digital Health Segment Kheiron Medical Technologies LTD On October 14, 2024, we acquired a all of the equity interest in Kheiron Medical Technologies LTD (“Kheiron”), which uses deep learning AI to help radiologists detect breast cancer. Kheiron’s operations are included in our Digital Health segment for reporting purposes. The transaction was accounted for as the acquisition of a business with a total purchase consideration of approximately $ 2.3 million, including: i) cash of $ 0.4 million, ii) cash holdback of $ 0.5 million to be issued 18 months after acquisition, (iii) acquisition costs incurred by the seller of $ 0.4 million and (iv) a settlement of a loan from RadNet of $ 1.0 million. We recorded $ 1.2 million in current assets, $ 2.7 million of IPR&D in intangible assets, and $ 1.5 million in current liabilities in connection with this transaction. In performing the purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Kheiron business. The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2024, fair value determination is preliminary and subject to change. Subsidiary activity Formation of majority owned subsidiary and sale of economic interest Tri Valley Imaging Group, LLC. 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 $ 1.4 million of fixed assets and $ 6.0 million in goodwill. Simultaneously, PHS purchased from us an additional economic interest in TVIG for a cash payment of $ 9.6 million. As a 81 result of the transaction, we recognized a gain of $ 0.0 million to additional paid in capital and retained a 52 % controlling economic interest in TVIG and PHS retains a $ 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. Ventura County Imaging Group. On March 31, 2024, Community Memorial Health System purchased an economic interest of Ventura County Imaging Group ("VGIC") for a consideration of $ 5.1 million. As a result of the transaction, we retained 47.5 % controlling economic interest in VGIC. Los Angeles Imaging Group, LLC. On September 1, 2023 we formed a wholly-owned subsidiary, Los Angeles Imaging Group, LLC ("LAIG"). The operation offers multi-modality imaging services out of three locations in Los Angeles, California. We contributed the operations of 3 centers to the subsidiary. Cedars-Sinai Medical Center purchased from us a 35 % noncontrolling economic interest in LAIG for a cash payment of $ 5.9 million. As a result of the transaction, we retain a 65 % controlling economic interest in LAIG. NOTE 5 – SEGMENT REPORTING 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. The CODM considers actual to budget and current year actual to prior year actual for revenue and other profit and loss measures on a monthly basis for evaluating performance of each segment and making decisions about allocating capital and other resources to each segment. We do not report balance sheet information by segment since it is not reviewed by our CODM to evaluate segment performance or to make resource allocation decisions. 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 former AI segment to form a new Digital Health reportable segment. Prior period amounts were adjusted retrospectively to reflect the change in reportable segment. Accordingly, our reportable segments currently are our Imaging Center segment and our Digital Health segment. 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. 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. In the normal course of business, our Imaging Center and Digital Health 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. The following tables reflect certain financial data for each reportable segment: 82 Year Ended December 31, 2024 Imaging Center Digital health Total Revenues from external customers $ 1,792,319 $ 37,345 $ 1,829,664 Intersegment revenues — 28,361 28,361 $ 1,792,319 $ 65,706 $ 1,858,025 Reconciliation of revenue Elimination of intersegment revenues ( 28,361 ) Total consolidated revenues $ 1,829,664 Less: Other segment items* $ 1,542,274 $ 40,753 $ 1,583,027 Segment profit (loss) 250,045 ( 3,408 ) 246,637 Reconciliation of segment profit Depreciation and amortization ( 137,838 ) Loss on sale and disposal of equipment and other ( 2,276 ) Severance costs ( 1,902 ) Interest expense ( 79,849 ) Equity in earnings of joint ventures 14,472 Non-cash change in fair value of interest rate swaps ( 8,006 ) Debt restructuring and extinguishment expenses ( 11,292 ) Other income 24,916 Income before income taxes $ 44,862 *Other segment items include operating expenses, inclusive of cost of operations and lease abandonment charges. 83 Year Ended December 31, 2023 Imaging Center Digital health Total Revenues from external customers $ 1,590,564 $ 26,066 $ 1,616,630 Intersegment revenues — 23,510 23,510 1,590,564 49,576 1,640,140 Reconciliation of revenue Elimination of intersegment revenues ( 23,510 ) Total consolidated revenues $ 1,616,630 Less: Other segment items* $ 1,381,847 $ 18,538 $ 1,400,385 Segment profit (loss) 208,717 7,528 216,245 Reconciliation of segment profit Depreciation and amortization ( 128,391 ) Loss on sale and disposal of equipment and other ( 2,187 ) Severance costs ( 3,778 ) Interest expense ( 64,483 ) Equity in earnings of joint ventures 6,427 Non-cash change in fair value of interest rate swaps ( 8,185 ) Debt restructuring and extinguishment expenses — Other income 6,354 Gain on contribution of imaging centers into joint venture 16,808 Income before income taxes $ 38,810 *Other segment items include operating expenses, inclusive of cost of operations and lease abandonment charges. 84 Year Ended December 31, 2022 Imaging Center Digital health Total Revenues from external customers $ 1,413,419 $ 16,642 $ 1,430,061 Intersegment revenues — 21,416 21,416 1,413,419 38,058 1,451,477 Reconciliation of revenue Elimination of intersegment revenues ( 21,416 ) Total consolidated revenues $ 1,430,061 Less: Other segment items* $ 1,246,701 $ 17,645 $ 1,264,346 Segment profit (loss) 166,718 ( 1,003 ) 165,715 Reconciliation of segment profit Depreciation and amortization ( 115,877 ) Loss on sale and disposal of equipment and other ( 2,529 ) Severance costs ( 946 ) Interest expense ( 50,841 ) Equity in earnings of joint ventures 10,390 Non-cash change in fair value of interest rate swaps 39,621 Debt restructuring and extinguishment expenses ( 731 ) Other income ( 1,833 ) Income before income taxes $ 42,969 *Other segment items include operating expenses, inclusive of cost of operations and lease abandonment charges. Substantially all of our property, equipment and right-of-use assets were located in the United States as of December 31, 2024 and 2023. Service revenue attributed to countries that represent a significant portion of consolidated service revenue are as follows (in thousands): 2024 2023 2022 United States $ 1,802,422 $ 1,599,745 $ 1,423,232 United Kingdom 24,359 14,245 4,432 Other countries 2,883 2,640 2,397 Total $ 1,829,664 $ 1,616,630 $ 1,430,061 NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is recorded as a result of business combinations. The following is a reconciliation of Goodwill by business segment for the years ended December 31, 2023 and December 31, 2024 (in thousands): 85 86 Imaging Center Digital Health Total Balance as of December 31, 2022 $ 594,183 $ 83,482 $ 677,665 Goodwill from acquisitions 6,473 — 6,473 Disposals ( 9,235 ) — ( 9,235 ) Measurement period and other adjustments 1,603 — 1,603 Currency translation 1,233 1,724 2,957 Balance as of December 31, 2023 $ 594,257 $ 85,206 $ 679,463 Goodwill from acquisitions $ 34,697 $ — $ 34,697 Currency translation ( 417 ) ( 3,080 ) ( 3,497 ) Balance as of December 31, 2024 $ 628,537 $ 82,126 v $ 710,663 The amount of goodwill that is expected to be deductible for tax purposes as for 2024 is $ 152.9 million. Other 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. Total amortization expense was $ 12.5 million, $ 12.2 million, and $ 10.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. Intangible assets are amortized using the straight-line method over their useful life determined at acquisition. Management service agreements are amortized over 25 years using the straight line method. Software development is capitalized and amortized over the useful life of the software when placed into service. Trade names are reviewed annually for impairment. The following table shows annual amortization expense, by asset classes that will be recorded over each of the next five years and thereafter (in thousands): 2025 2026 2027 2028 2029 Thereafter Total Weighted average amortization period remaining in years Management Service Contracts $ 2,287 $ 2,287 $ 2,287 $ 2,287 $ 2,291 $ 4,384 $ 15,823 6.9 Covenant not to compete and other contracts 947 660 365 275 106 — 2,353 3.2 Customer Relationships 1,084 962 786 750 750 9,628 13,960 17.2 Patent and Trademarks 293 293 293 293 51 121 1,344 5.0 Developed Technology & Software 7,329 7,289 6,755 6,755 1,848 4,610 34,586 5.4 Trade Names amortized 77 77 77 63 19 8 321 4.3 Trade Names indefinite life — — — — — 8,500 8,500 IPR&D — — — — — 4,464 4,464 Total Annual Amortization $ 12,017 $ 11,568 $ 10,563 $ 10,423 $ 5,065 $ 31,715 $ 81,351 NOTE 7 - PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation and amortization are as follows (in thousands): 87 December 31, 2024 2023 Land $ 250 $ 250 Medical equipment 807,624 714,400 Computer and office equipment, furniture and fixtures 134,355 127,540 Software costs 56,261 47,286 Leasehold improvements 618,725 537,853 Equipment originally acquired under finance/capital lease 13,235 13,971 Total property and equipment cost 1,630,450 1,441,300 Accumulated depreciation ( 935,659 ) ( 836,899 ) Total property and equipment $ 694,791 $ 604,401 Included in our property and equipment at December 31, 2024 is approximately $ 56.6 million total of construction in process amounts consisting of $ 31.3 million in medical equipment, $ 0.9 million in computer and office equipment, none in software costs and $ 24.4 million in leasehold improvements. Included in our property and equipment at December 31, 2023 is approximately $ 42.7 million total of construction in process amounts consisting of $ 12.2 million in medical equipment, $ 1.9 million in computer and office equipment, $ 6.0 million in software costs and $ 22.6 million in leasehold improvements. Depreciation and amortization expense of property and equipment, including amortization of equipment under finance leases, for the years ended December 31, 2024, 2023 and 2022 was $ 125.3 million ($ 122.5 million in Imaging Center segment and $ 2.9 million in Digital Health segment), $ 116.2 million ($ 115.0 million in Imaging Center segment and $ 1.2 million in Digital Health segment) and $ 105.6 million ($ 104.9 million in Imaging Center segment and $ 0.7 million in Digital Health segment), respectively. NOTE 8 - CREDIT FACILITIES AND NOTES PAYABLE At December 31, 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 December 31, 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 (the “Barclays Term Loan”) and a $ 282.0 million senior secured revolving credit facility (the “Barclays Revolving Credit Facility”). Our borrowing under the Barclays Revolving 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. On November 26, 2024, we entered into Amendment No. 1 to the Barclays Credit Agreement (the “First Amendment”) with the Barclays Bank Plc and the lenders and financial institutions named therein. Pursuant to the First Amendment, the interest rates on the term loans and revolving credit facility provided under the Restated Credit Agreement have been reduced by 0.25 %. Total costs incurred in connection with the first amendment amounted to approximately $ 2.4 million segregated as follows: $ 0.6 million recognized as discount, $ 1.8 million charged to loss on early extinguishment of debt and $ 0.1 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: 88 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 to November 26, 2024 SOFR plus 2.5 % Prime Rate plus 1.5 % 7.13 % (credit spread adjustment of 0.00 % ) 9.25 % After November 26, 2024 SOFR plus 2.25 % Prime Rate plus 1.25 % 6.77 % (credit spread adjustment of 0.00 % ) 8.8 % 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 $ 1.9 million at December 31, 2024. After we entered the first amendment on November 26, 2024, amounts borrowed under the Barclays Revolving Credit Facility bear interest at either SOFR plus 2.75 % or the Prime Rate plus 1.8 % (with step-downs based on attainment of certain first lien net leverage ratio benchmarks). As of December 31, 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 December 31, 2024. After reserves of $ 7.6 million for certain letters of credit, $ 274.4 million was available to draw upon as of December 31, 2024. The Barclays Revolving Credit Facility terminates on April 18, 2029, unless otherwise accelerated under the terms of the Barclays Credit Agreement. 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 (the "Truist Term Loan") and a $ 50.0 million revolving credit facility (the “Truist 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 SOFR or a Base Rate plus an applicable margin and fees which step down based on a leverage ratio. At December 31, 2024 the applicable margin for SOFR 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 December 89 31, 2024. Amounts borrowed under the Truist Revolving Credit Facility bear interest at either SOFR or a Base Rate plus an applicable margin and fees which step down based on a leverage ratio. In addition, a commitment fee of 0.30 % 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 December 31, 2024. With no letters of credit reserved against the facility, the full $ 50.0 million was available to draw upon as of December 31, 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 December 31, 2024 and 2023 our term loan debt and other obligations are as follows (in thousands): December 31, 2024 December 31, 2023 Barclays Term Loans collateralized by RadNet's tangible and intangible assets $ 870,625 $ 678,687 Discount on Barclays Term Loans ( 12,929 ) ( 9,041 ) Truist Term Loan Agreement collateralized by NJIN's tangible and intangible assets 135,000 144,375 Discount on Truist Term Loan Agreement ( 726 ) ( 990 ) Revolving Credit Facilities — — Equipment notes payable at 3.6 % to 7.2 %, due through 2029, collateralized by medical equipment 24,296 17,011 Total debt obligations 1,016,266 830,042 Less: current portion ( 24,692 ) ( 17,974 ) Long term portion of debt obligations $ 991,574 $ 812,068 The following is a listing of annual principal maturities of notes payable exclusive of all related discounts and repayments on our revolving credit facilities for years ending December 31 (in thousands) 2025 $ 27,025 2026 26,920 2027 128,440 2028 11,666 2029 8,995 Thereafter 826,875 Total notes payable obligations $ 1,029,921 NOTE 9 – LEASES Our material lease contracts are for facilities and advanced radiology equipment. In regards to our imaging, administrative and warehouse facilities, the most common initial lease term varies in length from 5 to 15 years. Including renewal options negotiated with the landlord, we can have a total span of 10 to 35 years at these locations, and we do not enter into purchase options on the underlying property. We also lease smaller satellite X-Ray locations on mutually renewable terms, usually lasting one year. Leases for advanced radiology and office equipment have terms generally lasting from 5 to 8 years. All leases are classified as operating or finance for accounting purposes, depending on the terms of the agreement. Our incremental borrowing rate used to discount the stream of lease payments is closely related to the interest rates charged on our 90 collateralized debt obligations and our incremental borrowing rate is adjusted when those rates experience a substantial change. Operating lease costs are recognized as cost of operation in the Consolidated Statement of Operations. The components of lease expense were as follows: Years ended December 31, (In thousands) 2024 2023 2022 Operating lease cost (1) $ 111,966 $ 106,954 $ 107,475 Finance lease cost: Depreciation of leased equipment $ 109 $ 1,204 $ 2,896 Interest on lease liabilities — — — Total finance lease cost $ 109 $ 1,204 $ 2,896 (1) Operating lease cost above for the year ended December 31, 2024 and 2023 included $ 1.8 million and $ 2.7 million, respectively in lease abandonment charges. Please see our discussion in the Leases section of Note 2, Summary of Significant Accounting Policies. Supplemental cash flow information related to leases was as follows: Years ended December 31, (In thousands) 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 103,215 $ 101,516 $ 108,004 Right-of-use & Equipment assets obtained in exchange for lease obligations: Operating leases 109,446 55,852 88,080 91 Supplemental balance sheet information related to leases was as follows: (In thousands, except lease term and discount rates) December 31, 2024 2023 Operating Leases Operating lease right-of-use assets $ 639,740 $ 596,032 Current portion of operating lease liability 56,618 55,981 Long-term operating lease liability 655,979 605,097 Total operating lease liabilities $ 712,597 $ 661,078 Finance Leases Equipment at cost $ 13,235 $ 13,971 Accumulated depreciation ( 12,747 ) ( 13,374 ) Equipment, net $ 488 $ 597 Weighted Average Remaining Lease Term Operating leases - years 10.6 10.6 Weighted Average Discount Rate Operating leases 6.9 % 6.7 % Maturities of lease liabilities were as follows: (In thousands) Operating Leases Year Ending December 31, 2025 $ 102,111 2026 98,773 2027 99,572 2028 96,436 2029 86,789 Thereafter 536,087 Total Lease Payments 1,019,768 Less imputed interest ( 307,171 ) Total $ 712,597 As of December 31, 2024, we have additional operating leases for facilities and medical equipment that have not yet commenced of approximately $ 54.2 million. These operating leases will commence in 2025 with lease terms of 1 to 15 years. NOTE 10 – INCOME TAXES For the years ended December 31, 2024, 2023 and 2022, we have the following income (loss) before income taxes (in thousands): 92 December 31, 2024 2023 US Domestic $ 60,704 $ 60,374 Foreign ( 15,842 ) ( 21,564 ) Income before income taxes $ 44,862 $ 38,810 For the years ended December 31, 2024, 2023 and 2022, we recognized income tax expense comprised of the following (in thousands): December 31, 2024 2023 Federal current tax $ — $ — State current tax 2,375 3,442 Foreign current tax 1,302 638 Other current tax — — Federal deferred tax 3,269 8,960 State deferred tax ( 246 ) ( 2,724 ) Foreign deferred tax ( 674 ) ( 1,843 ) Income tax expense 6,026 8,473 A reconciliation of the statutory U.S. federal rate and effective rates is as follows: Years Ended December 31, 2024 2023 Federal tax $ 9,416 $ 8,150 State franchise tax, net of federal benefit 3,652 3,730 Other non deductible expenses 781 133 Stock-based compensation ( 2,367 ) 63 Officer compensation 1,435 1,199 Noncontrolling interests in partnerships ( 7,581 ) ( 5,752 ) Changes in valuation allowance 4,675 ( 2,569 ) Return to provision ( 1,237 ) 5,987 Deferred true-ups and other ( 1,332 ) 483 Foreign rate differential ( 670 ) ( 1,083 ) Uncertain tax provisions ( 274 ) ( 884 ) Tax rate adjustment ( 458 ) ( 984 ) Other differences ( 14 ) — Income tax expense $ 6,026 $ 8,473 Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial and income tax reporting purposes and operating loss carryforwards. Our deferred tax assets and liabilities comprise the following (in thousands): 93 December 31, Deferred tax assets: 2024 2023 Net operating losses $ 46,868 $ 43,247 Accrued expenses 5,087 4,432 Operating lease liability 138,842 136,097 Amortization of research and experimental expenditures 9,977 5,243 Equity compensation 3,813 4,179 Allowance for doubtful accounts 2,411 2,198 Limitation of business interest 16,083 9,515 Other 1,182 997 Valuation allowance ( 13,797 ) ( 9,688 ) Total deferred tax assets $ 210,466 $ 196,220 Deferred tax liabilities: Property and equipment ( 20,383 ) ( 7,851 ) Goodwill ( 45,794 ) ( 42,419 ) Intangibles ( 13,206 ) ( 15,578 ) Operating lease right-of-use asset ( 124,427 ) ( 122,840 ) Outside basis difference ( 27,066 ) ( 18,547 ) Other ( 1,820 ) ( 4,761 ) Total deferred tax liabilities $ ( 232,696 ) $ ( 211,996 ) Net deferred tax liability $ ( 22,230 ) $ ( 15,776 ) As of December 31, 2024, we had federal net operating loss carryforwards of approximately $ 128.2 million, which is comprised of definite and indefinite net operating losses. We had federal net operating loss carryforwards of approximately $ 63.2 million, which expire at various intervals from the years 2026 to 2037, and had carryforwards of $ 65.0 million of net operating losses which do not expire. Federal net operating losses generated in tax years following December 31, 2017 carryover indefinitely and may be used to offset up to 80% of future taxable net income. We also had state net operating loss carryforwards of approximately $ 145.3 million, which expire at various intervals from the years 2025 through 2042. As of December 31, 2024, $ 24.9 million of our federal net operating loss carryforwards acquired in connection with the 2011 acquisition of Raven Holdings U.S., Inc. and the 2019 acquisition of Nulogix Health, Inc. are subject to limitations related to their utilization under Section 382 of the Internal Revenue Code. We also had foreign net operating loss carryforwards of approximately $ 56.3 million, which do not expire and are carried over indefinitely. We considered all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations. The evaluation of this evidence requires significant judgment about the forecasts of future taxable income, based on the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. As of December 31, 2024, we have determined that deferred tax assets of $ 210.5 million are more likely-than-not to be realized. We have also determined deferred tax liabilities of $ 45.8 million are related to book basis in goodwill that has an indefinite life. We file consolidated income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We continue to reinvest earnings of the non-US entities for the foreseeable future and therefore have not recognized any U.S. tax expense on these earnings. With limited exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2019. We do not anticipate the results of any open examinations would result in a material change to our financial position. A reconciliation of the total gross amounts of unrecognized tax benefits for the years ended are as follows (in thousands): 94 December 31, 2024 2023 Balance at beginning of year $ 3,082 $ 4,144 Increases related to prior year tax positions 276 54 Increases related to current year tax positions 45 62 Expiration of the statute of limitations for the assessment of taxes ( 381 ) ( 1,180 ) Increase related to change in rate 2 2 Balance at end of year $ 3,024 $ 3,082 At December 31, 2024, we had unrecognized tax benefits of $ 3.0 million of which $ 2.5 million will affect the effective tax rate if recognized. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2024 the Company accrued approximately $ 22 thousand of interest and penalties. As of December 31, 2024, accrued interest and penalties amounted to approximately $ 0.4 million. We do not anticipate the uncertain tax position to change materially within the next 12 months. The Organization for Economic Co-operation and Development issued Pillar Two model rules for a global minimum tax of 15% effective January 1, 2024. While it is uncertain whether the United States will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two. Pillar Two had no impact on our 2024 ETR, and we do not currently expect Pillar Two to significantly impact our ETR going forward. NOTE 11 – STOCK-BASED COMPENSATION Stock Incentive Plans We have one long-term incentive plan that we adopted in 2006 and which we have amended and restated at various points in time: April 20, 2015, March 9, 2017, April 15, 2021 April 27, 2023, and most recently by our stockholders at our annual stockholders meeting on June 7, 2023 (the “Restated Plan”). 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. Our stock-based compensation consists of various types of awards, each accounted for separately. There is no overlap between Options, DeepHealth options, Restricted stock awards (RSAs) and Restricted stock units (RSUs), performance stock units (PSUs), and performance stock options (PSOs). 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 one to five years and expire five to ten years from the date of grant. The following summarizes all of our incentive stock option transactions for the year ended December 31, 2024: Outstanding Options Under the Restated Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life(in years) Aggregate Intrinsic Value Balance, December 31, 2023 911,411 $ 16.60 Exercised ( 70,494 ) 9.52 Balance, December 31, 2024 840,917 17.19 5.42 $ 44,272,405 Exercisable at December 31, 2024 719,618 16.43 5.03 38,431,513 95 Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on December 31, 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 December 31, 2024. As of December 31, 2024, total unrecognized stock-based compensation expense related to non-vested employee awards was $ 0.2 million which is expected to be recognized over a weighted average period of approximately 0.14 years. DeepHealth Options During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted 412,434 options 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. 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 Balance, December 31, 2023 79,073 Exercised ( 10,427 ) — Balance, December 31, 2024 68,646 — 4.78 $ 4,794,237 Exercisable at December 31, 2024 68,646 — 4.78 4,794,237 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 (“RSA’s”) and Restricted Stock Units ("RSUs") The Restated Plan permits the award of RSAs and RSUs. The following summarizes all unvested RSA and RSU activities during for the year ended December 31, 2024: RSA's & RSU's Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value RSA's and RSU's unvested at December 31, 2023 762,083 $ 22.13 Changes during the period Granted 900,722 $ 40.80 Vested ( 935,677 ) $ 29.96 Forfeited ( 39,473 ) $ 25.28 RSA's and RSU's unvested at December 31, 2024 687,655 1.72 $ 35.31 We determine the fair value of all RSA’s and RSU's based on the closing price of our common stock on the grant date. Performance based stock units ("PSUs") In January 2022, we granted certain employees PSUs with a target award of 25,683 shares of our common stock with a fair value of $ 29.44 . 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, 2022 through December 31, 2022. In January of 2023, based on the performance condition achieved, the board of directors issued 12,843 shares. In January 2023, we granted certain employees PSUs with a target award of 60,685 shares of our common stock with a fair value of $ 18.64 . The PSUs will vest in five equal parts, starting three years from the grant date based on continuous service, 96 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 shares. In October 2024, we granted certain employees PSUs with a target award of 35,522 shares of our common stock. The PSUs will vest in five equal parts, on each anniversary of 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 determined by the management no later than the seventh anniversary of the grant date. As of December 31, 2024, based on the performance to date, all 35,522 shares are expected to vest. Performance based stock options ("PSOs") In January 2022, we granted certain employees PSOs to purchase a maximum of 111,925 shares of our common stock with a strike price of $ 29.44 . 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 shares to 111,925 shares) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2022 through December 31, 2022. In January of 2023, based on the performance condition achieved, the board of directors issued 27,981 options. In January 2023, we granted certain employees PSOs with a potential to purchase a maximum of 235,227 shares of our common stock with a strike price of $ 18.64 . 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 shares to 235,227 shares) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period 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. Plan summary In summary, of the 20,100,000 shares of common stock reserved for issuance under the Restated Plan at December 31, 2024, there remain 3,172,578 shares available for future issuance. NOTE 12 – SUBSEQUENT EVENTS On January 1, 2025, we acquired HALO Centers, LLC for a purchase consideration of approximately $ 4.2 million. HALO Centers, LLC consists of one multi-modality imaging center located in California. 97 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.