CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
Supplemental Schedule of Non-Cash Investing and Financing Activities
We acquired equipment and certain leasehold improvements for approximately $43.2 million and $50.2 million during the nine months ended September 30, 2024 and 2023, respectively, which were not paid for as of September 30, 2024 and 2023, respectively. The amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other.
On April 1, 2024, we issued promissory notes in the amount of $6.3 million to acquire radiology equipment previously leased under operating leases, 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services in the United States. At September 30, 2024, we operated directly or indirectly through joint ventures with hospitals, 399 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, New York and Texas. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. 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.
In the first quarter of 2024, we revised our reportable segments to combine our eRad business, which was included in the Imaging Center segment, with our AI segment to form a new Digital Health reportable segment. Prior period amounts were adjusted retrospectively to reflect the change in reportable segment. For further financial information about these segments, see Note 5, Segment Reporting.
In March 2024, we closed on a public offering of 5,232,500 shares of our common stock, including 682,500 shares sold pursuant to the exercise of an underwriter's overallotment option, at a price to the public of $44.00 per share. The gross proceeds as a result of this public offering was $230.2 million before underwriting discounts, commissions, and costs totaling $11.8 million.
The consolidated financial statements include the accounts of RadNet, Inc as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet,” “we,” “us,” “our” or the “Company” in this report.
Accounting regulations stipulate that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics which evidence a controlling financial interest, is considered a Variable Interest Entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity.
VIEs that we consolidate as the primary beneficiary include professional corporations which are owned or controlled by individuals within our senior management and provide professional medical services for centers in Arizona, California, Delaware, Maryland, New Jersey and New York. These VIEs are collectively referred to as the “Consolidated Medical Group". 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.
The Consolidated Medical Group on a combined basis recognized $55.3 million and $51.3 million of revenue, net of management services fees to RadNet, for the three months ended September 30, 2024 and 2023, respectively and $55.3 million and $51.3 million of operating expenses for the three months ended September 30, 2024 and 2023, respectively. RadNet recognized $207.4 million and $214.7 million of total billed net service fee revenue for the three months ended September 30, 2024, and 2023, respectively, for management services provided to the Consolidated Medical Group relating primarily to the technical portion of billed revenue.
The Consolidated Medical Group on a combined basis recognized $162.5 million and $151.5 million of revenue, net of management services fees to RadNet, for the nine months ended September 30, 2024 and 2023, respectively and $162.5 million
and $151.5 million of operating expenses for the nine months ended September 30, 2024 and 2023, respectively. RadNet recognized $673.3 million and $638.3 million of total billed net service fee revenue for the nine months ended September 30, 2024, and 2023, respectively, for management services provided to the Consolidated Medical Group relating primarily to the technical portion of billed revenue.
In our condensed consolidated balance sheets at September 30, 2024 and December 31, 2023, we have included approximately $118.0 million and $94.1 million, respectively, of accounts receivable and approximately $21.7 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 condensed consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation.
At all of our centers not serviced by the 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for conformity with U.S. generally accepted accounting principles for complete financial statements; however, in the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended September 30, 2024 and 2023 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2023.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the significant accounting policies we use and have explained in our annual report on Form 10-K for the fiscal year ended December 31, 2023. The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2023.
REVENUES - Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period when our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the fees for the services provided are dependent upon the terms provided by Medicare and Medicaid, or negotiated with managed care health plans and commercial insurance companies. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
As it relates to the 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 others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual
discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect.
Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans.
Our total service revenues during the three and nine months ended September 30, 2024 and 2023 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Commercial insurance
$
255,375
$
218,923
$
752,514
$
652,597
Medicare
102,852
89,981
298,001
262,719
Medicaid
10,894
10,519
32,804
30,279
Workers' compensation/personal injury
10,232
9,745
33,088
34,785
Other patient revenue
10,607
10,443
34,524
30,191
Management fee revenue
6,242
3,922
18,255
12,203
Heart and lung
4,696
2,441
12,553
6,377
Other
10,314
3,768
18,918
14,248
Revenue under capitation arrangements
33,563
40,041
105,050
117,982
Imaging Center Segment Revenue
444,775
389,783
1,305,707
1,161,381
Digital Health Segment Revenue
16,367
12,185
46,856
34,866
Total service revenue
$
461,142
$
401,968
$
1,352,563
$
1,196,247
ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience.
We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Proceeds on notes receivables are reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. Amounts remaining to be collected on these agreements were $5.9 million and $14.3 million at September 30, 2024 and December 31, 2023, respectively. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis.
DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method and are related to our revolving credit facilities. Deferred financing costs, net of accumulated amortization, were $2.4 million and $1.6 million, as of September 30, 2024 and December 31, 2023, respectively. See Note 6, Credit Facilities and Notes Payable for more information.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years. Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred.
BUSINESS 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.
GOODWILL - Goodwill at September 30, 2024 totaled $711.8 million. Goodwill is recorded as a result of business combinations. If we determine the carrying value of a reporting unit exceeds its fair value an impairment charge would be recognized and should not exceed the total amount of goodwill allocated to that reporting unit. We tested goodwill and indefinite lived intangibles for impairment on October 1, 2023 noting no impairment, and we have not identified any indicators of impairment through September 30, 2024.
Activity in goodwill for the nine months ended September 30, 2024 is provided below (in thousands):
Imaging Center segment
Digital Health segment
Total
Balance as of December 31, 2023
606,557
$
72,906
$
679,463
Goodwill from acquisitions
30,729
—
30,729
Currency translation
1,223
426
1,649
Segment reorganization
(12,300)
12,300
—
Balance as of September 30, 2024
$
626,209
$
85,632
$
711,841
INTANGIBLE ASSETS - Intangible assets are primarily related to our business combinations and software development. They include the estimated fair values of such items as service agreements, customer lists, covenants not to compete, acquired technologies, and trade names. The components of intangible assets, both finite and indefinite lived, along with annual amortization expense that will be recorded over the next five years at September 30, 2024 and December 31, 2023 are as follows (in thousands):
As of September 30, 2024:
2024*
2025
2026
2027
2028
Thereafter
Total
Weighted average amortization period remaining in years
Management service contracts
$
572
$
2,287
$
2,287
$
2,287
$
2,287
$
6,669
$
16,389
7.2
Covenant not to compete and other contracts
261
897
610
315
225
68
2,376
3.1
Customer lists
318
1,141
1,019
844
803
11,108
15,233
17.4
Patent and trademarks
78
311
311
311
311
197
1,519
5.2
Developed technology
1,913
7,651
7,611
7,077
7,077
6,856
38,185
5.8
Trade names amortized
19
77
77
77
63
27
340
4.5
Trade names indefinite life
—
—
—
—
—
8,500
8,500
—
IPR&D
—
—
—
—
—
1,899
1,899
—
Total annual amortization
$
3,161
$
12,364
$
11,915
$
10,911
$
10,766
$
35,324
$
84,441
*Excluding the nine months ended September 30, 2024
Weighted average amortization period remaining in years
Management service contracts
$
2,287
$
2,287
$
2,287
$
2,287
$
2,287
$
6,671
$
18,106
7.9
Covenant not to compete and other contracts
946
714
427
132
45
6
2,270
3.4
Customer lists
1,234
1,104
981
797
764
10,564
15,444
17.7
Patent and trademarks
316
316
316
315
300
164
1,727
5.8
Developed technology
7,785
7,785
7,745
7,210
7,046
6,117
43,688
5.7
Trade names amortized
77
77
77
77
63
27
398
5.3
Trade names indefinite life
—
—
—
—
—
7,100
7,100
—
IPR&D
—
—
—
—
—
1,882
1,882
—
Total annual amortization
$
12,645
$
12,283
$
11,833
$
10,818
$
10,505
$
32,531
$
90,615
Total intangible asset amortization expense was $3.1 million and $9.4 million for the three and nine months ended September 30, 2024, respectively. Total amortization expense was $3.0 million and $8.9 million for the three and nine months ended September 30, 2023, respectively. Intangible assets are amortized using the straight-line method over their useful life determined at acquisition. Management service contracts are amortized over 25 years using the straight line method. Developed technology is capitalized and amortized over the useful life of the software when placed into service. In process research and development (" IPR&D") and Trade names are reviewed annually for impairment.
INCOME TAXES - Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized.
In 2021, the Organization for Economic Co-operation and Development ("OECD") announced an inclusive framework on base erosion and profit shifting including Pillar Two Model Rules defining the global minimum tax, which calls for taxation of large multinational corporations at a minimum rate of 15%. Subsequently, multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to support certain components of Pillar Two Model Rules beginning 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. The model rules provide a framework for applying the minimum tax, countries may enact Pillar Two Model Rules slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar Two Model Rules. On a long-term basis, we will continue to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in all countries applicable to us. For 2024, we expect that we will meet one or more transactional safe harbor rules, and as such, we do not believe Pillar Two model will have an impact on our annual effective tax rate for the year ending December 31, 2024.
We recorded an income tax expense of $4.3 million, or an effective tax rate of 26.1%, for the three months ended September 30, 2024 and $7.2 million, or an effective tax rate of 23.1% for the three months ended September 30, 2023. We recorded income tax expense of $4.9 million, or an effective tax rate of 16.7%, for the nine months ended September 30, 2024 and $7.7 million, or an effective tax rate of 24.1% for the nine months ended September 30, 2023. The income tax rates for the three and nine months ended September 30, 2024 diverge from the federal statutory rate due to (i) effects of state income taxes ; (ii) officer's compensation limitations; (iii) partial valuation allowance on losses in foreign jurisdictions, partially offset by (iv) excess tax benefits attributable to share based compensation; and (v) noncontrolling interests from controlled partnerships.
LEASES - We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our condensed consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have
elected to account for the components as a single lease component. ROU assets are tested for impairment if circumstances suggest that the carrying amount may not be recoverable. Our ROU assets consist of facility and equipment assets on operating leases. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets as of September 30, 2024. Our facility leases require us to maintain insurance policies which would cover major damage to our facilities. We maintain business interruption insurance to cover loss of business due to a facility becoming non-operational under certain circumstances. Our equipment leases are covered by warranty and service contracts which cover repairs and provide regular maintenance to keep the equipment in functioning order.
EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we have amended and restated at various points in time: 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. Terms and conditions of awards can be direct grants or based on achieving a performance metric. We also consider probability of achievement of performance conditions when determining expense recognition. For the awards where vesting is probable, equity-based compensation is recognized over the related vesting period. Stock options generally vest over three years to five years and expire five years to ten years from date of grant. We determine the compensation expense for each stock option award using the Black Scholes model. This model requires that our management make certain estimates concerning risk free interest rates and volatility in the trading price of our common stock. The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. In connection with our acquisition of DeepHealth Inc. on June 1, 2020, we assumed the DeepHealth, Inc. 2017 Equity Incentive Plan, including outstanding options awards that can be exercised for our common stock. No additional awards will be granted under the DeepHealth, Inc. 2017 Equity Incentive Plan. See Note 7, Stock-Based Compensation, for more information.
COMPREHENSIVE INCOME (LOSS) - Accounting guidance establishes rules for reporting and displaying other comprehensive income (loss) and its components. Our foreign currency translation adjustments and the amortization of balances associated with derivatives previously classified as cash flow hedges are included in other comprehensive income (loss). The components of other comprehensive income (loss) for the three and nine months ended September 30, 2024 and September 30, 2023 are included in the consolidated statements of comprehensive income.
INTEREST INCOME - We recognized interest income of approximately $9.6 million and $3.6 million for the three months ended September 30, 2024 and 2023, respectively, and $22.7 million and $6.3 million for the nine months ended September 30, 2024 and 2023, respectively. Interest income is recorded within Other non-operating income in our CondensedConsolidated 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. If one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
DERIVATIVE INSTRUMENTS - In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $500.0 million, consisting of two agreements of $50.0 million each and two agreements of $200.0 million each. The 2019 Swaps secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They matured in October 2023 for the smaller notional and will mature in October 2025 for the larger notional. We arranged the 2019 Swaps with locked in 1 month Term SOFR rates at 1.89% for the $100.0 million notional and at 1.98% for the $400.0 million notional. As of the effective date, we are liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates are above the arranged rates.
At inception, we designated our 2019 Swaps as cash flow hedges of floating-rate borrowings. In accordance with accounting guidance, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is reported as a component of comprehensive gain or loss in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. The cash flows for both our $400.0 million notional interest rate swap contract locked in at 1.98% due October 2025 and our $100.0 million notional interest rate swap contract locked in at 1.89% did not match the cash flows for our term
loans under our Barclays Credit Facility, so we determined that they are not effective as cash flow hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $400.0 million notional and after July 1, 2020 for the $100.0 million notional are being recognized in earnings. As of July 1, 2020, the total change in fair value relating to swaps included in other comprehensive income was approximately $24.4 million, net of taxes. This amount was amortized to interest expense through October 2023 at approximately $0.4 million per month and continuing at approximately $0.3 million per month through October 2025. The effect for the release of the taxes from other comprehensive income is based on the current tax rate.
A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive income of the 2019 Swaps which remain ineffective is as follows (amounts in thousands):
For the three months ended September 30, 2024
Account
June 30, 2024 Balance
Amount of comprehensive loss recognized on derivative net of taxes
Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes*
September 30, 2024 Balance
Location
Accumulated Other Comprehensive Loss, net of taxes
$(4,369)
$—
$986
$(3,383)
Equity
*Net of taxes of $0.4 million for the three months ended September 30, 2024.
For the nine months ended September 30, 2024
Account
December 31, 2023 Balance
Amount of comprehensive loss recognized on derivative net of taxes
Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes*
September 30, 2024 Balance
Location
Accumulated Other Comprehensive Loss, net of taxes
$(11,625)
$—
$8,242
$(3,383)
Equity
*Net of taxes of $2.8 million for the nine months ended September 30, 2024.
A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps which remain ineffective is as follows (amounts in thousands):
For the three months ended September 30, 2024
Ineffective interest rate swap
Amount recognized (current period ineffective portion)
Location recognized in profit and loss (current period ineffective portion)
Amount reclassified from accumulated OCI (prior period effective portion)
Location reclassified from accumulated OCI into profit and loss (prior period effective portion)
Amount recognized (current period ineffective portion)
Location recognized in profit and loss (current period ineffective portion)
Amount reclassified from accumulated OCI (prior period effective portion)
Location reclassified from accumulated OCI into profit and loss (prior period effective portion)
Interest rate contracts
$
7,429
Other income (expense)
$
8,242
Interest Expense
See Fair Value Measurements below for the fair value of the 2019 Swaps at September 30, 2024.
CONTINGENT CONSIDERATION -
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 and Lung Imaging Limited. The purchase included up to $10.2 million in contingent milestone consideration and cash holdback of $0.6 million to be issued 24 months after acquisition subject to adjustment for any indemnification claims, which will be adjusted to fair value in subsequent periods. The holdback had a value of approximately $0.6 million as of September 30, 2024. The contingent consideration is determined by the achievement of a specific number of physician reads. On September 20, 2023, we settled a milestone contingent liability by issuing 56,600 shares of our common stock at an ascribed value of $1.6 million and cash of $1.8 million. On December 12, 2023, we settled a milestone contingent liability by issuing 64,569 shares of our common stock at an ascribed value of $2.3 million and cash of $2.1 million. On March 27, 2024, we partially settled a milestone contingent liability by issuing 95,019 shares of our common stock at an ascribed value of $4.6 million. On April 1, 2024, we settled the remaining milestone contingent liability in cash of $3.6 million.
A tabular roll forward of contingent consideration is as follows (amounts in thousands):
Gain or loss from change in valuation of contingent consideration are recorded within Cost of operations in our Consolidated Statements of Operations.
See Fair Value Measurements below for the fair value of contingent consideration at September 30, 2024.
FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement:
Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.
Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data.
Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment.
Derivatives:
The tables below summarize the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our condensed consolidated balance sheets, as follows (in thousands):
The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward SOFR curve. The forward SOFR curve is readily available in the public markets or can be derived from information available in the public markets.
Contingent Consideration:
The table below summarizes the estimated fair values of holdback relating to our Heart and Lung Imaging Limited acquisition on November 1, 2022 that are subject to fair value measurements and the classification of these liabilities on our condensed consolidated balance sheets, as follows (in thousands):
As of September 30, 2024
Level 1
Level 2
Level 3
Total
Accrued expenses
Heart & Lung Imaging Limited
$
—
$
—
$
632
$
632
As of December 31, 2023
Level 1
Level 2
Level 3
Total
Accrued expenses
Heart & Lung Imaging Limited
$
—
$
—
$
6,879
$
6,879
The estimated fair value of these liabilities was determined using Level 3 inputs. For Heart & Lung Imaging Limited the contingent consideration is determined by the achievement of a specific number of physician reads. The fair value is measured based upon the probability adjusted amount expected to be paid. As significant inputs for the contingent consideration of Heart & Lung Imaging Limited are not observable and cannot be corroborated by observable market data they are classified as Level 3.
Long Term Debt:
The table below summarizes the estimated fair value compared to the face value of our long-term debt as follows (in thousands):
As of September 30, 2024
Level 1
Level 2
Level 3
Total Fair Value
Total Face Value
Barclays Term Loan and Truist Term Loan
$
—
$
1,010,778
$
—
$
1,010,778
$
1,009,687
As of December 31, 2023
Level 1
Level 2
Level 3
Total Fair Value
Total Face Value
Barclays Term Loan and Truist Term Loan
$
—
$
824,759
$
—
$
824,759
$
823,063
The estimated fair value of our long-term debt, which is discussed in Note 6, Credit Facilities and Notes Payable, was determined using Level 2 inputs primarily related to comparable market prices.
We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment.
EARNINGS PER SHARE - Earnings per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding, net of common stock held in treasury, as follows (in thousands except share and per share data):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
$
3,209
$
17,540
$
(2,552)
$
4,904
BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
Weighted average number of common shares outstanding during the period
73,494,709
67,793,404
72,587,321
62,113,707
Basic net income (loss) per share attributable to RadNet, Inc.'s common stockholders
$
0.04
$
0.26
$
(0.04)
$
0.08
DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
Weighted average number of common shares outstanding during the period
73,494,709
67,793,404
72,587,321
62,113,707
Add non-vested restricted stock subject only to service vesting
233,235
217,238
—
202,082
Add additional shares issuable upon exercise of stock options and contingently issuable shares
1,437,491
799,176
—
905,462
Weighted average number of common shares used in calculating diluted net income per share
75,165,435
68,809,818
72,587,321
63,221,251
Diluted net income (loss) income per share attributable to RadNet, Inc.'s common stockholders
$
0.04
$
0.25
$
(0.04)
$
0.08
Stock options and non-vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive:
Non-vested restricted stock subject to service vesting
—
—
680,318
—
Shares issuable upon the exercise of stock options
—
88,600
820,932
761,708
Shares issuable subject to satisfaction of certain contingencies
—
—
—
193,207
Weighted average shares for which the exercise price exceeds average market price of common stock
—
—
—
94,346
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 September 30, 2024, we have four equity investments with an aggregate carrying value of $8.0 million.
During the three months ended September 30, 2024, we recognized a $1.2 million impairment loss on our investment in Israel-based Medic Vision. 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 CondensedConsolidated Statements of Operations.
No other observable price changes or impairments in our investments were identified as of September 30, 2024.
INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 33% to 55%. These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling 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 September 30, 2024.
Joint venture investment and financial information
The following table is a summary of our investment in joint ventures during the nine months ended September 30, 2024 (in thousands):
Balance as of December 31, 2023
$
92,710
Equity in earnings in these joint ventures
11,308
Distribution of earnings
(1,000)
Equity contributions in existing joint ventures
1,496
Balance as of September 30, 2024
$
104,514
We charged management service fees from the centers underlying these joint ventures of approximately $5.9 million and $3.9 million for the three months ended September 30, 2024 and 2023 and $17.8 million and $12.2 million for the nine months ended September 30, 2024 and 2023, respectively. We eliminate any unrealized portion of our management service fees with our equity in earnings of joint ventures. As we have the ability to exercise significant influence over our joint venture entities, we consider them related parties. Amounts transacted between ourselves and the entities are in the ordinary course of business and are disclosed on our balance sheet in the due from/to affiliate accounts.
The following table is a summary of key balance sheet data for these joint ventures as of September 30, 2024 and December 31, 2023 and income statement data for the nine months ended September 30, 2024 and 2023 (in thousands):
Balance Sheet Data:
September 30, 2024
December 31, 2023
Current assets
$
64,175
$
39,819
Noncurrent assets
219,478
224,936
Current liabilities
(41,550)
(46,587)
Noncurrent liabilities
(70,607)
(70,834)
Total net assets
$
171,496
$
147,334
Income statement data for the nine months ended September 30,
2024
2023
Net revenue
$
195,905
$
129,020
Net income
$
23,949
$
7,906
NOTE 3 – RECENT ACCOUNTING AND REPORTING 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 2025. Early adoption is permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.
NOTE 4 – BUSINESS COMBINATIONS AND RELATED ACTIVITY
Imaging Center Segment
Acquisitions
During the nine months ended September 30, 2024, we completed the acquisition of certain assets of the following entities, which either engage directly in the practice of radiology or associated businesses. The primary reason for these acquisitions was to strengthen our presence in the California and Texas market. These acquisitions are reported as part of our Imaging Center segment. As of September 30, 2024, we made a preliminary fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands). The valuation of assets acquired and liabilities assumed has not yet been finalized as of September 30, 2024; and the fair value determination is preliminary and may be subject to change:
Entity
Date Acquired
Total Consideration
Property & Equipment
Right of Use Assets
Goodwill
Intangible Assets
Other Assets
Right of Use Liabilities
Notes payable
Stanislaus Surgical Hospital, LLC
9/16/2024
3,000
504
1,468
2,382
100
15
(1,468)
—
Global Imaging LLP
9/1/2024
$
2,900
1,266
—
1,584
50
—
—
—
U.S. Imaging, Inc.
6/1/2024
4,200
4,025
5,597
—
175
—
(5,597)
—
Houston Medical Imaging, LLC
4/1/2024
22,703
15,826
7,929
11,584
1,660
90
(8,089)
(6,297)
Grossman Imaging Center of CMH, LLC
3/31/2024
10,344
1,717
6,304
8,501
280
56
(6,514)
—
Providence Health System - Southern California
3/31/2024
$
7,369
1,378
3,441
5,991
—
—
(3,441)
—
Antelope Valley Outpatient Imaging
2/1/2024
$
3,530
2,794
563
687
50
—
(563)
—
Total
54,046
27,509
25,302
30,729
2,315
160
(25,672)
(6,297)
During the three months ended September 30, 2024, the Company revised the fair value of certain assets acquired and liabilities assumed of Houston Medical Imaging, LLC’s, Grossman Imaging Center of CMH, LLC, and Providence Health System - Southern California, resulting in an increase of $4.4 million in the net fair value of these assets and liabilities and a corresponding decrease in goodwill. These adjustments did not have an impact on the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2024.
Formation of majority owned subsidiary and sale of economic interest
On February 23, 2024, we formed Tri Valley Imaging Group, LLC ("TVIG"), a partnership with Providence Health System - Southern California ("PHS"). The operation offers multi-modality services out of seven locations in Southern
California. On March 29, 2024, we contributed the operations of four centers to the enterprise and PHS contributed a business comprising three centers including $1.4 million of fixed assets and $6.0 million in goodwill. Simultaneously, PHS purchased from us an additional economic interest in TVIG for cash payment of $9.6 million. As a result of the transaction, we recognized a gain of $7.9 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.
NOTE 5 – SEGMENT REPORTING
In the first quarter of 2024, we revised our reportable segments to combine our eRad business, which was included in the Imaging Center segment, with our AI segment to form a new Digital Health reportable segment. Prior period amounts were adjusted retrospectively to reflect the change in reportable segment. Accordingly, our reportable segments currently include 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.
Our chief operating decision maker ("CODM"), who is also our CEO, evaluates the financial performance of our segments based upon their respective revenue and segmented internal profit and loss statements prepared on a basis not consistent with GAAP. We do not report balance sheet information by segment since it is not reviewed by our CODM.
In the normal course of business, our 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 table below presents segment information reconciled to our financial results, with segment operating income or loss including revenue less cost of operations, depreciation and amortization, and other operating expenses to the extent specifically identified by segment (in thousands):
Gain on contribution of imaging centers into joint venture:
Imaging Center
$
—
$
(16,808)
$
—
$
(16,808)
Digital Health
—
—
—
—
Total (gain) loss on contribution of imaging centers into joint venture
$
—
$
(16,808)
$
—
$
(16,808)
Loss (gain) on Disposal of Equipment:
Imaging Center
$
153
$
524
$
739
$
1,185
Digital Health
(5)
3
(4)
(2)
Total loss on disposal of equipment
$
148
$
527
$
735
$
1,183
Severance
Imaging Center
$
271
$
1,141
$
720
$
1,417
Digital Health
33
12
77
1,740
Total severance
$
304
$
1,153
$
797
$
3,157
Income (Loss) from Operations
Imaging Center
$
37,530
$
40,125
$
89,611
$
77,030
Digital Health
(3,619)
3,126
(9,515)
(2,667)
Total income from operations
$
33,911
$
43,251
$
80,096
$
74,363
NOTE 6 – CREDIT FACILITIES AND NOTES PAYABLE
At September 30, 2024 we had two principal secured credit facilities consisting of our Barclays credit facility and our Truist credit facility. Each facility includes a term loan component and a revolving credit facility. At September 30, 2024, we were in compliance with all covenants under our credit facilities.
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.
Barclays Term Loan:
The Barclays Term Loan provides for interest payments based on a base rate, plus an applicable margin. During the periods covered by this report, the base rates, margins and effective interest rates (without giving effect to our 2019 Swaps) were as follows for the periods indicated:
Period
Base Rate plus Margin
Effective Rate
Through March 31, 2023
Eurodollar plus 2.50%
Alternative Base Rate plus 2.00%
4.63%
8.00%
April 1, 2023 to April 18, 2024
SOFR plus 3.00%
Alternative Base Rate plus 2.00%
8.33% (credit spread adjustment of 0.11%)
10.5%
After April 18, 2024
SOFR plus 2.5%
Prime Rate plus 1.5%
7.78% (credit spread adjustment of 0.00% )
9.5%
With the recent restatement, we are required to make quarterly principal payments of $2.2 million (up from $1.8 million under the prior credit agreement). The Barclays Term Loan will mature on April 18, 2031 unless otherwise accelerated under the terms of the Barclays Credit Agreement.
Barclays Revolving Credit Facility:
The Barclays Revolving Credit Facility is a $282.0 million senior secured revolving credit facility. Associated with the Barclays Revolving Credit Facility is deferred financing costs, net of accumulated amortization, of $2.0 million at September 30, 2024.
Amounts borrowed under the Barclays Revolving Credit Facility bear interest at either SOFR plus 3.00% or the Prime Rate plus 2% (with step-downs based on attainment of certain first lien net leverage ratio benchmarks). As of September 30, 2024, the effective interest rate payable on revolving loans under the Barclays Revolving Credit Facility was 10.50%. In addition, a commitment fee of 0.50% per annum accrues on the unused revolver commitments under the Barclays Revolving Credit Facility.
We had no outstanding balance under our $282.0 million Barclays Revolving Credit Facility at September 30, 2024. After reserves of $8.3 million for certain letters of credit, $273.7 million was available to draw upon as of September 30, 2024.
The Barclays Revolving Credit Facility terminates on April 18, 2029, unless otherwise accelerated under the terms of the Barclays Credit Agreement.
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 September 30, 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 September 30, 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 September 30, 2024. With no letters of credit reserved against the facility, the full $50.0 million was available to draw upon as of September 30, 2024.
The Truist Revolving Credit Facility terminates on October 7, 2027, unless otherwise accelerated under the terms of the Truist Credit Agreement.
Notes Payable
We have issued certain notes payable in connection with the purchase of equipment previously leased under operating leases. On April 1, 2024, January 15, 2024, and February 1, 2023 we issued promissory notes in the amount of $6.3 million, $6.9 million and $19.8 million, respectively, to purchase previously leased equipment.
Debt Obligations
As of September 30, 2024 and December 31, 2023 our term loan debt and other obligations are as follows (in thousands):
September 30, 2024
December 31, 2023
Barclays Term Loans collateralized by RadNet's tangible and intangible assets
$
872,812
$
678,687
Discount on Barclays Term Loans
(15,234)
(9,041)
Truist Term Loan Agreement collateralized by NJIN's tangible and intangible assets
136,875
144,375
Discount on Truist Term Loan Agreement
(792)
(990)
Equipment notes payable at 3.6% to 7.2%, due through 2029, collateralized by medical equipment
We have one long-term equity incentive plan, the RadNet, Inc. Equity Incentive Plan, which has been amended and restated on April 20, 2015, March 9, 2017, April 15, 2021, April 27, 2023, and most recently following approved by our stockholders at our annual stockholders meeting on June 7, 2023 (the “Restated Plan”). We have reserved for issuance under the Restated Plan 20,100,000 shares of common stock. We can issue options (incentive and nonstatutory), performance based options, stock awards (restricted or unrestricted), stock units, performance based stock units, and stock appreciation rights under the Restated Plan.
Options
Certain options granted under the Restated Plan to employees are intended to qualify as incentive stock options under existing tax regulations. Stock options generally vest over 3 to 5 years and expire 5 to 10 years from the date of grant.
The following summarizes all of our option transactions for the nine months ended September 30, 2024:
Outstanding Options Under the 2006 Plan
Shares
Weighted Average Exercise price Per Common Share
Weighted Average Remaining Contractual Life (in years)
Aggregate Intrinsic Value (in thousands)
Balance, December 31, 2023
911,411
$
16.60
Granted
—
—
Exercised
(60,306)
6.15
Balance, September 30, 2024
851,105
17.34
5.69
$
44,301
Exercisable at September 30, 2024
729,806
16.62
5.31
38,515
Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on September 30, 2024 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on September 30, 2024. As of September 30, 2024, total unrecognized stock-based compensation expense related to non-vested employee awards was $0.5 million, which is expected to be recognized over a weighted average period of approximately 0.39 years.
DeepHealth Options
During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted options to acquire 412,434 shares at a grant date fair value of $16.93 per share unit to DeepHealth employees in replacement of their stock options that were outstanding as of the closing date. As of September 30, 2024, total unrecognized stock based compensation expense related to non-vested DeepHealth options was insignificant.
Outstanding Options Under the Deep Health Plan
Shares
Weighted Average Exercise price Per Common Share
Weighted Average Remaining Contractual Life (in years)
Aggregate Intrinsic Value (in thousands)
Balance, December 31, 2023
79,073
$
—
Exercised
(9,377)
—
Balance, September 30, 2024
69,696
—
5.0
$
4,836
Exercisable at September 30, 2024
69,696
—
5.0
4,836
Options issued in replacement of original DeepHealth options as a result of our acquisition are not included in the share count under the Restated Plan.
Restricted Stock Awards ("RSAs") and Restricted Stock Units ("RSUs")
The Restated Plan permits the award of RSAs and RSUs. The following summarizes all unvested RSA's and RSU's activities during the nine months ended September 30, 2024:
Weighted-Average Remaining Contractual Term (Years)
Weighted-Average Fair Value per Share
RSAs and RSUs unvested at December 31, 2023
762,083
$
22.13
Changes during the period
Granted
797,309
$
37.40
Vested
(875,185)
$
27.78
Forfeited or Canceled
(13,460)
$
27.74
RSAs and RSUs unvested at September 30, 2024
670,747
1.74
$
32.33
We determine the fair value of all RSAs and RSUs based on the closing price of our common stock on the award date.
Performance based stock units ("PSUs")
In January 2023, we granted certain employees PSUs with a target award of 60,685 shares of our common stock. The PSUs will vest in two equal parts, starting three years from the grant date based on continuous service, with the number of shares earned (0% to 200% of the target award) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2023 through December 31, 2023. In March of 2024, based on the performance condition being achieved, the board of directors issued 121,370 units with a fair value of $18.64 per unit.
Performance based stock options ("PSOs")
In January 2023, we granted certain employees PSOs with a potential to option a maximum of 235,227 shares of our common stock. The PSOs will vest in three equal parts, starting three years from the grant date based on continuous service, with the number of shares earned (0% to 100% of the target award) depending upon the extent to which we achieve a performance condition as determined the board of directors over the period from January 1, 2023 through December 31, 2023. In March 2024, based on the performance condition being achieved, the board of directors issued 235,227 options with a strike price of $18.64 per share.
Shares available
Of the 20,100,000 shares of common stock reserved for issuance under the Restated Plan, at September 30, 2024, there remain approximately 3,285,500 shares available under the Restated Plan for future issuance.
NOTE 8 – SUBSEQUENT EVENTS
Pink Perception LLC
On October 1, 2024, we entered into an agreement to acquire Pink Perception LLC for a purchase consideration of approximately $4.0 million. Pink Perception LLC consists of two multi-modality imaging centers located in New York. The acquisition closed in the fourth quarter of 2024.
Kheiron Medical Technologies Limited
On October 22, 2024, we acquired Kheiron Medical Technologies Limited for a purchase consideration of approximately $1.0 million. Kheiron Medical Technologies Limited is a UK-based AI cancer diagnostic company focused on developing deep learning solutions to support radiologists improve breast cancer detection.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 29, 2024.
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect current views about future events and are based on our currently available financial, economic and competitive data and on current business plans. Actual events or results may differ materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology. Forward-looking statements in this report include, among others, statements we make regarding:
•expectations concerning domestic and global economic conditions, rates of inflation, or changes in interest rates;
•anticipated trends in our revenues, operating expenses or capital expenditures, and our financial guidance;
•expected timing and potential impact of regulatory changes affecting our business;
•expected future market acceptance for our products or services, and our competitive strengths in the markets we serve;
•our ability to successfully acquire and integrate new businesses, and achieve expected benefits, synergies or operating results from those acquisitions; and
•economics and cost savings anticipated to be derived from our investments in artificial intelligence and machine learning products and solutions.
Forward-looking statements are neither historical facts nor assurances of future performance. Because forward-looking statements relate to the future, they are inherently subject to known and unknown risks, uncertainties and other factors that are difficult to predict and out of our control. Our actual results, level of activity, performance or achievements may be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Important factors that could cause our actual results to differ materially from those indicated or implied in our forward-looking statements include the factors included in “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2023 as supplemented by the information in Part II– Item 1A below. You should consider the inherent limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements.
Any forward-looking statement in this report is based on information currently available to us and speaks only as of the date of this report. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report or any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report, except as required by law.
Overview
We are a national provider of diagnostic imaging services in the United States. At September 30, 2024, we operated directly or indirectly through joint ventures with hospitals, 399 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, New York and Texas. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, often reducing the cost and amount of care for patients. Internationally, our subsidiary The HLH Imaging Group Limited fka Heart and Lung Imaging Limited, provides teleradiology services for remote interpretation of images on behalf of providers within the framework of the United Kingdom's National Health Service.
In addition to our imaging business, we have established a Digital Health business segment for our 2024 fiscal year, which combines our former Artificial Intelligence (“AI”) business segment with our eRad, Inc. business. Our digital health segment develops and delivers AI-powered health informatics solutions to drive quality, efficiency, and outcomes in imaging and radiology. The portfolio of software solutions are anchored by eRad, Inc.'s RIS/PACS, informatics designed specifically for outpatient radiology and DeepHealth OS, a cloud-native operating system that helps operate all aspects of the radiology service line from scheduling and patient preparation to technologist workflow to interpretation and referral management.
In addition we are using AI to develop solutions that employ machine learning to assist radiologists and other clinicians in interpreting images and improving radiologist efficiency and patient care, initially in the fields of screening for breast, prostate, lung and colon cancers. Our DeepHealth, Inc. subsidiary has received FDA clearance for use of its SaigeQ ”triage”/workflow product, SaigeDX advanced diagnostic product and Saige-Density breast density assessment software for screening breast mammography, which we have begun to roll out in certain markets as an Enhanced Breast Cancer Detection solution. Our Aidence Holding B.V. subsidiary is developing solutions for interpretation of chest and lung CT scans for lung cancer screening. It has received the CE mark for its solution and has existing customers in seven European countries, with its largest concentration in the United Kingdom, and plans to submit an application for FDA clearance to sell in the United States. Our Quantib B.V. subsidiary is primarily focused on interpretation of prostate MRI for widespread prostate cancer screening. Quantib’s prostate MRI post-processing software has both FDA clearances and European CE marking. Our digital health segment provides these solutions to RadNet and to over 400 customers in the United States, Europe, and Israel.
Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Digital Health. For further financial information about these segments, see Note 5, Segment Reporting, in the notes accompanying our financial statements included in this report. Prior period amounts in the financial statements included in this report have been adjusted retrospectively to reflect the change in reportable segment.
Recent Developments
The following table shows our imaging centers in operation and revenues for the nine months ended September 30, 2024 and 2023:
Our imaging services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services, a key point of differentiation from our competitors. The multi-modality offering provides a “one-stop” solution for our customers and referral sources. It also diversifies our revenue base, and reduces our exposure to changes in reimbursement rates for certain imaging modalities. The following charts summarize our procedure volumes for various imaging modalities for the three months ended September 30, 2024 and 2023:
Our revenue is derived from a diverse mix of payors, including private, managed care capitated and government payors. We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class. Our total service fee revenue, net of contractual allowances and discounts, and implicit price concessions for the three and nine months ended September 30, 2024 and 2023 received from our various payors is summarized in the following table (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Payor
2024
2023
2024
2023
Commercial insurance
$
255,375
$
218,923
$
752,514
$
652,597
Medicare
102,852
89,981
298,001
262,719
Medicaid
10,894
10,519
32,804
30,279
Workers' compensation/personal injury
10,232
9,745
33,088
34,785
Other patient revenue
10,607
10,443
34,524
30,191
Management fee revenue
6,242
3,922
18,255
12,203
Heart and lung
4,696
2,441
12,553
6,377
Other
10,314
3,768
18,918
14,248
Revenue under capitation arrangements
33,563
40,041
105,050
117,982
Imaging Center Segment Revenue
444,775
389,783
1,305,707
1,161,381
Digital Health Segment Revenue
16,367
12,185
46,856
34,866
Total service revenue
461,142
$
401,968
$
1,352,563
$
1,196,247
Acquisitions
During the nine months ended September 30, 2024, we completed the acquisition of certain assets of entities which engage directly in the practice of radiology or in associated businesses for an aggregate consideration of $54.0 million. These acquisitions include:
Antelope Valley Outpatient Imaging: 1 imaging center in California;
Providence Health System Southern California: 3 imaging centers in California;
Grossman Imaging Center of CMH, LLC: 4 imaging centers in California;
Houston Medical Imaging, LLC: 9 imaging centers in Houston, Texas;
U.S. Imaging, Inc.: 6 imaging centers in Houston, Texas;
Stanislaus Surgical Hospital: 1 imaging center in Modesto, California; and
Global Imaging LLP: 1 imaging center in Sugar Land, Texas.
The purpose of these acquisitions was to expand our imaging business into Houston, Texas a new market, and to strengthen our presence in the California market.With a population of approximately 7.3 million people, Houston is the fourth largest city in the United States. See Note 4, Business Combinations and Related Activity to the financial statements in this report for additional information, including the fair value determination of the acquired assets and assumed liabilities, associated with these acquisitions.
At September 30, 2024, 38% of our imaging centers were operating as joint ventures with large health care providers. We have joint venture arrangements with 24 hospital and health system partners (inclusive of consolidated and unconsolidated joint ventures), including MemorialCare (24 centers), RWJ Barnabas (35 centers), Cedars Sinai (18 centers), Dignity Health (28 centers), and MedStar Health System (5 centers). We manage the day to day operations for these joint ventures and perform most management services in exchange for a management fee. We charged management service fees from the centers underlying these joint ventures of approximately $5.9 million and $3.9 million for the three months ended September 30, 2024 and 2023, respectively. For information on our investment in unconsolidated joint ventures, key balance sheet data and income
statement data for the unconsolidated joint ventures, see Note 2, Significant Accounting Policies – Investment in Joint Ventures
to the financial statements included in this report.
Critical Accounting Policies
The Securities and Exchange Commission defines critical accounting estimates as those that (a) are most important to the portrayal of a company’s financial condition and results of operations and (b) require management’s most difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. In Note 2 to our financial statements included in this report and in our annual report on Form 10-K for the year ended December 31, 2023, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates. The most significant areas involving management’s judgments and estimates are described below.
Use of Estimates
The financial statements included in this report were 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 our obligations to provide diagnostic services are satisfied, which is generally over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. 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, changes in business and economic conditions, and the frequent changes in managed care contractual terms resulting from contract re-negotiations and renewals.
As it relates to the Consolidated Medical Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.
Our revenues are based upon our management's estimate of amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under Medicare, Medicaid, managed care and commercial insurance plans are based upon historical collection experience of the payments received from such payors in accordance with the underlying contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts
for patients who have health care coverage may have price concessions applied. 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 estimates and assumptions related to revenue recognition did not change materially for the quarter ended September 30, 2024.
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. Receivables generally are collected within industry norms for third-party payors. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience. Our estimates and assumptions for allowances on our account receivable did not change materially during the quarter ended September 30, 2024.
Business Combination
We evaluate all acquisitions under the framework Clarifying the Definition of a Business in the accounting guidance. Once a purchase has been determined to be the acquisition of a business, we are required to recognize the assets acquired and the liabilities assumed at their acquisition date fair values. Any portion of the purchase consideration transferred in excess of the net of the acquisition date fair values of the assets acquired and the liabilities assumed, is allocated to goodwill. The allocation requires our management to make estimates of the value of various assets acquired and 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.
Goodwill and Indefinite Lived Intangibles
Goodwill at September 30, 2024 totaled $711.8 million. Indefinite Lived Intangible Assets at September 30, 2024 were $20.2 million and are associated with the value of certain trade name intangibles and in process research and development ("IPR&D"). Goodwill, trade name intangibles and IPR&D are recorded as a result of business combinations. When we determine the carrying value of goodwill for a reporting unit exceeds its fair value, an impairment charge would be recognized which should not exceed the total amount of goodwill allocated to that reporting unit. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. 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. Our annual impairment test of goodwill and trade name noted no impairment as of October 1, 2023, and we have not identified any other indicators of impairment through September 30, 2024.
Recent Accounting Standards
See Note 3, Recent Accounting and Reporting Standards to the financial statements included in this report for further information.
Results of Operations
Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Imaging Center Segment
We have developed our medical imaging centers segment through a combination of organic growth, acquisitions and joint venture formations. In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of July 1, 2023 through September 30, 2024. Excluded amounts relate to imaging centers that were acquired or divested between July 1, 2023 through September 30, 2024.
Our 10.8% increase in same center revenue over the same period last year was driven by increases in fees charged per imaging procedure and an increase in procedures volumes. Same center total procedure volume grew at an overall rate of 4.0% which was comprised of a 2.55% increase in routine imaging and an 8.6% increase in advanced modality imaging procedures. The increase in revenue was largely attributable to product mix, as advanced imaging was a greater portion of overall procedures. A significant contributor to the change in product mix was the increase in PETHC procedures related to prostate cancer and suspect Alzheimer’s studies, which are included in advanced modality imaging procedures.
Operating Expenses
Total operating expenses for the three months ended September 30, 2024 increased approximately $57.6 million, or 16.5%, to $407.2 million for the three months ended September 30, 2024 from $349.7 million for the three months ended September 30, 2023. The following table breaks down our cost of operations and total operating expenses for the three months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended September 30,
2024
2023
Salaries and professional reading fees, excluding stock-based compensation
$
243,066
$
210,314
Stock-based compensation
4,195
3,937
Building and equipment rental
31,104
29,720
Medical supplies
26,668
21,285
Other operating expenses *
69,756
69,324
Cost of operations
374,789
334,580
Depreciation and amortization
32,032
30,221
Gain on contribution of imaging centers into joint venture
—
(16,811)
Loss on sale and disposal of equipment
153
524
Severance costs
271
1,141
Total operating expenses
$
407,245
$
349,655
*Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.
The discussion below provides additional information and analysis on changes in our various operating expenses for the three months ended September 30, 2024 and 2023 (in thousands):
Salaries and professional reading fees, excluding stock-based compensation and severance
Consistent with the higher procedure volumes noted above, our staffing levels were adjusted to support the influx of patients seeking radiology procedures. We are continuing to face inflation in employee wage rates as we compete for talent in a tight labor market.
Stock-based compensation
Stock-based compensation for the three months ended September 30, 2024 increased approximately $0.3 million, or 6.6%, to $4.2 million from $3.9 million for the three months ended September 30, 2023. The increase is primarily due to higher fair value of stock awards granted in the first quarter of 2024.
Building and equipment rental
In Thousands
Three Months Ended September 30,
Building & Equipment Rental
2024
2023
$ Increase/(Decrease)
% Change
Total
$31,104
$29,720
$1,384
4.7%
Same Center
$27,763
$27,512
$251
0.9%
Excluded
$3,341
$2,208
—
—
Building and equipment rental expense on a same center basis was relatively unchanged from the prior period.
Medical supplies
In Thousands
Three Months Ended September 30,
Medical Supplies Expense
2024
2023
$ Increase/(Decrease)
% Change
Total
$26,668
$21,285
$5,383
25.3%
Same Center
$25,213
$20,614
$4,599
22.3%
Excluded
$1,455
$671
—
—
The increase in medical supplies expense was driven by our higher patient volume and product shift towards more advanced imaging modalities. The increase in PETHC procedures related to prostate cancer and suspected Alzheimer studies also raised medical supplies expense due to the requirement for high-cost isotope tracers.
Other operating expenses
In Thousands
Three Months Ended September 30,
Other Operating Expenses
2024
2023
$ Increase/(Decrease)
% Change
Total
$69,756
$69,324
$432
0.6%
Same Center
$66,254
$67,584
$(1,330)
(2.0)%
Excluded
$3,502
$1,740
—
—
Other operating expenses was relatively unchanged compared to the same period in the prior year and lower as a percentage of overall revenues.
Additional segment operating and non-operating expenses
In Thousands
Three Months Ended September 30,
2024
2023
$ Increase/(Decrease)
% Change
Depreciation and amortization
$32,032
$30,221
$1,811
6.0%
Loss on disposal of equipment and other
$153
$524
$(371)
(70.8)%
Non-cash change in fair value of interest rate hedge
The increase in depreciation expense was the result of our higher depreciable asset base.
The fair value of the 2019 Swaps at September 30, 2024 was a net asset of $7.7 million compared to a net asset of $14.4 million June 30, 2024, resulting in a loss of $6.8 million during the three months ended September 30, 2024. This change in fair value was driven by market expectations of continued declines in interest rates over the remaining term of the 2019 Swaps.
Other income for the three months ended September 30, 2024 included money market interest income of $9.6 million, partially offset by a impairment of non-marketable securities of $1.2 million. Interest income for the three months ended September 30, 2024 increased approximately $6.0 million, or 164.9%, to $9.6 million from $3.6 million for the three months ended September 30, 2023. The increase is primarily due to higher average cash balance in our money market account for the three months ended September 30, 2023
In Thousands
Nine Months Ended September 30,
2024
2023
$ Increase/(Decrease)
% Change
Interest income
(9,580)
(3,616)
$(5,964)
164.9%
Debt restructuring and extinguishment expenses
147
0
$147
nm
Other non-operating losses (income)
1,200
(1,057)
$2,257
(213.5)%
Total other income
$(8,233)
$(4,673)
$(3,560)
76.2%
In Thousands
Three Months Ended September 30,
2024
2023
$ Increase/(Decrease)
% Change
Total other income
($8,233)
($4,673)
(3,560)
76.2%
Interest expense
In Thousands
Three Months Ended September 30,
Interest Expense
2024
2023
$ Increase/(Decrease)
% Change
Total Interest Expense
$
19,427
$
16,115
$3,312
20.6
%
Interest expense related to derivatives*
(2,068)
(2,913)
Interest expense related to amortization**
795
746
Adjusted Interest Expense***
20,700
18,282
2,418
13.2
%
*Includes payments from 2019 Swaps
**Includes noncash amortization of deferred loan costs and discount on issuance of debt
***Includes interest related to our term loans, revolving credit line, notes, and other
The increase in interest expense was the result in of refinancing of our Barclays credit facility, which added approximately $196.3 million in additional term loan debt to the facility. The effect of the additional term loan was partially offset by lower interest rates compared to the same period in the prior year.
During the three months ended September 30, 2024, interest rates were above the arranged rates in our 2019 Swaps for most of the year and we received payment of $3.4 million in cash payments from our 2019 swap counterparties, which was reported as a component of interest expense. Also, the 2019 Swaps for $100 million of notional value matured in October 2023, so they were in effect for the third quarter of 2023, but not 2024. See the Derivative Instruments section of Note 2, Significant Accounting Policies, in the notes accompanying in our annual report on Form 10-K for the fiscal year ended December 31, 2023 and Part 1, Item 3 — "Quantitative and Qualitative Disclosure About Market Risk" below for more details on our derivative transactions.
Equity in earnings from unconsolidated joint ventures
For the three months ended September 30, 2024 and 2023 we recognized equity in earnings from unconsolidated joint ventures in the amount of $3.6 million and $1.1 million, respectively, an increase of $2.5 million or 231.6%. The increase was mainly due to the additional contribution made to Santa Monica Imaging Group, LLC in September 2023. Santa Monica Imaging Group operated at a net income for the three months ended September 30, 2024, which positively impacted our equity in earnings from unconsolidated joint ventures during the period. Additionally, we experienced improved earnings from our interest in the Arizona Diagnostic Radiology Group joint venture, which was established in the fourth quarter of 2020.
Net income attributable to noncontrolling interests
At September 30, 2024, our consolidated subsidiaries operated 345 imaging centers of which 98 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests. At September 30, 2023, our consolidated subsidiaries included 320 centers of which 83 were not wholly-owned.
For the three months ended September 30, 2024, we recognized net income attributable to noncontrolling interests of $9.0 million versus $6.5 million for the three months ended September 30, 2023, an increase of $2.6 million. The increase in net income attributable to noncontrolling interests was primarily due to the formation of a new majority owned subsidiary, Los Angeles Imaging Group, LLC in September 2023 and Tri Valley Imaging Group, LLC in March 2024. We contributed the operations of three centers to Los Angeles Group, LLC and Cedars-Sinai Medical Center contributed cash. Additionally, patient volumes for advanced modalities improved in 2024 and we closed two underperforming centers in a majority owned subsidiary, Beach Imaging Group, LLC in December 2023.
As noncontrolling interests only represent a portion of our imaging center business, and excludes our Digital Health Segment which generated losses of $3.6 million for the three months ended September 30, 2024, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.
Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
In the discussion below, same center metrics are based on imaging centers that were in operation throughout the period of January 1, 2023 through September 30, 2024. Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2023 through September 30, 2024.
Total Revenue
In Thousands
Nine Months Ended September 30,
Revenue
2024
2023
$ Increase
% Change
Total
$1,305,707
$1,161,381
$144,326
12.4%
Same Center
$1,224,946
$1,107,208
$117,738
10.6%
Excluded
$80,761
$54,173
—
—
Our 10.6% increase in same center revenue over the same period last year was driven by increases in fees charged per imaging procedure and same center total procedure volume growth of 3.3% inclusive of rises in routine and advanced modality imaging procedures of 1.82% and 7.76%, respectively. The increase in revenue was largely attributable to product mix product mix, as advanced imaging was a greater portion of overall procedures. A significant contributor to the change in product mix was the increase in PETHC procedures related to prostate cancer and suspected Alzheimer studies, which are included in advanced modality imaging procedures.
Operating Expenses
Total operating expenses for the nine months ended September 30, 2024 increased approximately $131.7 million, or 12.1%, to $1,216.1 million for the nine months ended September 30, 2024 from $1,084.4 million for the nine months ended September 30, 2023. The following table breaks down our cost of operations and total operating expenses for the nine months ended September 30, 2024 and 2023 (in thousands):
Salaries and professional reading fees, excluding stock-based compensation
$
731,134
$
635,016
Stock-based compensation
19,614
19,484
Building and equipment rental
89,827
88,592
Medical supplies
75,146
63,829
Other operating expenses *
204,821
201,893
Cost of operations
1,120,542
1,008,814
Depreciation and amortization
94,095
89,743
Gain on contribution of imaging centers into joint venture
—
(16,808)
Loss on sale and disposal of equipment
739
1,185
Severance costs
720
1,417
Total operating expenses
$
1,216,096
$
1,084,351
*Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecom, utilities, marketing, travel and other expenses.
Salaries and professional reading fees, excluding stock-based compensation and severance
In Thousands
Nine Months Ended September 30,
Salaries and Professional Fees
2024
2023
$ Increase/(Decrease)
% Change
Total
$731,134
$635,016
$96,118
15.1%
Same Center
$693,291
$611,204
$82,087
13.4%
Excluded
$37,843
$23,812
—
—
Staffing levels have been adjusted to support higher patient volumes with the corresponding rise in salaries and professional fee expense. We are continuing to face inflation in employee wage rates as we compete for talent in a tight labor market.
Stock-based compensation
Stock-based compensation was relatively unchanged at $19.6 million for the nine months ended September 30, 2024 compared to $19.5 million for nine months ended September 30, 2023.
Building and equipment rental
In Thousands
Nine Months Ended September 30,
Building & Equipment Rental
2024
2023
$ Increase/(Decrease)
% Change
Total
$89,827
$88,592
$1,235
1.4%
Same Center
$79,558
$80,442
$(884)
(1.1)%
Excluded
$10,269
$8,150
—
—
The decrease in building and equipment rental expense relates to reduced equipment rental relating to operating lease contracts which ended or were bought out during 2023.
The increase in medical supplies expense was consistent with our higher patient volume and product shift towards more advanced imaging modalities. The increase in PETHC procedures related to prostate cancer and suspected Alzheimer studies also raised medical supplies expense due to the requirement for high-cost isotope tracers.
Other operating expenses
In Thousands
Nine Months Ended September 30,
Other Operating Expenses
2024
2023
$ Increase/(Decrease)
% Change
Total
$204,821
$201,893
$2,928
1.5%
Same Center
$191,345
$193,385
$(2,040)
(1.1)%
Excluded Sites
$13,476
$8,508
—
—
Other operating expenses was relatively unchanged compared to the same period in the prior year and lower as a percentage of overall revenues.
Additional segment operating and non operating expenses:
In Thousands
Nine Months Ended September 30,
2024
2023
$ Increase/(Decrease)
% Change
Depreciation and amortization
$94,095
$89,743
$4,352
4.8%
Gain on contribution of imaging centers into joint venture
$0
$(16,808)
$16,808
nm
Loss on disposal of equipment and other
$739
$1,185
$(446)
(37.6)%
Non-cash change in fair value of interest rate hedge
The increase in depreciation expense was the result of our higher depreciable asset base.
The fair value of the 2019 Swaps at September 30, 2024 was a net asset of $7.7 million compared to a net asset of $15.1 million December 31, 2023, resulting in a loss of $7.4 million during the nine months ended September 30, 2024. This change in fair value was driven by market expectations of continued declines in interest rates over the remaining term of the 2019 Swaps.
Other income for the nine months ended September 30, 2024 included money market interest income of $22.7 million, partially offset by an impairment of non-marketable securities of $1.2 million and a debt extinguishment and restructuring charges of $8.9 million, which related to refinancing of our Barclays credit facility. See Note 6 Credit Facilities and Notes Payable included in the notes to our condensed consolidated financial statements. Interest income for the nine months ended September 30, 2024 increased approximately $16.4 million, or 260.2%, to $22.7 million from $6.3 million for the nine months ended September 30, 2024. The increase is primarily due to higher average cash balance in our money market account for the nine months ended September 30, 2024
In Thousands
Nine Months Ended September 30,
2024
2023
$ Increase/(Decrease)
% Change
Interest income
(22,681)
(6,297)
$(16,384)
260.2%
Debt restructuring and extinguishment expenses
8,909
0
$8,909
nm
Other non-operating losses (income)
1,019
(26)
$1,045
(4019.2)%
Total other income
$(12,753)
$(6,323)
$(6,430)
101.7%
nm= not meaningful
Interest expense
In Thousands
Nine Months Ended September 30,
Interest Expense
2024
2023
$ Increase/(Decrease)
% Change
Total Interest Expense
$
61,776
$
47,876
$13,900
29.0
%
Interest expense related to derivatives*
776
(7,138)
Interest expense related to amortization**
2,336
2,240
Adjusted Interest Expense***
58,664
52,774
5,890
11.2
%
*Includes payments from 2019 Swaps
**Includes noncash amortization of deferred loan costs and discount on issuance of debt
***Includes interest related to our term loans, revolving credit line, notes, and other
The increase in interest expense was the result in the general increase in term loan debt as a result of refinancing of our Barclays credit facility, partially offset by lower interest rates compared to the same period in the prior year.
During the nine months ended September 30, 2024, interest rates were above the arranged rates in our 2019 Swaps for most of the year and we received payment of $10.2 million in cash payments from our 2019 swap counterparties, which was reported as a component of interest expense. Also, the 2019 Swaps for $100 million of notional value matured in October 2023, so they were in effect for the third quarter of 2023, but not 2024. See the Derivative Instruments section of Note 2, Significant Accounting Policies, in the notes accompanying in our annual report on Form 10-K for the fiscal year ended December 31, 2023 and Part 1, Item 3 — "Quantitative and Qualitative Disclosure About Market Risk" below for more details on our derivative transactions.
Equity in earnings from unconsolidated joint ventures
For the nine months ended September 30, 2024 we recognized equity in earnings from unconsolidated joint ventures in the amount of $11.3 million compared to $3.9 million for the prior period, an increase of $7.4 million or 187.4%. The increase was mainly due to the additional contribution made to SMIG in September 2023. SMIG operated at a net income for the nine months ended September 30, 2024, which positively impacted our equity in earnings from unconsolidated joint ventures during
the period. Additionally, the increase was supported by improved earnings from our interest in the Arizona Diagnostic Radiology Group joint venture, which was established in the fourth quarter of 2020.
Income tax expense
We recorded income tax expense of $4.9 million, or an effective tax rate of 16.7%, for the nine months ended September 30, 2024 and $7.7 million, or an effective tax rate of 24.1% for the nine months ended September 30, 2023. The income tax rates for the nine months ended September 30, 2024 diverge from the federal statutory rate due to (i) effects of state income taxes ; (ii) officer's compensation limitations; (iii) partial valuation allowance on losses in foreign jurisdictions, partially offset by (iv) excess tax benefits attributable to share based compensation; and (v) noncontrolling interests from controlled partnerships.
Net income attributable to noncontrolling interests
At September 30, 2024, our consolidated subsidiaries operated 345 imaging centers of which 98 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests. At September 30, 2023, our consolidated subsidiaries included 320 centers of which 83 were not wholly-owned.
For the nine months ended September 30, 2024, we recognized net income attributable to noncontrolling interests of $27.2 million versus $19.4 million for the nine months ended September 30, 2024, an increase of $7.8 million. The increase in net income attributable to noncontrolling interests was primarily due to the formation of a new majority owned subsidiary, Los Angeles Imaging Group, LLC in September 2023 and Tri Valley Imaging Group, LLC in March 2024. We contributed the operations of three centers to Los Angeles Imaging Group, LLC and Cedars-Sinai Medical Center contributed cash. Net income attributable to noncontrolling interests was also impacted by an increase in patient volumes for advanced modalities in 2024 and the closure of two underperforming centers in a majority owned subsidiary, Beach Imaging Group, LLC in December 2023.
As noncontrolling interests only represent a portion of our imaging center business, and excludes our Digital Health Segment which generated losses of $9.5 million for the nine months ended September 30, 2024, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.
The breakdown of revenue and expenses of the segment for the three and nine months ended September 30, 2024 and 2023 are as follows:
In Thousands
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Statement of Operations
Revenue
$
16,367
$
12,185
$
4,182
34.3
%
$
46,856
$
34,866
$
11,990
34.4
%
Salaries and Wages
7,119
6,022
1,097
18.2
%
18,631
18,710
(79)
(0.4)
%
Stock Compensation
528
388
140
36.1
%
1,755
1,897
(142)
(7.5)
%
Other operating
6,020
645
5,375
833.3
%
18,208
9,226
8,982
97.4
%
Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI
3,344
—
3,344
—
9,977
—
9,977
—
Depreciation & Amort.
2,947
1,989
958
48.2
%
7,727
5,962
1,765
29.6
%
(Gain) loss on sale and disposal of equipment and other
(5)
3
(8)
(266.7)
%
(4)
(2)
(2)
100.0
%
Severance
33
12
21
175.0
%
77
1,740
(1,663)
(95.6)
%
Total operating expenses
$
19,986
$
9,059
$
10,927
120.6
%
$
56,371
$
37,533
$
18,838
50.2
%
Loss from Operations
$
(3,619)
$
3,126
$
(6,745)
(215.8)
%
$
(9,515)
$
(2,667)
$
(6,848)
256.8
%
Other expense
2,966
590
2,376
402.7
%
5,413
3,715
1,698
45.7
%
Loss before taxes
(6,585)
2,536
(9,121)
(359.7)
%
(14,928)
(6,382)
(8,546)
133.9
%
Income taxes
$
(37)
$
(4,472)
$
4,435
(99.2)
%
$
(346)
$
(5,829)
$
5,483
(94.1)
%
Segment net loss
(6,548)
7,008
(13,556)
(193.4)
%
(14,582)
(553)
(14,029)
2536.9
%
Revenues for the Digital Health segment increased as a result of core growth in our eRad PICS business, the rollout in 2023 of our Deephealth OS, and continued rollout of our Enhanced Breast Cancer Detection solutions across additional facilities. The increase in operating expenses was primarily related to salary expense as we increased headcount in connection with the commercialization of our initial AI products and higher non-capitalized research and development expenses with respect to our new DeepHealth cloud OS and generative AI. In the three months ended September 30, 2023, we recognized a non-recurring gain of $7.2 million from change in fair value of contingent consideration, offsetting against other operating expense. Aside from the effect of that one-time gain and increased non-capitalized research and development expenses, our net loss for the segment was consistent with the prior year. We expect that our Digital Health segment will continue to generate net losses over the next several years.
Non-GAAP Financial Measures
We use both GAAP and non-GAAP metrics to measure our financial results. We believe that, in addition to GAAP metrics, non-GAAP metrics such as Adjusted EBITDA assist us in measuring our core operations from period to period.
Adjusted EBITDA
Our Adjusted EBITDA metric removes non-cash and non-recurring charges that occur in the affected period and provides a basis for measuring the Company’s core financial performance against other periods.
We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted to exclude losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, bargain purchase gains, loss on de-consolidation of joint ventures, gain on contribution of imaging centers into joint ventures, and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or one-time events that take place during the period.
Adjusted EBITDA is a non-GAAP financial measure used as an analytical indicator by us and the healthcare industry to assess business performance. Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, or other financial statement data presented in the consolidated financial statements as an indicator of financial performance. Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation and this metric, as presented, may not be comparable to other similarly titled measures of other companies.
The following is a reconciliation of the nearest comparable GAAP financial measure, net income, to Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023, respectively.
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net income attributable to RadNet, Inc. common stockholders
$
3,209
$
17,540
$
(2,552)
$
4,904
Income taxes
4,335
7,220
4,927
7,741
Interest expense
19,427
16,115
61,776
47,876
Severance costs
304
1,153
797
3,157
Depreciation and amortization
34,979
32,210
101,822
95,705
Non-cash employee stock-based compensation
4,723
4,325
21,369
21,381
Loss (gain) on sale and disposal of equipment and other
148
527
735
1,183
Non-cash change in fair value of interest rate hedge
6,755
1,015
7,429
949
Other expenses
(5,414)
(4,081)
(16,248)
(2,609)
Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI
3,345
—
9,977
—
Loss (gain) on contribution of imaging centers into joint venture
—
(16,808)
—
(16,808)
Loss (gain) on extinguishment of debt and related expenses
147
—
8,909
—
Non-cash change to contingent consideration
—
(6,276)
1,974
(3,646)
Acquisition related non-cash intangible adjustment
—
3,950
—
3,950
Non-operational rent expenses
1,287
1,030
3,119
2,748
Acquisition transaction costs
417
—
417
—
Adjusted EBITDA - Total Company
$
73,662
$
57,920
$
204,451
$
166,531
Adjusted EBITDA - Digital Health Segment
3,229
2,279
10,018
3,689
Adjusted EBITDA - Imaging Center
$
70,433
$
55,641
$
194,433
$
162,842
The following table is a reconciliation of GAAP net income for our Digital Health Segment to Adjusted EBITDA for the three months ended September 30, 2024 and 2023, respectively.
Non-Capitalized R&D - DeepHealth Cloud OS & Generative AI
3,345
—
9,977
—
Non-cash change to contingent consideration
—
(7,191)
—
(7,191)
Acquisition related to non-cash intangible adjustment
—
3,950
—
3,950
Adjusted EBITDA - Digital Health Segment
$
3,229
$
2,279
$
10,018
$
3,689
Liquidity and Capital Resources
We expect our existing capital resources, anticipated cash from operations and our borrowing capacity under our credit facilities will be sufficient to sustain our operations for the next twelve months and the foreseeable future.
Our principal capital requirements are for the development of new diagnostic imaging centers, the acquisition of existing diagnostic imaging centers and the acquisition of new diagnostic imaging equipment. On a continuing basis, we evaluate various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures and joint ventures. We expect to fund any future acquisitions primarily with cash flow from operations and borrowings, including borrowing available under our secured credit facilities or through new equity or debt issuances.
We and our subsidiaries or affiliates may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise.
The following table summarizes key balance sheet data related to our liquidity as of September 30, 2024 and December 31, 2023 and income statement data for the nine months ended September 30, 2024 and 2023 (in thousands):
Balance Sheet Data:
September 30, 2024
December 31, 2023
Cash and cash equivalents
$
748,916
$
342,570
Accounts receivable
199,076
163,707
Working capital (exclusive of current operating lease liabilities)
604,874
197,805
Stockholders' equity
1,119,634
813,359
Income statement data for the nine months ended September 30,
2024
2023
Total net revenue
$
1,352,563
$
1,196,247
Net (loss) income attributable to RadNet common stockholders
(2,552)
4,904
Sources and Uses of Cash
The following table summarizes key components of our sources and uses of cash for the nine months ended September 30, 2024 and 2023 (in thousands):
Cash provided by operating activities for the nine months ended September 30, 2024 increased by $58.6 million compared to September 30, 2023 primarily driven by a $35.7 million change in assets and liabilities, primarily due to the timing of payments for accounts payable and accrued expenses.
Cash used in investing activities for the nine months ended September 30, 2024 increased from September 30, 2023 by $31.4 million. Purchases of imaging centers during the period was $37.7 million, a $26.8 million increase from the prior period. Capital expenditures for property and equipment during the period was $145.2 million, a $8.6 million increase from the prior period.
Cash provided by financing activities for the nine months ended September 30, 2024 resulted from a secondary public offering of our common stock and a refinancing of our Barclays credit facility. In March 2024, we completed a public offering of 5,232,500 shares of our common stock, which included 682,500 shares sold pursuant to an underwriters overallotment option, at a price to the public of $44.00 per share, resulting in net proceeds after underwriting discounts, commissions, and expenses of $218.3 million. In April 2024, we refinanced our Barclays credit facility replacing the prior facility with an $875 million term loan. After paying off the balance on the prior facility, payment of accrued interest through the closing of the refinance transaction, and payment of transaction fees and expenses, we added approximately $167.9 million in cash to the balance sheet.
Secured Credit Facilities
We maintain secured credit facilities with Barclays Bank PLC and with Truist Bank.
On April 18, 2024, we refinanced our Barclays credit facility, replacing the prior facility with an $875.0 million term loan and a $282.0 million revolving credit facility.The refinance transaction reduced our interest rates on the Barclays term loan and revolving credit facility and extended the maturity date for the term loan to April 18, 2031 and for the revolving credit facility to April 18, 2029.The new term loan calls for quarterly principal payments of $2.2 million, compared to $1.8 million under the prior credit facility.
Our condensed consolidated balance sheets at September 30, 2024 include $1,009.7 million of total term loan debt (exclusive of unamortized discounts of $15.8 million) in thousands:
Face Value
Discount
Total Carrying Value
Barclays Term Loan
$
872,812
$
(15,234)
$
857,578
Truist Term Loan
136,875
(792)
136,083
Total Term Loans
$
1,009,687
$
(16,026)
$
993,661
At September 30, 2024, we had no borrowings under our Barclays or Truist revolving credit facilities. After reserves for outstanding letters of credit of $8.3 million, we had $273.7 million available for borrowing under our Barclays Revolving Credit Facility and $50.0 million available under our Truist Revolving Credit Facility.
Please see Note 6, Credit Facilities and Notes Payable in the notes to financial statements included in this report for more information on our secured credit facilities.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk:
We are exposed to foreign exchange risk with respect to revenues and expenses denominated in the Pound Sterling, Euro, Canadian Dollar and Hungarian Forint. We provide radiological services in the United Kingdom, conduct Artificial Intelligence operations in the Netherlands, and maintain research and development centers in Canada, Hungary and India. We
do not have any foreign currency exchange contracts to mitigate this risk. At September 30, 2024, a hypothetical 1% decline in the currency exchange rates between the U.S. dollar against these currencies, would have resulted in an annual increase of approximately $0.3 million in operating expenses.
Interest Rate Sensitivity:
Our debt instruments, including borrowings under our Barclays credit facility and our Truist credit facility, bear interest at variable rates. Accordingly, our interest expense and our earnings are affected by changes in short term interest rates.
To mitigate our future floating rate interest expense exposure we entered into the 2019 Swaps with locked in interest rates for one-month Term SOFR of 1.89% for $100 million of notional value and 1.98% for $400 million of notional value. We are liable for premium payments to the 2019 swap counterparties if interests rates are below the arranged rates, and receive payments from the 2019 swap counterparties if interest rates exceed the arranged rates. If interest rates were to theoretically reduce to 0%, our maximum premium payment would be the difference between the two swapped rates and 0% then multiplied by the notional value of the swaps, or $1.89 million per year for the $100 million swap and $8.0 million per year for the $400 million swap. Payments under the 2019 Swaps are settled in cash on a monthly basis. The 2019 Swaps for the $100 million of notional value matured in October 2023, so they were in effect for the third quarter of 2023, but not 2024. The 2019 Swaps for the $400 million notional amount will expire in October 2025.
We can elect SOFR or Alternative Base Rate interest options on amounts outstanding under the Barclays Term Loan. At September 30, 2024, we had $872.8 million outstanding subject to an SOFR election on the Barclays Term Loan. At September 30, 2024, our effective SOFR interest rate plus applicable margin was 7.78%. The 2019 Swaps secure a $1.98% SOFR rate for a $400 million notional amount. After giving effect to our 2019 Swaps, we had $472.8 million outstanding under the Barclays Term Loan that is unprotected by the 2019 Swaps at September 30, 2024. Consequently, a hypothetical 1% increase in the SOFR rates under the Barclay's credit facility would result in an increase of $4.7 million in annual interest expense and a corresponding decrease in income before taxes. The 2019 Swaps will mature in October 2025.
We can elect SOFR or Base Rate interest rate options on amounts outstanding under the Truist credit facility. At September 30, 2024, we had $136.9 million outstanding subject to an adjusted SOFR election on the Truist Term Loan. At September 30, 2024, our effective SOFR rate plus applicable margin was 6.20%. A hypothetical 1% increase in the adjusted Eurodollar rates under the Truist credit facility would result in an increase of approximately $1.4 million in annual interest expense and a corresponding decrease in income before taxes.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of September 30, 2024. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
From time to time we are engaged legal proceedings that arise in the ordinary course of our business. We do not believe that the outcome of any of our current legal proceedings will have a material adverse impact on our business, financial condition and results of operations.
ITEM 1A. Risk Factors
For information about the risks and uncertainties related to our business, please see the risk factors described in our annual report on Form 10-K for the year ended December 31, 2023. The risks described in our annual report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
Rule 10b5-1 Trading Plan.
During the fiscal quarter ended September 30, 2024, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."
The following financial information from RadNet, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Changes in Stockholders Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Exchange Act and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RADNET, INC.
(Registrant)
Date: November 12, 2024
By:
/s/ Howard G. Berger, M.D.
Howard G. Berger, M.D., President and Chief Executive Officer (Principal Executive Officer)
Date: November 12, 2024
By:
/s/ Mark D. Stolper
Mark D. Stolper, Chief Financial Officer (Principal Financial and Accounting Officer)
