10-Q 1 agti-20220930.htm 10-Q agti-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2022
or
oTransition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to
Commission File Number: 001-40361
AGILITI, INC.
(Exact name of registrant as specified in its charter)
Delaware83-1608463
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
11095 Viking Drive
Eden Prairie, Minnesota 55344
(Address of principal executive offices, including zip code)
(952) 893-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.0001
AGTIThe New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x
Number of shares of common stock outstanding as of October 31, 2022: 133,337,793


Agiliti, Inc. and Subsidiaries
Table of Contents
Page


PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements — Unaudited
Agiliti, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$32,211 $74,325 
Accounts receivable, less allowance for credit losses of $3,496 and $2,902
203,087 209,308 
Inventories60,987 55,307 
Prepaid expenses21,503 18,549 
Other current assets13,003 395 
Total current assets330,791 357,884 
Property and equipment, net253,639 258,370 
Goodwill1,218,329 1,213,121 
Operating lease right-of-use assets82,838 80,676 
Other intangibles, net508,769 573,159 
Other23,295 32,537 
Total assets$2,417,661 $2,515,747 
Liabilities and Equity
Current liabilities:
Current portion of long-term debt$17,642 $17,534 
Current portion of operating lease liability23,438 22,826 
Current portion of obligation under tax receivable agreement29,824 29,187 
Accounts payable59,094 53,851 
Accrued compensation31,867 47,951 
Accrued interest3,889 3,473 
Deferred revenue9,279 5,808 
Other accrued expenses25,883 27,900 
Total current liabilities200,916 208,530 
Long-term debt, less current portion1,050,288 1,174,968 
Obligation under tax receivable agreement, pension and other long-term liabilities17,036 29,629 
Operating lease liability, less current portion70,259 63,241 
Deferred income taxes, net142,676 143,307 
Commitments and contingencies (Note 11)
Equity:
Common stock, $0.0001 par value; 500,000,000 shares authorized; 133,330,184 and 130,950,061 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
13 13 
Additional paid-in capital944,477 938,888 
Accumulated deficit(17,645)(44,486)
Accumulated other comprehensive income9,490 1,537 
Total Agiliti, Inc. and Subsidiaries equity936,335 895,952 
Noncontrolling interest151 120 
Total equity936,486 896,072 
Total liabilities and equity$2,417,661 $2,515,747 
The accompanying notes are an integral part of the unaudited consolidated financial statements.
1

Agiliti, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share information)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Revenue$271,185 $262,424 $839,613 $748,212 
Cost of revenue169,582 158,990 516,218 444,346 
Gross margin101,603 103,434 323,395 303,866 
Selling, general and administrative expense86,044 75,052 254,303 225,334 
Operating income15,559 28,382 69,092 78,532 
Loss on extinguishment of debt  1,418 10,116 
Interest expense12,531 10,711 34,456 40,444 
Tax indemnification expense11,918  11,918  
Income (loss) before income taxes and noncontrolling interest(8,890)17,671 21,300 27,972 
Income tax (benefit) expense(10,879)7,943 (5,672)13,832 
Consolidated net income1,989 9,728 26,972 14,140 
Net income attributable to noncontrolling interest38 60 131 117 
Net income attributable to Agiliti, Inc. and Subsidiaries $1,951 $9,668 $26,841 $14,023 
Basic income per share$0.01 $0.07 $0.20 $0.12 
Diluted income per share$0.01 $0.07 $0.19 $0.11 
Weighted-average common shares outstanding:
Basic133,212,218 130,380,551 132,313,218 117,578,750 
Diluted139,062,813 138,490,526 138,242,880 125,515,000 
The accompanying notes are an integral part of the unaudited consolidated financial statements.
2

Agiliti, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Consolidated net income$1,989$9,728$26,972$14,140
Other comprehensive income:
Gain on minimum pension liability, net of tax of $0, $19, $0, and $56
54163
Gain (loss) on cash flow hedge, net of tax of $93, $(6), $2,734, and $297
269(17)7,953875
Total other comprehensive income269377,9531,038
Comprehensive income2,2589,76534,92515,178
Comprehensive income attributable to noncontrolling interest3860131117
Comprehensive income attributable to Agiliti, Inc. and Subsidiaries $2,220$9,705$34,794$15,061
The accompanying notes are an integral part of the unaudited consolidated financial statements.
3

Agiliti, Inc. and Subsidiaries
Consolidated Statements of Equity
(in thousands)
(unaudited)
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Agiliti, Inc.
and
Subsidiaries
Noncontrolling
Interests
Total
Equity
(Deficit)
Balance as of June 30, 2022$13 $938,906 $(19,596)$9,221 $928,544 $166 $928,710 
Net income— — 1,951 — 1,951 38 1,989 
Other comprehensive income— — — 269 269 — 269 
Share-based compensation expense— 4,712 — — 4,712 — 4,712 
Stock options exercised— 978 — — 978 — 978 
Shares forfeited for taxes— (121)— — (121)— (121)
Dividend forfeited, net of payable— 2 — — 2 — 2 
Cash distributions to noncontrolling interests— — — — — (53)(53)
Balance as of September 30, 2022$13 $944,477 $(17,645)$9,490 $936,335 $151 $936,486 
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Agiliti, Inc.
and
Subsidiaries
Noncontrolling
Interests
Total
Equity
(Deficit)
Balance as of June 30, 2021$13 $928,623 $(64,137)$(2,618)$861,881 $118 $861,999 
Net income— — 9,668 — 9,668 60 9,728 
Other comprehensive income— — — 37 37 — 37 
Share-based compensation expense— 4,235 — — 4,235 — 4,235 
Stock options exercised— 7 — — 7 — 7 
Dividend forfeited— 2 — — 2 — 2 
Cash distributions to noncontrolling interests— — — — — (55)(55)
Balance as of September 30, 2021$13 $932,867 $(54,469)$(2,581)$875,830 $123 $875,953 
4

Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Agiliti, Inc.
and
Subsidiaries
Noncontrolling
Interests
Total
Equity
(Deficit)
Balance as of December 31, 2021$13 $938,888 $(44,486)$1,537 $895,952 $120 $896,072 
Net income— — 26,841 — 26,841 131 26,972 
Other comprehensive income— — — 7,953 7,953 — 7,953 
Proceeds from issuance of common stock— 2,159 — — 2,159 — 2,159 
Share-based compensation expense— 14,947 — — 14,947 — 14,947 
Stock options exercised— 2,949 — — 2,949 — 2,949 
Shares forfeited for taxes— (14,488)— — (14,488)— (14,488)
Dividend forfeited, net of payable— 22 — — 22 — 22 
Cash distributions to noncontrolling interests— — — — — (100)(100)
Balance as of September 30, 2022$13 $944,477 $(17,645)$9,490 $936,335 $151 $936,486 
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Agiliti, Inc.
and
Subsidiaries
Noncontrolling
Interests
Total
Equity
(Deficit)
Balance as of December 31, 2020$10 $513,902 $(68,492)$(3,619)$441,801 $144 $441,945 
Net income— — 14,023 — 14,023 117 14,140 
Other comprehensive income— — — 1,038 1,038 — 1,038 
Share-based compensation expense— 9,917 — — 9,917 — 9,917 
Stock options exercised— 380 — — 380 — 380 
Issuance of common stock3 412,738 — — 412,741 — 412,741 
Stock issuance costs— (4,084)— — (4,084)— (4,084)
Dividend forfeited— 14 — — 14 — 14 
Cash distributions to noncontrolling interests— — — — — (138)(138)
Balance as of September 30, 2021$13 $932,867 $(54,469)$(2,581)$875,830 $123 $875,953 
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5

Agiliti, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20222021
Cash flows from operating activities:
Consolidated net income$26,972 $14,140 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation65,502 78,249 
Amortization 71,254 63,482 
Loss on extinguishment of debt1,418 7,716 
Remeasurement of tax receivable agreement 4,542 
Provision for credit losses801 1,121 
Provision for inventory obsolescence859 2,539 
Non-cash share-based compensation expense15,066 10,127 
Gain on sales and disposals of equipment(793)(3,939)
Deferred income taxes(3,365)12,040 
Changes in operating assets and liabilities:
Accounts receivable3,420 (30,305)
Inventories(6,539)1,241 
Other operating assets(7,566)(5,392)
Accounts payable13,123 4,701 
Other operating liabilities(18,251)(21,849)
Net cash provided by operating activities161,901 138,413 
Cash flows from investing activities:
Medical equipment purchases(37,494)(23,912)
Property and office equipment purchases(20,374)(15,539)
Proceeds from disposition of property and equipment2,695 8,187 
Acquisitions, net of cash acquired(3,125)(450,198)
Net cash used in investing activities(58,298)(481,462)
Cash flows from financing activities:
Proceeds under debt arrangements20,000 233,052 
Payments under debt arrangements(146,173)(361,770)
Payments of principal under finance lease liability(6,676)(6,721)
Payments of deferred financing costs (229)
Payments under tax receivable agreement (748)
Distributions to noncontrolling interests(100)(138)
Proceeds from exercise of stock options2,949 380 
Dividend and equity distribution payment(908)(926)
Proceeds from issuance of common stock 401,441 
Stock issuance costs(4,084)
Shares forfeited for taxes(14,488) 
Payments of contingent consideration(321) 
Net cash (used in) provided by financing activities(145,717)260,257 
Net change in cash and cash equivalents(42,114)(82,792)
Cash and cash equivalents at the beginning of period74,325 206,505 
Cash and cash equivalents at the end of period$32,211 $123,713 
Supplemental cash flow information:
Interest paid$30,214 $40,991 
Income taxes paid13,172 2,647 
The accompanying notes are an integral part of the unaudited consolidated financial statements.
6

Agiliti, Inc. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    Basis of Presentation
Description of Business
Agiliti, Inc. and its consolidated subsidiaries (Federal Street Acquisition Corp (“FSAC”), Agiliti Holdco, Inc. and Agiliti Health, Inc. and subsidiaries (“we”, “our”, “us”, the “Company” or “Agiliti”)) is a nationwide provider of healthcare technology management and service solutions to the United States healthcare industry. Agiliti, Inc. owns 100% of FSAC. FSAC owns 100% of Agiliti Holdco, Inc. Agiliti Holdco, Inc. owns 100% of Agiliti Health, Inc. Agiliti Health, Inc. owns 100% of Agiliti Surgical, Inc., Agiliti Imaging, Inc., Agiliti Surgical Equipment Repair, Inc. and Sizewise Rentals, LLC. Agiliti Health, Inc. and its subsidiaries are the only entities with operations. All other entities have no material assets, liabilities, cash flows or operations other than their investment and ownership of Agiliti Health, Inc. and subsidiaries.
Initial Public Offering
On April 22, 2021, our registration statement on Form S-1 (File No. 333-253947) related to our initial public offering (“IPO”) was declared effective by the SEC, and our common stock began trading on the New York Stock Exchange (“NYSE”) on April 23, 2021. Our IPO closed on April 27, 2021.
Basis of Presentation
The interim consolidated financial statements have been prepared by the Company without audit. Certain disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto in the Company’s Annual report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022 (“2021 Form 10-K Report”).
The interim consolidated financial statements presented herein as of September 30, 2022, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income, equity and cash flows for the periods presented. These adjustments are all of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year.
We are required to make estimates and assumptions about future events in preparing consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the amounts of assets, liabilities, revenue and expenses at the date of the unaudited consolidated financial statements. While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events are made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited consolidated financial statements.
Income Taxes
Pursuant to the receipt of a Private Letter Ruling from the IRS during the three months ended September 30, 2022, we released a reserve assumed from our Sizewise Acquisition in 2021. The exposure was covered by an indemnification agreement with the seller. The release of the reserve and associated interest and penalties accrual resulted in a $11.9 million tax benefit and indemnification expense for the same amount, which is included in ‘Tax indemnification expense’ on the Consolidated Statements of Operations. The release of the reserve is treated as a significant, unusual item under the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 740, “Income Taxes”, and Subtopic 740-270, and $11.9 million tax benefit recognized resulted in a significant variation in the customary relationship between income tax expense (benefit) and pre-tax income (loss) for the three and nine months ended September 30, 2022.


7

Significant Accounting Policies and Estimates
The most recent review of estimated useful lives of fixed assets indicated that certain medical equipment had actual lives that were longer than previously estimated. As a result, effective July 1, 2022, we increased the expected useful lives of such medical equipment from four to seven years to five to ten years on a prospective basis. The effect of this change reduced depreciation expense by approximately $3.8 million and increased net income by approximately $2.8 million, or $0.02 per basic and diluted share for the three and nine months ended September 30, 2022.
A description of our significant accounting policies is included in the audited consolidated financial statements. There have been no material changes to these policies for the quarter ended September 30, 2022.
2.    Recent Accounting Pronouncements
Standards Adopted
No recent accounting pronouncements have been issued or adopted since those discussed in the 2021 Form 10-K Report that are of material significance, or have potential material significance, to the Company.
Standards Not Yet Adopted
In October 2021, the FASB issued ASU No. 2021-08 Business Combinations (Topic 805)-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 improves the accounting for acquired revenue contracts with customers in a business combination. The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted. We will continue to evaluate ASU 2021-08, but do not expect the adoption will have a material impact on our consolidated financial statements.
In September 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU may be applied through December 31, 2022. We will continue to evaluate the phase out of LIBOR but do not expect the adoption will have a material impact on our consolidated financial statements.
3.    Revenue Recognition
Customer arrangements typically have multiple performance obligations to provide equipment solutions, clinical engineering and/or onsite equipment managed services on a per use and/or over time basis. Contractual prices are established within our customer arrangements that are representative of stand-alone selling prices. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The Company’s performance obligations that are satisfied at a point in time are recognized when the service is performed or equipment is delivered to the customer. For performance obligations satisfied over time, the Company uses a straight-line method to recognize revenue ratably over the contract period, as this coincides with the Company’s performance under the contract.
In the following table, revenue is disaggregated by service solution:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Equipment Solutions$103,103 $77,707 $331,810 $232,319 
Clinical Engineering103,639 111,614 310,850 287,860 
Onsite Managed Services64,443 73,103 196,953 228,033 
Total revenue$271,185 $262,424 $839,613 $748,212 
8

The Company capitalizes contract costs incurred in obtaining new contracts. The contract asset included in other long-term assets in the consolidated balance sheets as of September 30, 2022 and December 31, 2021 was $18.1 and $15.9 million, respectively. Capitalized costs are amortized over the expected life of the related contracts, which is estimated to be five years.
The Company had a balance of $9.3 and $5.8 million of deferred revenue as of September 30, 2022 and December 31, 2021, respectively. During the three and nine months ended September 30, 2022, $0.7 and $2.2 million, respectively, of revenue was recognized that was included in deferred revenue at the beginning of the period.
4.    Acquisitions
During the three months ended June 30, 2022, we completed the acquisition of several small surgical equipment repair companies. These business combinations were immaterial in relation to our consolidated balance sheets and statements of operations and as a result, additional purchase accounting disclosures have been omitted.
On October 1, 2021, we completed a stock purchase agreement to purchase all of the outstanding capital stock of Sizewise Rentals, LLC (“Sizewise”), a privately held manufacturer and distributor of specialty patient handling equipment, for a total consideration of approximately $234.8 million (“Sizewise Acquisition”). The results of Sizewise’s operations have been included in the consolidated financial statements since October 1, 2021.
The following summarizes the fair values of assets acquired and liabilities assumed at the date of the Sizewise Acquisition within our consolidated balance sheet as of December 31, 2021:
(in thousands)
Cash$9,977 
Accounts receivable31,005 
Inventories27,911 
Other current assets2,968 
Property and equipment59,042 
Goodwill87,867 
Operating lease right-of-use assets16,754 
Other intangibles67,700 
Other long-term assets10,368 
Accounts payable(3,362)
Accrued compensation(12,576)
Other accrued expenses(4,525)
Operating lease liability(16,953)
Other long-term liabilities(9,924)
Deferred income taxes(31,470)
Total purchase price$234,782 
On March 19, 2021, we completed a stock purchase agreement to purchase all of the outstanding capital stock of Northfield Medical, Inc. (“Northfield”), a company specializing in the service and repair of medical equipment and instruments for a total consideration of approximately $472.3 million (“Northfield Acquisition”). The consideration consisted of $461.0 million of cash paid and $11.3 million in issuance of 752,328 shares of common stock. The results of Northfield’s operations have been included in the consolidated financial statements since March 19, 2021. During the year ended December 31, 2021, adjustments affecting the fair values of assets acquired and liabilities assumed decreased accounts receivable $0.2 million, increased goodwill $1.3 million, increased accounts payable $0.1 million, and increased deferred income taxes $1.0 million. All adjustments net to zero.
9

The following summarizes the fair values of assets acquired and liabilities assumed at the date of the Northfield Acquisition within our consolidated balance sheet as of December 31, 2021:
(in thousands)
Cash$10,767 
Accounts receivable16,786 
Inventories5,810 
Other current assets502 
Property and equipment11,713 
Goodwill306,678 
Operating lease right-of-use assets4,815 
Other intangibles183,700 
Accounts payable(7,412)
Accrued compensation(7,948)
Other accrued expenses(9,620)
Finance lease liability(2,340)
Operating lease liability(5,025)
Other long-term liabilities(837)
Deferred income taxes(35,324)
Total purchase price$472,265 
The following unaudited pro forma consolidated results of operations assume the Sizewise and Northfield acquisitions had occurred on January 1, 2021. The unaudited pro forma consolidated financial information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisitions had actually closed on that date, nor the results that may be obtained in the future:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(unaudited, in thousands)2022202120222021
Revenue$271,185 $303,028 $839,613 $895,994 
Net income attributable to Agiliti, Inc. and Subsidiaries1,951 10,670 26,841 21,623 
Included in the determination of pro forma net income for the three and nine months ended September 30, 2021 are pro forma charges for various purchase accounting adjustments. These pro forma adjustments included depreciation and amortization of assets acquired and interest expense on additional debt to finance the acquisition. Income taxes are provided at the estimated statutory rate. Revenue and net income for the three and nine months ended September 30, 2022 are as reported.
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5.    Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 are summarized in the following tables by type of inputs applicable to the fair value measurements:
Fair Value at September 30, 2022
(in thousands)Level 1Level 2Level 3Total
Assets:
Deferred compensation assets$2,449 $ $ $2,449 
Interest rate swap 12,780  12,780 
Total Assets$2,449 $12,780 $ $15,229 
Liabilities:
Contingent consideration$ $ $3,649 $3,649 
Obligation under tax receivable agreement  40,517 40,517 
Deferred compensation liabilities2,449   2,449 
Total Liabilities$2,449 $ $44,166 $46,615 
Fair Value at December 31, 2021
(in thousands)Level 1Level 2Level 3Total
Assets:
Deferred compensation assets$2,452 $ $ $2,452 
Interest rate swap 2,093  2,093 
Total Assets$2,452 $2,093 $ $4,545 
Liabilities:
Contingent consideration$ $ $500 $500 
Obligation under tax receivable agreement  39,880 39,880 
Deferred compensation liabilities2,452   2,452 
Total Liabilities$2,452 $ $40,380 $42,832 
A description of the inputs used in the valuation of assets and liabilities is summarized as follows:
Level 1 — Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.
Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 — Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of non-exchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.
The deferred compensation assets are held in mutual funds. The fair value of the deferred compensation assets and liabilities is based on the quoted market prices for the mutual funds and thus represents a Level 1 fair value measurement.
On January 4, 2019, we entered into a tax receivable agreement (“TRA”) with our former owners. The fair value of the obligation under the TRA was estimated using company specific assumptions that are not observable in the market and thus represents a Level 3 fair value measurement. Management’s estimate of the valuation of the obligation under the TRA
11

is based on a Monte Carlo model which involves the use of projected cash flows of the Company, a discount rate, and historical deferred tax assets subject to the agreement. There were no remeasurement adjustments or payments made under the TRA during the three and nine months ended September 30, 2022. We made a remeasurement adjustment of $4.5 million and payment of $0.7 million during the three and nine months ended September 30, 2021.
In May 2020, we entered into an interest rate swap agreement to manage our interest rate exposure. For additional information on the interest swap agreement, see Note 8, Long-Term Debt. The carrying value of interest rate swap contracts is at fair value, which is determined based on current interest rate and forward interest rates as of the balance sheet date and is classified within Level 2.
In January 2022, a $0.5 million earn-out payment was made to the previous owners of a surgical laser equipment solutions company, in which we acquired assets on December 11, 2020, based on achievement of certain revenue results. During the three months ended June 30, 2022, we completed the acquisition of several small surgical equipment repair companies and as a result, have accrued $3.6 million as of September 30, 2022 for future earn-out payments contingent upon achievement of certain revenue results.
Fair Value of Other Financial Instruments
The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable and accrued liabilities approximates fair value due to their short maturities. The fair value of our outstanding First Lien Term Loan (as defined in Note 8, Long-Term Debt) as of September 30, 2022 and December 31, 2021, is based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:
September 30, 2022December 31, 2021
(in thousands)Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
First Lien Term Loan (1)
$1,045,443 $1,027,833 $1,167,649 $1,174,871 
________________________
(1)
The carrying value of the First Lien Term Loan is net of unamortized deferred financing costs of $8.6 and $10.4 million and unamortized debt discount of $2.8 and $5.0 million as of September 30, 2022 and December 31, 2021, respectively.
6.    Selected Financial Statement Information
Property and Equipment
Our Property and Equipment is grouped into Medical Equipment and Property and Office Equipment. Depreciation of medical equipment is provided on the straight-line method over the equipment’s estimated useful life, generally five to ten years. The cost and accumulated depreciation of medical equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in cost of revenue in the period the asset is retired or sold. Property and office equipment includes property, leasehold improvements and office equipment. Depreciation and amortization of property and office equipment is provided on the straight-line method over the lesser of the remaining useful life or lease term for leasehold improvements and three to ten years for office equipment. The cost and accumulated depreciation or amortization of property and equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in selling, general and administrative expense in the period the asset is retired or sold.
12

(in thousands)September 30,
2022
December 31,
2021
Medical equipment$380,107 $359,284 
Less: Accumulated depreciation(238,073)(209,516)
Medical equipment, net142,034 149,768 
Leasehold improvements48,413 39,026 
Office equipment and vehicles153,721 135,643 
202,134 174,669 
Less: Accumulated depreciation(90,529)(66,067)
Property and office equipment, net111,605 108,602 
Total property and equipment, net$253,639 $258,370 
Depreciation expense recognized during the three months ended September 30, 2022 and 2021 was $19.1 and $25.4 million, respectively. Depreciation expense recognized during the nine months ended September 30, 2022 and 2021 was $65.5 and $78.2 million, respectively.
There were no impairment charges on property and equipment during the three and nine months ended September 30, 2022 and 2021.
Goodwill and Other Intangible Assets
Our goodwill as of September 30, 2022 and December 31, 2021 consists of the following:
(in thousands)
Balance at December 31, 2021$1,213,121 
Acquisitions5,208 
Balance at September 30, 2022$1,218,329 
There were no impairment losses recorded on goodwill through September 30, 2022.
Our other intangible assets as of September 30, 2022 and December 31, 2021 consist of the following:
September 30, 2022
(in thousands)GrossAccumulated
Amortization
Net
Finite-life intangibles
Customer relationship$756,889 $(255,295)$501,594 
Non-compete agreements5,235 (4,835)400 
Trade names7,806 (2,488)5,318 
Developed technology2,300 (843)1,457 
Total other intangible assets$772,230 $(263,461)$508,769 
December 31, 2021
(in thousands)GrossAccumulated
Amortization
Net
Finite-life intangibles
Customer relationship$756,889 $(194,312)$562,577 
Non-compete agreements14,613 (13,222)1,391 
Trade names9,179 (2,230)6,949 
Developed technology2,300 (58)2,242 
Total other intangible assets$782,981 $(209,822)$573,159 
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Our other intangible assets are amortized over their estimated economic lives of three to fifteen years. The straight-line method of amortization generally reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. However, for certain of our customer relationships, we use the sum-of-the-years-digits amortization method to more appropriately allocate the cost to earnings in proportion to the estimated amount of economic benefit obtained.
Total amortization expense related to intangible assets was $21.7 and $20.6 million for the three months ended September 30, 2022 and 2021, respectively, and $64.4 and $57.7 million for the nine months ended September 30, 2022 and 2021, respectively. There were no impairment charges during the three and nine months ended September 30, 2022 and 2021 with respect to other intangible assets.
The estimated future amortization expense for identifiable intangible assets during the remainder of 2022 and the next five years is as follows:
(in thousands)
Remainder of 2022$21,574 
202379,108 
202468,604 
202562,242 
202655,870 
202749,516 
Supplementary Cash Flow Information
Supplementary cash flow information is as follows:
September 30,
(in thousands)20222021
Non-cash activities:
Property and equipment purchases included in accounts payable (at end of period)$2,976 $1,927 
Finance lease assets and liability additions4,104 6,795 
Operating lease right-of-use assets and operating lease liability additions19,580 9,731 
Issuance of common stock related to acquisition 11,300 
7.    Share-Based Compensation
The 2018 Omnibus Incentive Plan (“2018 Plan”) provides for the issuance of 16.7 million nonqualified stock options, restricted stock units and performance restricted stock units to any of the Company’s executives, other key employees and certain non-employee directors. The stock options allow for the purchase of shares of common stock of the Company at prices equal to the stock’s fair market value at the date of grant. Options granted have a ten-year contractual term and vest over one to four years. The restricted stock units vest over