10-Q 1 rdnt-20240630.htm 10-Q rdnt-20240630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q
(Mark One)
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
or
☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-33307
RadNet, Inc.
(Exact name of registrant as specified in its charter)
Delaware13-3326724
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
1510 Cotner Avenue 
Los Angeles,California90025
(Address of principal executive offices)(Zip Code)
(310) 478-7808
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Class TitleTrading SymbolRegistered Exchange
Common StockRDNTNASDAQ
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 and 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 ☒  No ☐
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 and post such files). Yes ☒  No ☐
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 filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
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.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding on August 5, 2024 was 73,957,260 shares.

RADNET, INC.
TABLE OF CONTENTS
Page

ITEM 6.  Exhibits

i
PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
June 30,
2024		December 31,
2023
(unaudited) 
ASSETS  
CURRENT ASSETS  
Cash and cash equivalents$741,679 $342,570 
Accounts receivable195,288 163,707 
Due from affiliates29,221 25,342 
Prepaid expenses and other current assets38,536 47,657 
Total current assets1,004,724 579,276 
PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS
Property and equipment, net652,882 604,401 
Operating lease right-of-use assets624,081 596,032 
Total property, equipment and right-of-use assets1,276,963 1,200,433 
OTHER ASSETS
Goodwill708,980 679,463 
Other intangible assets84,049 90,615 
Deferred financing costs2,505 1,643 
Investment in joint ventures100,844 92,710 
Deposits and other51,358 46,333 
Total assets$3,229,423 $2,690,473 
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other$353,898 $342,940 
Due to affiliates32,375 15,910 
Deferred revenue4,462 4,647 
Current operating lease liability59,251 55,981 
Current portion of notes payable24,215 17,974 
Total current liabilities474,201 437,452 
LONG-TERM LIABILITIES
Long-term operating lease liability632,385 605,097 
Notes payable, net of current portion1,002,392 812,068 
Deferred tax liability, net17,471 15,776 
Other non-current liabilities10,134 6,721 
Total liabilities2,136,583 1,877,114 
EQUITY
Common stock - $0.0001 par value, 200,000,000 shares authorized; 73,968,042 and 67,956,318 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively
7 7 
Additional paid-in-capital974,355 722,750 
Accumulated other comprehensive loss(8,057)(12,484)
Accumulated deficit(85,339)(79,578)
Total RadNet, Inc.'s Stockholders' equity:880,966 630,695 
Noncontrolling interests211,874 182,664 
Total equity1,092,840 813,359 
Total liabilities and equity$3,229,423 $2,690,473 

The accompanying notes are an integral part of these financial statements.



1
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
 Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
REVENUE    
Service fee revenue$422,745 $363,918 $819,934 $716,338 
Revenue under capitation arrangements36,969 39,797 71,487 77,941 
Total service revenue459,714 403,715 891,421 794,279 
OPERATING EXPENSES
Cost of operations, excluding depreciation and amortization389,724 345,147 777,313 697,012 
Depreciation and amortization34,475 32,180 66,843 63,495 
Loss on sale and disposal of equipment and other401 77 587 656 
Severance costs268 1,870 493 2,004 
Total operating expenses424,868 379,274 845,236 763,167 
INCOME FROM OPERATIONS34,846 24,441 46,185 31,112 
OTHER INCOME AND EXPENSES
Interest expense26,082 16,039 42,349 31,761 
Equity in earnings of joint ventures(3,389)(1,423)(7,713)(2,851)
Non-cash change in fair value of interest rate hedge1,890 (4,159)674 (66)
Debt restructuring and extinguishment expenses8,762 — 8,762 — 
Other (income) expenses (7,900)40 (10,834)1,472 
Total other expense25,445 10,497 33,238 30,316 
INCOME BEFORE INCOME TAXES9,401 13,944 12,947 796 
(Provision for) benefit from for income taxes(2,456)614 (592)(521)
NET INCOME6,945 14,558 12,355 275 
Net income attributable to noncontrolling interest9,927 6,189 18,116 12,911 
NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$(2,982)$8,369 $(5,761)$(12,636)
BASIC NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$(0.04)$0.14 $(0.08)$(0.21)
DILUTED NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$(0.04)$0.12 $(0.08)$(0.21)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic73,419,124 59,880,803 71,795,080 59,221,453 
Diluted73,419,124 60,916,985 71,795,080 59,221,453 
The accompanying notes are an integral part of these financial statements.
2
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
NET INCOME$6,945 $14,558 $12,355 $275 
     Foreign currency translation adjustments(631)873 (2,829)3,650 
     Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes6,517 922 7,256 1,844 
COMPREHENSIVE INCOME12,831 16,353 16,782 5,769 
Less comprehensive income attributable to noncontrolling interests9,927 6,189 18,116 12,911 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS$2,904 $10,164 $(1,334)$(7,142)
The accompanying notes are an integral part of these financial statements.

3
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the three months ended June 30, 2024 and June 30, 2023.
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Radnet, Inc.'s EquityNoncontrolling InterestsTotal Equity
SharesAmount
BALANCE - MARCH 31, 202473,901,654 $7 $969,248 $(13,943)$(82,357)$872,955 $204,370 $1,077,325 
Issuance of common stock upon exercise of options59,306 — 359 — — 359 — 359 
Shares issued under the equity compensation plan41,120 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan4,984 — — — — — — — 
Stock-based compensation expense— — 4,773 — — 4,773 — 4,773 
Forfeiture of restricted stock and share cancellation(39,022)— (25)— — (25)— (25)
Distributions paid to noncontrolling interests— — — — — — (2,423)(2,423)
Change in cumulative foreign currency translation adjustment— — — (631)— (631)— (631)
Change in fair value of cash flow hedge from prior periods reclassified to earnings— — — 6,517 — 6,517 — 6,517 
Net (loss) income— — — — (2,982)(2,982)9,927 6,945 
BALANCE - JUNE 30, 202473,968,042 $7 $974,355 $(8,057)$(85,339)$880,966 $211,874 $1,092,840 
BALANCE - MARCH 31, 202358,270,290 $6 $448,522 $(16,978)$(103,628)$327,922 $165,179 $493,101 
Issuance of common stock under the equity compensation plan538,185 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan5,612 — — — — — — — 
Stock-based compensation expense— — 4,870 — — 4,870 — 4,870 
Issuance of common stock, net of issuance costs8,711,250 1 246,201 — — 246,202 — 246,202 
Issuance of common stock for sale of unregistered securities for acquisition144,227 — 4,000 — — 4,000 — 4,000 
Distributions paid to noncontrolling interests— — — — — — (3,523)(3,523)
Change in cumulative foreign currency translation adjustment— — — 873 — 873 — 873 
Change in fair value of cash flow hedge from prior periods reclassifed to earnings— — — 922 — 922 — 922 
Other— — — — 1 1 — 1 
Net income— — — — 8,369 8,369 6,189 14,558 
BALANCE - JUNE 30, 202367,669,564 $7 $703,593 $(15,183)$(95,258)$593,159 $167,845 $761,004 
The accompanying notes are an integral part of these financial statements.
4
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the six months ended June 30, 2024 and June 30, 2023.
5
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Radnet, Inc.'s EquityNoncontrolling InterestsTotal Equity
SharesAmount
BALANCE - DECEMBER 31, 202367,956,318 $7 $722,750 $(12,484)$(79,578)$630,695 $182,664 $813,359 
Issuance of common stock upon exercise of options60,605 — 367 — — 367 — 367 
Issuance of common stock under the equity compensation plan657,887 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan9,377 — — — — — — — 
Stock-based compensation expense— — 16,679 — — 16,679 — 16,679 
Issuance of common stock5,232,500 — 218,385 — — 218,385 — 218,385 
Issuance of common stock in connection with acquisitions95,019 — 4,607 — — 4,607 — 4,607 
Forfeiture of restricted stock and share cancellation(43,664)— (34)— — (34)— (34)
Distributions paid to noncontrolling interests— — — — — — (2,423)(2,423)
Contributions from noncontrolling interests— — 11,601 — — 11,601 — 11,601 
Sale of economic interests in majority owned subsidiary, net of taxes— — — — — — 13,517 13,517 
Change in cumulative foreign currency translation adjustment— — — (2,829)— (2,829)— (2,829)
Change in fair value of cash flow hedge from prior periods reclassified to earnings— — — 7,256 — 7,256 — 7,256 
Net (loss) income— — — — (5,761)(5,761)18,116 12,355 
BALANCE-JUNE 30, 202473,968,042 $7 $974,355 $(8,057)$(85,339)$880,966 $211,874 $1,092,840 
BALANCE - DECEMBER 31, 202257,723,125 $6 $436,288 $(20,677)$(82,622)$332,995 $158,457 $491,452 
Issuance of common stock upon exercise of options5,000 — 51 — — 51 — 51 
Issuance of common stock under the equity compensation plan1,065,877 — — — — — — — 
Issuance of common stock under the DeepHealth equity compensation plan20,085 — — — — — — — 
Stock-based compensation expense— — 17,055 — — 17,055 — 17,055 
Issuance of common stock8,711,250 1 246,201 — — 246,202 — 246,202 
Issuance of common stock for sale of unregistered securities144,227 — 4,000 — — 4,000 — 4,000 
Distributions paid to noncontrolling interests— — — — — — (3,523)(3,523)
Change in cumulative foreign currency translation adjustment— — — 3,650 — 3,650 — 3,650 
Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes— — — 1,844 — 1,844 — 1,844 
Other— — (2)— — (2)— (2)
Net (loss) income— — — — (12,636)(12,636)12,911 275 
BALANCE-JUNE 30, 202367,669,564 $7 $703,593 $(15,183)$(95,258)$593,159 $167,845 $761,004 
    The accompanying notes are an integral part of these financial statements.

6
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
Six Months Ended June 30,
20242023
CASH FLOWS FROM OPERATING ACTIVITIES  
Net Income$12,355 $275 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization66,843 63,495 
Noncash operating lease expense30,006 31,601 
Equity in earnings of joint ventures, net of dividends(6,713)6,096 
Amortization of deferred financing costs and loan discount1,541 1,494 
Loss on sale and disposal of equipment587 656 
Loss on extinguishment of debt2,080 — 
Amortization of cash flow hedge, net of taxes7,256 1,844 
Non-cash change in fair value of interest rate hedge674 (66)
Stock-based compensation16,645 17,055 
Change in fair value of contingent consideration1,974 3,098 
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable(31,581)(8,124)
Other current assets5,242 4,703 
Other assets(5,553)(6,590)
Deferred taxes1,791 (2,249)
Operating leases(27,707)(28,582)
Deferred revenue(185)1,033 
Accounts payable, accrued expenses and other57,835 14,952 
Net cash provided by operating activities133,090 100,691 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities and other acquisitions(32,771)(10,315)
Purchase of property and equipment and other(104,095)(95,380)
Proceeds from sale of equipment9 73 
Equity contributions in existing and purchase of interest in joint ventures(1,421)(288)
Net cash used in investing activities(138,278)(105,910)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable(2,624)(1,052)
Payments on Term Loan Debt(682,438)(7,376)
Proceeds from debt refinancing, net of issuing costs863,869 — 
Contribution from noncontrolling partners4,169 — 
Payments on contingent consideration(3,614)— 
Distributions paid to noncontrolling interests(2,423)(3,523)
Proceeds from sale of economic interests in majority owned subsidiary, net of taxes8,713 — 
Proceeds from issuance of common stock218,385 246,202 
Proceeds from issuance of common stock upon exercise of options367 51 
Net cash provided by financing activities404,404 234,302 
EFFECT OF EXCHANGE RATE CHANGES ON CASH(107)(266)
NET INCREASE IN CASH AND CASH EQUIVALENTS399,109 228,817 
CASH AND CASH EQUIVALENTS, beginning of period342,570 127,834 
CASH AND CASH EQUIVALENTS, end of period$741,679 $356,651 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest$34,203 $39,301 
Cash paid during the period for income taxes$705 $201 
The accompanying notes are an integral part of these financial statements.
7
RADNET, INC. AND SUBSIDIARIES
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 $45.4 million and $61.3 million during the six months ended June 30, 2024 and 2023, respectively, which were not paid for as of June 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.
On March 29, 2024, we received $0.6 million in fixed assets, imaging equipment, and $6.5 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.

8
RADNET, INC. AND SUBSIDIARIES
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 June 30, 2024, we operated directly or indirectly through joint ventures with hospitals, 398 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, New York and Texas. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. In 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 ("the Group"). RadNet provides non-medical, technical and administrative services to the 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 Group has insignificant operating assets and liabilities, and de minimis equity. Substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group. The creditors of the 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 Group. However, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues.

The Group on a combined basis recognized $54.9 million and $51.4 million of revenue, net of management services fees to RadNet, for the three months ended June 30, 2024 and 2023, respectively and $54.9 million and $51.4 million of operating expenses for the three months ended June 30, 2024 and 2023, respectively. RadNet recognized $231.1 million and $216.2 million of total billed net service fee revenue for the three months ended June 30, 2024, and 2023, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue.

The Group on a combined basis recognized $107.2 million and $100.2 million of revenue, net of management services fees to RadNet, for the six months ended June 30, 2024 and 2023, respectively and $107.2 million and $100.2 million of operating expenses for the six months ended June 30, 2024 and 2023, respectively. RadNet recognized $465.9 million and
9
Table of Contentssix months ended June 30, 2024
$423.6 million of total billed net service fee revenue for the six months ended June 30, 2024, and 2023, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue.

In our condensed consolidated balance sheets at June 30, 2024 and December 31, 2023, we have included approximately $113.4 million and $94.1 million, respectively, of accounts receivable and approximately $22.5 million and $16.7 million of accounts payable and accrued liabilities related to the Group, respectively.The cash flows of the 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 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 June 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 Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by the 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.
10
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 six months ended June 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
June 30,		Six Months Ended
June 30,
2024202320242023
Commercial insurance$256,517 $220,618 $497,145 $433,673 
Medicare101,719 87,787 195,186 172,757 
Medicaid11,001 9,798 21,906 19,763 
Workers' compensation/personal injury10,997 12,580 22,837 25,017 
Other patient revenue12,432 10,196 23,897 19,751 
Management fee revenue6,106 4,033 12,014 8,281 
Heart and lung3,936 2,123 7,857 3,936 
Other4,209 5,180 8,604 10,480 
Revenue under capitation arrangements36,969 39,797 71,487 77,941 
Imaging Center Segment Revenue443,886 392,112 860,933 860933000771,599 
Digital Health Segment Revenue
15,828 11,603 30,488 22,680 
Total service revenue$459,714 $403,715 $891,421 $794,279 

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 $4.9 million and $14.3 million at June 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 $2.5 million and $1.6 million, as of June 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 COMBINATION - 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
11
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 June 30, 2024 totaled $709.0 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 June 30, 2024.
Activity in goodwill for the six months ended June 30, 2024 is provided below (in thousands):
Imaging Center
Digital Health
Total
Balance as of December 31, 2023606,557 $72,906 $679,463 
Goodwill from acquisitions31,549 — 31,549 
Valuation adjustment(358)— (358)
Currency translation(184)(1,490)(1,674)
Segment reorganization(12,300)12,300 — 
Balance as of June 30, 2024$625,264 $83,716 $708,980 
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, along with annual amortization expense that will be recorded over the next five years at June 30, 2024 and December 31, 2023 are as follows (in thousands):
As of June 30, 2024:

2024*2025202620272028ThereafterTotalWeighted average amortization period remaining in years
Management service contracts$1,144 $2,287 $2,287 $2,287 $2,287 $6,671 $16,963 7.4
Covenant not to compete and other contracts517 865 578 283 193 48 2,484 3.2
Customer lists612 1,093 971 795 758 10,481 14,710 17.5
Patent and trademarks 150 301 301 301 301 180 1,534 5.5
Developed technology3,738 7,476 7,436 6,902 6,902 6,620 39,074 6.0
Trade names amortized39 77 77 77 63 27 360 4.8
Trade names indefinite life — — — — — 7,100 7,100 — 
IPR&D— — — — — 1,824 1,824 — 
Total annual amortization$6,200 $12,099 $11,650 $10,645 $10,504 $32,951 $84,049 
*Excluding the six months ended June 30, 2024



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As of December 31, 2023:
20242025202620272028ThereafterTotalWeighted 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 contracts946 714 427 132 45 6 2,270 3.4
Customer lists1,234 1,104 981 797 764 10,564 15,444 17.7
Patent and trademarks316 316 316 315 300 164 1,727 5.8
Developed technology7,785 7,785 7,745 7,210 7,046 6,117 43,688 5.7
Trade names amortized77 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 $6.2 million for the three and six months ended June 30, 2024, respectively. Total amortization expense was $3.0 million and $6.0 million for the three and six months ended June 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. 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 $2.5 million, or an effective tax rate of 26.1%, for the three months ended June 30, 2024 and a benefit of $0.6 million, or an effective tax rate of (4.4)% for the three months ended June 30, 2023. We recorded income tax expense of $0.6 million, or an effective tax rate of 4.6%, for the six months ended June 30, 2024 and $0.5 million, or an effective tax rate of 65.5% for the six months ended June 30, 2023. The income tax rates for the three and six months ended June 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
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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 June 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: first on April 20, 2015, second on March 9, 2017, third on April 15, 2021 and fourth on April 27, 2023 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 7, 2023. We have reserved 20,100,000 shares of common stock for issuance under the Restated Plan which can be issued in the form of incentive and/or nonstatutory stock options, restricted and/or unrestricted stock, stock units, and stock appreciation rights. Terms and conditions of awards can be direct grants or based on achieving a performance metric. We evaluate performance-based awards to determine if it is probable that the vesting conditions will be met. We also consider probability of achievement of performance conditions when determining expense recognition. For the awards where vesting is probable, equity-based compensation is recognized over the related vesting period. Stock options generally vest over 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 six months ended June 30, 2024 and June 30, 2023 are included in the consolidated statements of comprehensive income (loss).
COMMITMENTS AND CONTINGENCIES - We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Based on current information, we do not believe that reasonably possible or probable losses associated with pending legal proceedings would either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
DERIVATIVE INSTRUMENTS - 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 will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They matured in October 2023 for the smaller notional and will mature in October 2025 for the larger notional. Under these arrangements, 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% do not match the cash flows for our Term Loans (the “Barclays Term Loans”) under our Second Amended and Restated First Lien Credit and Guaranty Agreement with Barclays (the “Barclays Credit Agreement”), and so we have determined that they are not currently effective as cash flow
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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 through October 2025. The effect for the release of the taxes from other comprehensive income is based on 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 June 30, 2024
AccountMarch 31, 2024 BalanceAmount of comprehensive loss recognized on derivative net of taxesAmount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes*June 30, 2024 BalanceLocation
Accumulated Other Comprehensive Loss, net of taxes$(10,886)$—$6,517$(4,369)Equity
*Net of taxes of $2.2 million for the three months ended June 30, 2024.
For the six months ended June 30, 2024
AccountDecember 31, 2023 BalanceAmount of comprehensive loss recognized on derivative net of taxesAmount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes*June 30, 2024 BalanceLocation
Accumulated Other Comprehensive Loss, net of taxes$(11,625)$—$7,256$(4,369)Equity
*Net of taxes of $2.4 million for the six months ended June 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 June 30, 2024
Ineffective interest rate swapAmount of loss recognized in income on derivative (current period ineffective portion)Location of loss recognized in Income on derivative (current period ineffective portion)Amount of loss reclassified from accumulated OCI into income (prior period effective portion)Location of loss reclassified from accumulated OCI into income (prior period effective portion)
Interest rate contracts$(1,890)Other income (expense)$6,517 Interest Expense
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For the six months ended June 30, 2024
Ineffective interest rate swapAmount of gain recognized in income on derivative (current period ineffective portion)Location of gain recognized in Income on derivative (current period ineffective portion)Amount of loss reclassified from accumulated OCI into income (prior period effective portion)Location of loss reclassified from accumulated OCI into income (prior period effective portion)
Interest rate contracts$(674)Other income (expense)$7,256 Interest Expense

See Fair Value Measurements section below for the fair value of the 2019 Swaps at June 30, 2024.
CONTINGENT CONSIDERATION -
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 $