RadNet, Inc. (RDNT)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of RadNet, Inc. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes included in this annual report on Form 10-K.

Overview

We are a national provider of diagnostic imaging services in the United States. As of December 31, 2024, we operated directly or indirectly through joint ventures with hospitals, 398 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, New York and Texas. Internationally, our subsidiary, The HLH Imaging Group Limited fka Heart & 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. 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 consolidated financial statements included in this report.

Our imaging 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.

In addition to our imaging business, we established a Digital Health business segment in 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 is 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.

Further, 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. These AI solutions will initially be focused in the fields of screening for breast, prostate, lung and colon cancers. Our DeepHealth, Inc. subsidiary 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. The Aidence Holding B.V. subsidiary has received the CE marking for these solutions 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 and Europe.

The following table shows our imaging centers in operation at year end and revenues for the years ended December 31, 2024, 2023 and 2022:

Our revenue is derived from a diverse mix of payors, including private payors and commercial insurance companies, managed care capitated payors, and government payors such as Medicare and Medicaid. We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class. Our service fee revenue, net of contractual allowances and discounts, implicit price concessions, and revenue under capitation arrangements for the years ended December 31, 2024, 2023 and 2022 are summarized in the following table (in thousands):

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Our revenue is not always consistent across each quarter. We generally experience the lowest volumes of procedures and the lowest level of revenue during the first quarter of each year. This is primarily the result of two factors. First, our volumes and revenue are typically impacted by winter weather conditions in our northeastern operations. It is common for snowstorms and other inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures. Second, in recent years, we have observed greater participation in high deductible health plans by patients. As these high deductibles reset in January for most of these patients, we have observed that patients utilize medical services less during the first quarter, when securing medical care will result in significant out-of-pocket expenditures.

Acquisitions, Equity Investments and Joint Venture Activity

The following discussion summarizes certain details concerning our acquisition or disposition of centers, our equity investments and our joint venture transactions. See Note 4, Business Combinations and Related Activity and Note 2, Summary of Significant Accounting Policies, in the notes accompanying our consolidated financial statements included in this report for further information.

Acquisitions

Imaging Center Segment

Radiology Imaging Center Asset Acquisitions:

During the years ended 2024 and 2023, 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 many of our geographic markets. These acquisitions are reported as part of our Imaging Center segment. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):

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2024:

*Fair Value Determination is Final

2023:

*Fair Value Determination is Final

Digital Health Segment

Kheiron Medical Technologies LTD

On October 14, 2024, we acquired a all of the equity interest in Kheiron Medical Technologies LTD (“Kheiron”), which uses deep learning AI to help radiologists detect breast cancer.

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Kheiron’s operations are included in our Digital Health segment for reporting purposes. The transaction was accounted for as the acquisition of a business with a total purchase consideration of approximately $2.3 million, including: i) cash of $0.4 million, ii) cash holdback of $0.5 million to be issued 18 months after acquisition, (iii) acquisition costs incurred by the seller of $0.4 million and (iv) a settlement of a loan from RadNet of $1.0 million. We recorded $1.2 million in current assets, $2.7 million of IPR&D in intangible assets, and $1.5 million in current liabilities in connection with this transaction.

In performing the purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Kheiron business. The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2024, fair value determination is preliminary and subject to change.

Subsidiary activity

Formation of majority owned subsidiaries

Tri Valley Imaging Group, LLC. On February 23, 2024, we formed Tri Valley Imaging Group, LLC ("TVIG"), a partnership with Providence Health System - Southern California ("PHS"). The operation offers multi-modality services out of seven locations in Southern California. On March 29, 2024, we contributed the operations of four centers to the enterprise and PHS contributed a business comprising of 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 retained a $7.8 million or 48% noncontrolling economic interest in TVIG.

Ventura County Imaging Group. On March 31, 2024, Community Memorial Health System purchased an economic interest of Ventura County Imaging Group ("VGIC") for a consideration of $5.1 million. As a result of the transaction, we retained 47.5% controlling economic interest in VGIC.

Los Angeles Imaging Group, LLC. On September 1, 2023, we formed our wholly-owned subsidiary, Los Angeles Imaging Group, LLC ("LAIG"). The operation offers multi-modality imaging services out of three locations in Los Angeles, California. We contributed the operations of 3 centers to the subsidiary. Cedars-Sinai Medical Center purchased from us a 35% noncontrolling economic interest in LAIG for a cash payment of $5.9 million. As a result of the transaction, we retain a 65% controlling economic interest in LAIG.

Joint venture investment contribution

Santa Monica Imaging Group, LLC

On April 1, 2017, we formed in conjunction with Cedars-Sinai Medical Center the Santa Monica Imaging Group, LLC ("SMIG"), consisting of two multi-modality imaging centers located in Santa Monica, California with RadNet holding a 40% economic interest and Cedars-Sinai Medical Center holding a 60% economic interest. We account for our share of the venture under the equity method. On January 1, 2019, Cedars-Sinai Medical Center purchased an additional 5% economic interest in SMIG from us and, as a result, our economic interest in SMIG was reduced to 35%.

On September 1, 2023, we contributed an additional multi-modality imaging center and a newly constructed imaging center located in Beverly Hills, California valued at $27.2 million and purchased an additional economic interest in SMIG for cash payment of $11.3 million. Simultaneously, Cedars-Sinai Medical Center contributed five additional multi-modality imaging centers located in Santa Monica, California. As a result of the transaction, our economic interest in SMIG increased to 49%. We recorded a gain of $16.8 million, within gain on contribution of imaging centers into joint venture in our consolidated statement of operations representing the difference between the fair value and carrying value of the business contributed.

Joint venture investment contributions to Arizona Diagnostic Radiology Group

During the years ended December 31, 2024 and 2023, we made additional equity contributions of $1.4 million and $2.4 million, respectively, to Arizona Diagnostic Radiology Group ("ADRG", our joint venture with Dignity Health).

On November 1, 2022 we contributed eight of our imaging centers to ADRG of $12.7 million and recorded a loss of $0.5 million which was calculated as the difference between the transaction price and carrying value of such imaging centers which included equipment and other assets and an allocation of goodwill to such imaging centers. We recorded $4.5 million of the transaction price as an offset to due to affiliates while the remaining $8.3 million was recorded as investment in joint venture on our balance sheet. We accounted for the transaction as an adjustment to our equity investment for the value of the

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assets contributed. To maintain our 49% economic interest in ADRG, we received a distribution from the partnership of $4.5 million to reduce our overall investment to $8.3 million.

Results of Operations

The following table sets forth, for the periods indicated, the percentage that certain line items within the consolidated statements of operations bear to net revenue for the years 2024, 2023 and 2022.

Imaging Center Segment

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

We grow our imaging center business through a combination of organic growth as well as acquisitions and joint ventures. In the discussion below, the "same center" metrics are based on imaging centers that were in operation throughout the period of January 1, 2023 through December 31, 2024. Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2023 through December 31, 2024.

Total Revenue

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Our 9.8% 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 3.2% which was comprised of a 1.7% increase in routine imaging and an 8.1% 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 year ended December 31, 2024 increased approximately $178.6 million, or 12.2%, from $1.47 billion for the year ended December 31, 2023 to $1.64 billion for the year ended December 31, 2024, primarily due to increase in procedures volumes. The following table sets forth our cost of operations and total operating expenses for the year ended December 31, 2024 and 2023 (in thousands):

*Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecommunications, utilities, marketing, travel and other expenses.

Salaries and professional reading fees, excluding stock-based compensation and severance

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Consistent with the higher procedure volumes noted above, our staffing levels were adjusted to support the influx of patients seeking radiology procedures. Additionally, we are continuing to face inflation in employee wage rates as we compete for talent in a tight labor market, further impacted by the October 2024 increase in California's minimum wage for healthcare workers.

Stock-based compensation

Stock-based compensation increased $2.3 million, or 9.3%, to approximately $26.9 million for the year ended December 31, 2024 compared to $24.6 million for the year ended December 31, 2023. The increase is primarily due to higher fair value of stock awards granted in the first quarter of 2024.

Building and equipment rental

Building and equipment rental expense on a same center basis was relatively unchanged from the prior period.

Medical supplies

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

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:

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nm=not meaningful

The increase in depreciation expense was due to higher depreciable asset base, mainly driven by our expanded locations.

For the year ended December 31, 2023, we recognized a non-recurring gain on the contribution of assets into our Santa Monica Imaging Group LLC joint venture.

Other income for the year ended December 31, 2024 included money market interest income of $31.4 million, partially offset by an impairment of investment in non-marketable securities of $1.2 million and debt restructuring and extinguishment expenses of $11.3 million. Interest income for the year ended December 31, 2024 increased approximately $20.6 million, or 190%, to $31.4 million from $10.9 million for the year ended December 31, 2023. The increase is primarily due to higher average cash balance in our money market account for the year ended December 31, 2024.

Lease abandonment charges

We closely monitor patient levels at our imaging centers and occasionally divest or shut down centers to maximize utilization rates.

During the end of 2024, we experienced lower utilization at seven imaging centers. As a result, we abandoned the leases related to these locations at the end of 2024 and diverted the patients to our other sites in the area. We recorded a charge of approximately $2.5 million in December 2024 related to lease facilities abandonment. The lease abandonment charges include the impairment of associated right-of-use assets of $1.8 million and write off of related leasehold improvements of approximately $0.7 million.

During the end of 2023, we experienced lower utilization at two imaging centers. As a result, we abandoned the leases related to these locations at the end of 2023 and diverted the patients to our other sites in the area. We recorded a charge of approximately $5.1 million in December 2023 related to lease facilities abandonment. The lease abandonment charges include the impairment of associated right-of-use assets of $2.7 million and write off of related leasehold improvements of approximately $2.5 million.

Interest expense

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*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 due to the refinancing of our Barclays credit facility in April 2024, partially offset by lower interest rates compared to the same period in the prior year.

During the year ended December 31, 2024, interest rates were above the arranged rates in our 2019 Swaps for most of the year and we received $13.1 million in cash payments from our 2019 swap counterparties, which were reported as a component of interest expense. Also, the 2019 Swaps for $100 million of notional value matured in October 2023, and were not in effect in 2024. See the Derivative Instruments section of Note 2, Summary of Significant Accounting Policies, in the notes accompanying the consolidated financial statements included in this report and Item 7A — "Quantitative and Qualitative Disclosure About Market Risk" below for more details on our derivative transactions.

Non-cash change in fair value of interest rate hedge

In 2020, we determined that the cash flows from the 2019 swaps did not match the cash flows of our Barclays term loan and were therefore ineffective as cash flow hedges. Since that time, in accordance with accounting guidelines, all changes in fair value are being recognized in other income and expense.

The fair value of the 2019 swaps as of December 31, 2024 was a net asset of $7.1 million compared to a net asset of $15.1 million December 31, 2023, resulting in a loss $8.0 million during the year ended December 31, 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.

Equity in earnings from unconsolidated joint ventures

for the year ended December 31, 2024 we recognized equity in earnings from unconsolidated joint ventures of $14.5 million versus $6.4 million for the year ended December 31, 2023, an increase of $8.0 million or 125.2%. The increase was mainly due to the additional contribution made to SMIG in September 2023. SMIG operated at a net income for the December 31, 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, reflecting continuing operational improvements and revenue growth.

Net income attributable to noncontrolling interests

As of December 31, 2024, our consolidated subsidiaries operated 348 imaging centers of which 100 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests. At December 31, 2023, our consolidated subsidiaries included 321 centers of which 85 were not wholly-owned. As noncontrolling interests only represent a portion of our imaging center business, and excludes our Digital Health segment which generated losses of $21.2 million in 2024, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.

for the year ended December 31, 2024, we recognized net income attributable to noncontrolling interests of $36.0 million versus $27.3 million for the year ended December 31, 2023, an increase of $8.8 million. The increase in net income attributable to noncontrolling interests was primarily due to the formation of new majority owned subsidiaries, Los Angeles Imaging Group, LLC, in September 2023 and Tri Valley Imaging Group, LLC in March 2024. 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 2023.

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

We grow our imaging center business through a combination of organic growth as well as acquisitions and joint ventures. In the discussion below, same center metrics are based on imaging centers that were in operation throughout the period of January 1, 2022 through December 31, 2023. Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2022 through December 31, 2023.

Total Revenue

Overall revenue change was driven by procedure volume growth of 5.7% compared to the same period in the prior year. On a same center basis, the increase in revenue was largely attributable to product mix as advanced radiology procedures of MRI, PET, and CT expanded at combined 7.2% to provide the major portion of the revenue growth.

Operating Expenses

Total operating expenses for the year ended December 31, 2023 increased approximately $128.1 million, or 9.6%, from $1.3 billion for the year ended December 31, 2022 to $1.5 billion for the year ended December 31, 2023. The following table sets forth our cost of operations and total operating expenses for the year ended December 31, 2023 and 2022 (in thousands):

*Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecommunications, utilities, marketing, travel and other expenses.

Salaries and professional reading fees, excluding stock-based compensation and severance

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Similar to the prior year, growth in procedure volumes precipitated increases in salary expenses to meet additional professional staffing needs and we increased salaries to retain our skilled work force in the current tight labor market.

Stock-based compensation

Stock-based compensation increased $3.6 million, or 17.1%, to approximately $24.6 million for the year ended December 31, 2023 compared to $21.0 million for the year ended December 31, 2022.

Building and equipment rental

The decrease in building and equipment rental was the result of our contribution of Phoenix, AZ imaging centers in connection with the formation of the Arizona Diagnostic Radiology Group joint venture in November 2022 and from the buyout of radiology equipment lease contracts during the year.

Medical supplies

The increased medical supplies expense was related to the 7.2% growth in advanced radiology volumes noted above, combined with price increases for contrast agents and higher utilization of isotopes employed in PET and CT procedures.

Other operating expenses

The rise in other operating expenses is attributable to additional professional fees associated with our acquisition activity, contractor services, equipment and maintenance, and software upgrades all in support of our expansion and increase in procedure volumes.

Additional segment operating and non-operating expenses:

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* The percent change in contribution of imaging centers into joint venture was not meaningful.

The increase in depreciation expense was the result of our higher depreciable asset base. For the year ended December 31, 2023, we recognized a gain on the contribution of assets into our Santa Monica Imaging Group LLC joint venture. The non-cash expense associated with the change in fair value of our interest rate swaps for the year ended December 31, 2023 related to the expiration of our notional $100 million in 2019 swaps and the shorter term on our remaining $400 million notional 2019 swaps. The gain associated with the non-cash change in fair value of interest rate swaps during the year ended December 31, 2022 was driven by the significant increase in interest rates experienced during the time period. Other income for the year ended December 31, 2023 included money market interest income of $10.9 million. Other expenses in 2022 included approximately $0.7 million of debt restructuring charges related to the refinancing of our credit facilities with Truist in 2022 and an eRad loss on investments of $2.9 million.

Lease abandonment charges

We closely monitor patient levels at our imaging centers and occasionally divest or shut down centers to maximize utilization rates. During the end of 2023, we experienced lower utilization at two imaging centers. As a result, we abandoned the leases related to these locations at the end of 2023 and diverted the patients to our other sites in the area. We recorded a charge of approximately $5.1 million in December 2023 related to lease facilities abandonment. The lease abandonment charges include the impairment of associated right-of-use assets of $2.7 million and write off of related leasehold improvements of approximately $2.5 million.

Interest expense

*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

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The rise in adjusted interest expense is attributable to higher overall loan balances in combination with increased variable interest rates paid on those balances in comparison to the same period in the prior year. During 2022 we refinanced our Truist term loan which added an additional $108.0 million in obligations to our balance sheet in the fourth quarter. Based on recent Federal Reserve interest rate decisions, we expect the effective interest rates on our senior credit facilities, and the related interest expense, to stabilize in the near term. See “Liquidity and Capital Resources” below for more details on our credit facilities.

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 interest 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. During the year ended December 31, 2023, interest rates were above the arranged rates for most of the year and we received payment of $14.5 million in cash payments from our 2019 swap counterparties, which was reported a component of interest expense. See the Derivative Instruments section of Note 2, Summary of Significant Accounting Policies, in the notes accompanying the consolidated financial statements included in this report and Item 7A — "Quantitative and Qualitative Disclosure About Market Risk" below for more details on our derivative transactions.

Non-cash change in fair value of interest rate hedge

In 2020, we determined that the cash flows from the 2019 swaps did not match the cash flows of our Barclays term loan and were therefore ineffective as cash flow hedges. Since that time, in accordance with accounting guidelines, all changes in fair value are being recognized in other income and expense.

The fair value of the 2019 swaps as of December 31, 2023 was a net asset of $15.1 million compared to a net asset of $23.3 million December 31, 2022, resulting in a loss of $8.2 million during the year ended December 31, 2023, which decreased the Company’s tax provision by $2.1 million. The significant change in fair value was caused by the expiration of the $100 million swap in October 2023 and the shorter remaining term on the $400 million swap, which offset the increase in market interest rates and the steepening of the yield curve. The one-month Term SOFR rate as of December 31, 2023 was approximately 5.47%, higher than the 4.33% one-month Term SOFR rate at December 31, 2022 and significantly above the 1.98% arranged rate for the $400 million portion of the 2019 swaps.

Equity in earnings from unconsolidated joint ventures

For the year ended December 31, 2023 we recognized equity in earnings from unconsolidated joint ventures of $6.4 million versus $10.4 million for the year ended December 31, 2022, a decrease of $4.0 million or 38.1%. The decrease in equity in earnings from unconsolidated joint ventures was due to the formation of Arizona Diagnostic Radiology Group in November 2022, which operated at a net loss in 2023.

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Net income attributable to noncontrolling interests

At December 31, 2023, our consolidated subsidiaries operated 321 imaging centers of which 85 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests. At December 31, 2022, our consolidated subsidiaries included 318 centers of which 81 were not wholly-owned. As noncontrolling interests only represent a portion of our imaging center business, and excludes our Digital Health which generated losses of $21.2 million in 2023, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.

For the year ended December 31, 2023, we recognized net income attributable to noncontrolling interests of $27.3 million versus $23.0 million for the year ended December 31, 2022, an increase of $4.3 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 as described in Note 4 to the consolidated financial statements. 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 also improved as a result of our acquisition of various interests in 2022, which were able to operate for full year in 2023. In October 2022, our consolidated joint venture New Jersey Imaging Network, LLC, acquired the assets of Montclair Radiological associates, P.A. In November 2022 we acquired a 75% controlling interest in the HLH Imaging Group Limited fka Heart & Lung Imaging Limited. Additionally in April 2022 we formed a new majority owned subsidiary, Frederick County Radiology, LLC. See Note 4, Business Combinations and Related Activity, in the notes accompanying our consolidated financial statements included in this report, for a more detailed discussion of these acquisitions.

Digital Health Segment

Our Digital segment develops and deploys clinical applications to enhance interpretation of medical images and improve patient outcomes with a current emphasis on breast, prostate, and lung cancer diagnostics. The breakdown of revenue and expenses of the segment for the year ended December 31, 2024, 2023 and 2022 are as follows:

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

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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. Aside from the effect of 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.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

The increase in revenues for the Digital Health segment was driven by the launch of new imaging products, including our Enhanced Breast Cancer Detection product which was initially released in 2022 and is being rolled out in certain of our imaging centers. The increase in operating expenses for the Digital Health segment was primarily related to salary expense as we increased headcount in connection with the commercialization of our initial AI products. 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 years ended December 31, 2024, 2023, and 2022, respectively (in thousands):

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The following table is a reconciliation of GAAP net income for our Digital Health Segment to Adjusted EBITDA for the years ended December 31, 2024, 2023 and 2022 respectively.

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Liquidity and Capital Resources

The cash we generate from our core operations enables us to fund ongoing operations, our research and development for new products and technologies including our investment in AI, and acquisition or expansion of imaging centers. We expect to continue to generate positive cash flows from operations for the foreseeable future. In March 2024, we closed on a public offering of our common stock raising net proceeds, after deducting underwriting discounts, commissions, and expenses, of $230.2 million. Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following December 31, 2024, as well as in the long-term.

The following table summarizes key balance sheet data as of December 31, 2024 and December 31, 2023 and income statement data for the year ended December 31, 2024, 2023 and 2022 (in thousands):

We operate in a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations. In addition to ongoing operations, we invest in the purchase of imaging facilities, the acquisition of equipment, and the acquisition of technology to fund our growth. If economic or global business conditions slowed, we expect that we will be able to adjust the pace of our investment activities.

We continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through draw-downs on existing or new debt facilities or financing funds. We expect to fund any future capital requirements primarily with cash flow from operations and borrowings, including borrowing from amounts available under our senior 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.

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Sources and Uses of Cash

The following table summarizes key components of our sources and uses of cash for the years ended December 31, 2024, 2023 and 2022, respectively, in thousands:

Cash provided by operating activities for the year ended December 31, 2024 included $289.5 million in net income reconciling adjustments offset by a $56.5 million change in assets and liabilities. The $12.2 million increase in cash provided by operating activities for the year ended December 31, 2024 compared to December 31, 2023 was primarily driven by an increase in income from operations.

Cash used in investing activities for the year ended December 31, 2024 increased from December 31, 2023 by $31.6 million. Purchases of imaging centers during the period was $43.7 million, a $31.6 million increase from the prior period. Capital expenditures for property and equipment during the period was $188.1 million, a $11.5 million increase from the prior period.

Cash provided by financing activities for the year ended December 31, 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 $218.4 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.

Senior 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.

Included in our consolidated balance sheet at December 31, 2024 are $992.0 million of total term loan debt (net of unamortized discounts of $13.7 million) displayed below in thousands:

We had no outstanding balance under our $282.0 million Barclays revolving credit facility as of December 31, 2024 and had reserved $7.6 million for certain letters of credit. The remaining $274.4 million of our Barclays revolving credit facility was available to draw upon as of December 31, 2024. We also had no balance under our $50.0 million Truist revolving credit facility as of December 31, 2024, and with no letters of credit reserved against the facility, the full amount was available to draw upon. For more information on our secured credit facilities see Note 8, Credit Facilities and Notes Payable, in the notes accompanying our consolidated financial statements in this report.

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Contractual Commitments

Our future obligations for notes payable, lines of credit, and equipment and building operating leases for the next five years and thereafter include (dollars in thousands):

(1)Includes interest component of operating lease obligations.

We have service agreements with various vendors under which they have agreed to be responsible for the maintenance and repair of a majority of our equipment for a fee that is based on the type and age of the equipment. Under these agreements, we are committed to minimum payments of approximately $35.4 million in 2025.

Critical Accounting Policies

The Securities and Exchange Commission defines critical accounting estimates as those that are both most important to the portrayal of a company’s financial condition and results of operations and 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 consolidated financial statements in this annual report on Form 10-K we discuss our significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates. The critical areas involving management’s judgments and estimates are described below.

USE OF ESTIMATES - The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our consolidated statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could materially differ from these estimates.

REVENUES – Our revenues generally relate to net patient fees that we receive 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 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 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 (as defined in Note 1 Nature of Business included in the notes to our consolidated financial statements), 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 other centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities.

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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.

ACCOUNTS RECEIVABLE – Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. We continuously monitor collections from our payors and maintain an allowance for credit losses based upon specific payor collection issues that we have identified and our historical experience.

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 AND INDEFINITE LIVED INTANGIBLES – Goodwill totaled $710.7 million and $679.5 million as of December 31, 2024 and December 31, 2023, respectively. Indefinite lived intangible assets were $13.0 million as of December 31, 2024 and $9.0 million as of December 31, 2023 and are associated with the value of certain trade name intangibles and 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 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.

We tested goodwill, trade name and IPR&D for impairment on October 1, 2024. In September 2023, we determined that an IPR&D indefinite-lived intangible asset related to Aidence's Ai Veye Lung Nodule and Veye Clinic would not receive FDA authorizations for sale in the US without a new submission and additional expenditures for rework in the original projected timeline. The additional expenditures, delay and reduction of US sales affected the estimated fair value of the related IPR&D intangible asset and resulted in impairment charges of $3.9 million within Cost of Operations in our Consolidated Statements of Operations. Our annual impairment test as of October 1, 2024 noted no other impairment, and we have not identified any indicators of impairment through December 31, 2024.

Recent Accounting Standards

See Note 3, Recent Accounting Standards, in the notes accompanying the consolidated financial statements included in this report for further information.

Additional Information

Additional information concerning RadNet, Inc., including our consolidated subsidiaries, for each of the years ended December 31, 2024, 2023 and 2022 is included in the consolidated financial statements and notes thereto in this report.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of RadNet, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes included in this annual report on Form 10-K.

Overview

We are a national provider of diagnostic imaging services in the United States. At December 31, 2023, we operated directly or indirectly through joint ventures with hospitals, 366 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Internationally, our subsidiary Heart & 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. Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Artificial Intelligence. For further financial information about these segments, see Note 5, Segment Reporting, in the notes accompanying our consolidated financial statements included in this report.

Our imaging centers 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. Integral to the imaging center business is our software arm headed by eRad, Inc., which sells computerized systems that distribute, display, store and retrieve digital images.

We have also established an Artificial Intelligence (AI) business, that develops and deploys AI suites to enhance radiologist interpretations of breast, lung and prostate images. The division is led by our DeepHealth, Inc. subsidiary and includes our acquisitions of Aidence Holding B.V. and Quantib B.V., both based in the Netherlands.

The following table shows our imaging centers in operation at year end and revenues for the years ended December 31, 2023, 2022 and 2021:

Our revenue is derived from a diverse mix of payors, including private payors and commercial insurance companies, managed care capitated payors, and government payors such as Medicare and Medicaid. We believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class. Our service fee revenue, net of contractual allowances and discounts, implicit price concessions, and revenue under capitation arrangements for the years ended December 31, 2023, 2022 and 2021 are summarized in the following table (in thousands):

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We typically experience some seasonality to our business. During the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year. This is primarily the result of two factors. First, our volumes and revenue are typically impacted by winter weather conditions in our northeastern operations. It is common for snowstorms and other inclement weather to result in patient appointment cancellations and, in some cases, imaging center closures. Second, in recent years, we have observed greater participation in high deductible health plans by patients. As these high deductibles reset in January for most of these patients, we have observed that patients utilize medical services less during the first quarter, when securing medical care will result in significant out-of-pocket expenditures.

Acquisitions, Equity Investments and Joint Venture Activity

The following discussion summarizes certain details concerning our acquisition or disposition of centers, our equity investments and our joint venture transactions. See Note 4, Business Combinations and Related Activity and Note 2, Summary of Significant Accounting Policies, in the notes accompanying our consolidated financial statements included in this report for further information.

Acquisitions

Imaging Center Segment

Radiology Imaging Center Asset Acquisitions:

During the years ended 2023, 2022 and 2021, 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 many of our markets. These acquisitions are reported as part of our Imaging Center segment. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands):

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2023:

*Fair Value Determination is Final

2022:

*Fair Value Determination is Final

^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, one of which was purchased separately by a joint venture with Calvert Medical Imaging Centers, LLC.

#Montclair Radiological Associates includes a liability for $1.2 million in contingent consideration.

+See detailed description of the Heart & Lung Imaging Limited acquisition below.

Heart & Lung Imaging Limited. On November 1, 2022, we acquired a 75% controlling interest in Heart & Lung Imaging Limited (“HLI”). HLI is a teleradiology concern which operates in the United Kingdom with the National Healthcare Service to screen high risk populations for cardiac and lung conditions. HLI’s operations are included in our imaging center segment for reporting purposes. The transaction was accounted for as the acquisition of a business with a total purchase consideration of approximately $31.9 million, including: (a) shares of our common stock with a fair value of $6.8 million

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(359,002 shares issued at $19.06 per share), (b) cash of $6.3 million, (c) contingent consideration of $10.8 million ($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) and (d) noncontrolling interest of $8.0 million. We recorded $0.6 million in current assets, $15.8 million in intangible assets, $0.6 million current liabilities and $16.2 million in goodwill in connection with this transaction.

As part of the purchase price allocation, we determined the identifiable intangible assets are customer relationships and trade names. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a rate of 19.0%. The cash flows were based on estimated earnings from existing customers, and the discount rate applied was benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.

Artificial Intelligence Segment

Aidence Holding B.V. On January 20, 2022, we acquired all the equity interests of Aidence Holding B.V. ("Aidence") an artificial intelligence enterprise focused on developing artificial intelligence powered applications for lung nodule management and early lung cancer diagnosis and reporting. The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $45.2 million including (a) 1,117,872 shares of our common stock issued at $26.80 per share with a fair value of $30.0 million (b) cash of $1.8 million, (c) contingent consideration of $11.9 million ($7.4 million in milestones to be settled in shares or cash at our election and a share holdback of $4.5 million) and (d) a settlement of a loan from RadNet of $1.5 million. In addition we paid certain seller closing costs through the issuance of 23,362 shares at a fair value of $0.6 million. As a result of this transaction, we recorded $1.0 million in current assets, $0.2 million in property and equipment, $27.7 million in intangible assets (including developed technology of $21.1 million and IPR&D of $5.5 million), $3.2 million in current liabilities, a deferred tax liability of $3.5 million, and $22.9 million in goodwill.

In performing the purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Aidence business. As part of the purchase price allocation, we determined the identifiable intangible assets are developed technology, IPR&D, trade names, and customer relationships. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using rates ranging from 15% to 17%. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.

The IPR&D asset relates primarily to an in-process project for a customer relationship management offering to manage patients that are found with Incidental Pulmonary Nodules and has not reached technological feasibility as of the acquisition date. The asset recorded relates to one project, and the Company originally expected to complete the project following twelve months of acquisition. Subsequently, in September 2023, we determined that the IPR&D related to Aidence's Ai Veye Lung Nodule and Veye Clinic would not achieve FDA approval for sale in the US without a new submission and additional expenditures for rework. The additional expenditures, delay and reduction of US sales affected the estimated fair value of the associated IPR&D intangible asset and resulted in an impairment charge of $3.9 million within Cost of operations in our Consolidated Statements of Operations in the consolidated financial statements included with this report.

The useful lives for the developed technology asset was set at 7 years, for customer relationships 5.4 years, and trade names was 7 years. The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the acquisition. These benefits include expanding our AI capabilities to drive revenue growth.

Quantib B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V. ("Quantib") an artificial intelligence enterprise focused on developing artificial intelligence powered applications for neurological and prostate imaging scans and reporting. The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $42.3 million including (a) 965,058 shares of our common stock issued at $26.80 per share with a fair value of $25.9 million (b) cash of $11.8 million and (c) contingent consideration consisting of 113,303 shares with a fair value at the date of close of $3.0 million and cash of $1.6 million both to be released 18 months after acquisition subject to adjustment for any indemnification claims. As a result of this transaction, we recorded $2.4 million in current assets, $0.1 million in property and equipment, $21.3 million in intangible assets (including developed technology of $19.6 million and IPR&D of $0.7 million), $0.7 million in current liabilities, $6.7 million in long-term debt and deferred tax liabilities, and $26.4 million in goodwill.

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In performing the purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Quantib business. As part of the purchase price allocation, we determined the identifiable intangible assets are developed technology, IPR&D, trade names, and customer relationships. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using rates ranging from 50% to 55%. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.

The useful lives for the developed technology asset was set at seven years, customer relationships three years, and trade names seven years. The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the acquisition. These benefits include expanding our AI capabilities to drive revenue growth.

Subsidiary activity

Formation of majority owned subsidiaries

Los Angeles Imaging Group, LLC. On September 1, 2023, we formed a wholly-owned subsidiary, Los Angeles Imaging Group, LLC ("LAIG"). The operation offers multi-modality imaging services out of three locations in Los Angeles, California. We contributed the operations of 3 centers to the subsidiary. Cedars-Sinai Medical Center purchased from us a 35% noncontrolling economic interest in LAIG for a cash payment of $5.9 million. As a result of the transaction, we retain a 65% controlling economic interest in LAIG.

Frederick County Radiology, LLC. On April 1, 2022 we formed Frederick County Radiology, LLC ("FCR"), a partnership with Frederick Health Hospital, Inc. The operation offers multi-modality services out of six locations in Frederick, Maryland. We contributed the operations of four centers to the enterprise and Frederick Health Hospital, Inc. contributed $5.4 million in fixed assets, $3.0 million in equipment, and $11.0 million in goodwill. As a result of the transaction, we recognized a gain of $6.6 million to additional paid in capital and retained a 65% controlling economic interest in FCR and Frederick Health Hospital, Inc. retains an $11.1 million or 35% noncontrolling economic interest in FCR.

Advanced Radiology at Capital Region, LLC. On June 15, 2022 we formed Advanced Radiology at Capital Region, LLC, a partnership with Dimension Health Corporation, an affiliate of the University of Maryland. The operation will provide multi-modality services out of two yet to be determined locations in the Largo, Maryland area. The venture was initially capitalized with nominal amounts of $5.1 thousand for a 51% economic interest from us and $4.9 thousand from Dimension Health Corporation for a 49% economic interest.

Simi Valley Imaging Group, LLC. On January 1, 2021 we formed the Simi Valley Imaging Group, LLC, a partnership with Simi Valley Hospital and Health Services. The operation will offer multi-modality imaging services out of two locations in Ventura County, California. Total investment in the venture is $0.4 million. We contributed $0.3 million in assets for a 60.0% economic interest and Simi Valley Hospital and Health Services contributed assets totaling $0.1 million for a 40.0% economic interest.

Joint venture investment contribution

Santa Monica Imaging Group, LLC

On April 1, 2017, we formed in conjunction with Cedars-Sinai Medical Center the Santa Monica Imaging Group, LLC ("SMIG"), consisting of two multi-modality imaging centers located in Santa Monica, California with RadNet holding a 40% economic interest and Cedars-Sinai Medical Center holding a 60% economic interest. We account for our share of the venture under the equity method. On January 1, 2019, Cedars-Sinai Medical Center purchased an additional 5% economic interest in SMIG from us and, as a result, our economic interest in SMIG was reduced to 35%.

On September 1, 2023, we contributed an additional multi-modality imaging center and a newly constructed imaging center located in Beverly Hills, California valued at $27.2 million and purchased an additional economic interest in SMIG for cash payment of $11.3 million. Simultaneously, Cedars-Sinai Medical Center contributed five additional multi-modality imaging centers located in Santa Monica, California. As a result of the transaction, our economic interest in SMIG has been increased to 49%. We recorded a gain of $16.8 million, within (gain) on contribution of imaging centers into joint venture in our consolidated statement of operations representing the difference between the fair value and carrying value of the business contributed.

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Sale of ownership interest in a majority owned subsidiary

Effective September 1, 2021 we completed the sale of a 24.9% ownership interest in our majority owned subsidiary West Valley Imaging Group, LLC for $13.1 million to Tarzana Medical Center, LLC. After the sale, our ownership interest in the subsidiary has reduced from 75.0% to 50.1% and we retain a controlling financial interest in the subsidiary. We recognized in additional paid in capital on our consolidated balance sheets, $4.2 million excess in consideration over the carrying value of the sold economic interest. Following the sale of our ownership interest we acquired from Tarzana Medical Center, LLC, certain tangible and intangible business assets for purchase consideration of approximately $5.2 million.

Joint venture investment contributions to Arizona Diagnostic Radiology Group

During the years ended December 31, 2023 and 2022, we made additional equity contributions of $2.4 million and $1.4 million, respectively, to Arizona Diagnostic Radiology Group ("ADRG", our joint venture with Dignity Health).

On November 1, 2022 we contributed eight of our imaging centers to ADRG of $12.7 million and recorded a loss of $0.5 million which was calculated as the difference between the transaction price and carrying value of such imaging centers which included equipment and other assets and an allocation of goodwill to such imaging centers. We recorded $4.5 million of the transaction price as an offset to due to affiliates while the remaining $8.3 million was recorded as investment in joint venture on our balance sheet. We accounted for the transaction as an adjustment to our equity investment for the value of the assets contributed. To maintain our 49% economic interest in ADRG, we received a distribution from the partnership of $4.5 million to reduce our overall investment to $8.3 million.

Results of Operations

The following table sets forth, for the periods indicated, the percentage that certain items in the statements of operations bears to net revenue for the years 2023, 2022 and 2021.

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Imaging Center Segment

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

We grow our imaging center business through a combination of organic growth as well as acquisitions and joint ventures. In the discussion below same center metrics are based on imaging centers that were in operation throughout the period of January 1, 2022 through December 31, 2023. Excluded amounts relate to imaging centers that were acquired or divested between January 1, 2022 through December 31, 2023.

Total Revenue

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Overall revenue change was driven by procedure volume growth of 5.7% compared to the same period in the prior year. On a same center basis, the increase in revenue was largely attributable to product mix as advanced radiology procedures of MRI, PET, and CT expanded at combined 7.2% to provide the major portion of the revenue growth.

Operating Expenses

Total operating expenses for the twelve months ended December 31, 2023 increased approximately $130.8 million, or 9.7%, from $1.35 billion for the twelve months ended December 31, 2022 to $1.48 billion for the twelve months ended December 31, 2023. The following table sets forth our cost of operations and total operating expenses for the twelve months ended December 31, 2023 and 2022 (in thousands):

*Includes billing fees, office supplies, repairs and maintenance, insurance, business tax and license, outside services, telecommunications, utilities, marketing, travel and other expenses.

Salaries and professional reading fees, excluding stock-based compensation and severance

Similar to the prior year, growth in procedure volumes precipitated increases in salary expenses to meet additional professional staffing needs and we increased salaries as we seek to retain our skilled work force in the current tight labor market.

Stock-based compensation

Stock-based compensation decreased $3.6 million, or 17.1%, to approximately $24.6 million for the twelve months ended December 31, 2023 compared to $21.0 million for the twelve months ended December 31, 2022.

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Building and equipment rental

The decrease in building and equipment rental was the result of our contribution of Phoenix, AZ imaging centers in connection with the formation of the Arizona Diagnostic Radiology Group joint venture in November 2022 and from the buyout of radiology equipment lease contracts during the year.

Medical supplies

Increased medical supplies expense was related to the 7.2% growth in advanced radiology volumes noted above, combined with price increases for contrast agents and higher utilization of isotopes employed in PET and CT procedures.

Other operating expenses

The rise in other operating expenses is attributable to additional professional fees associated with our acquisition activity, contractor services, equipment and maintenance and software upgrades all in support of our expansion and increase in procedure volumes.

Additional segment operating and non operating expenses:

nm=not meaningful

The increase in depreciation expense was the result of our higher depreciable asset base. For the year ended December 31, 2023, we recognized a gain on the contribution of assets into our Santa Monica Imaging Group LLC joint venture. The non-cash expense associated with the change in fair value of our interest rate swaps for the year ended December

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31, 2023 related to the expiration of our notional $100 million in 2019 swaps and the shorter term on our remaining $400 million notional 2019 swaps. The gain associated with the non-cash change in fair value of interest rate swaps during the year ended December 31, 2022 was driven by the significant increase in interest rates experienced during the period. Other income for the year ended December 31, 2023 included money market interest income of $10.9 million, offset by an eRad loss on investments of $3.1 million. Other expenses in 2022 included approximately $0.7 million of debt restructuring charges related to the refinancing of our credit facilities with Truist in 2022 and an eRad loss on investments of $2.9 million. See Note 8, Credit Facilities and Notes Payable, in the notes accompanying our consolidated financial statements included in this report.

Lease abandonment charges

We closely monitor patient levels at our imaging centers and occasionally divest or shut down centers to maximize utilization rates. During the end of 2023, we experienced lower utilization at two imaging centers. As a result, we abandoned the leases related to these locations at the end of 2023 and diverted the patients to our other sites in the area. We recorded a charge of approximately $5.1 million in December 2023 related to lease facilities abandonment. The lease abandonment charges include the impairment of associated right-of-use assets of $2.7 million and write off of related leasehold improvements of approximately $2.5 million.

Impairment Charges

In September 2023, we determined that an IPR&D indefinite-lived intangible asset related to Aidence's Ai Veye Lung Nodule and Veye Clinic would not receive FDA approval for sale in the US without a new submission and additional expenditures for rework in the original projected timeline. The additional expenditures, delay and reduction of US sales affected the estimated fair value of the related IPR&D intangible asset and resulted in impairment charges of $3.9 million.

Interest expense

*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 rise in adjusted interest expense is attributable to higher overall loan balances in combination with increased variable interest rates paid on those balances in comparison to the same period in the prior year. During 2022 we refinanced our Truist term loan which added an additional $108.0 million in obligations to our balance sheet in the fourth quarter. Based on recent Federal Reserve interest rate decisions, we expect the effective interest rates on our senior credit facilities, and the related interest expense, to stabilize in the near term. See “Liquidity and Capital Resources” below for more details on our credit facilities.

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

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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. During the year ended December 31, 2023, interest rates were above the arranged rates for most of the year and we received payment of $14.5 million in cash payments from our 2019 swap counterparties, which was reported a component of interest expense. See the Derivative Instruments section of Note 2, Summary of Significant Accounting Policies, in the notes accompanying the consolidated financial statements included in this report and Item 7A — "Quantitative and Qualitative Disclosure About Market Risk" below for more details on our derivative transactions.

Non-cash change in fair value of interest rate hedge

In 2020, we determined that the cash flows from the 2019 swaps did not match the cash flows of our Barclays term loan and were therefore ineffective as cash flow hedges. Since that time, in accordance with accounting guidelines, all changes in fair value are being recognized in other income and expense.

The fair value of the 2019 swaps at December 31, 2023 was a net asset of $15.1 million compared to a net asset of $23.3 million December 31, 2022, resulting in a loss of $8.2 million during the year ended December 31, 2023, which decreased the Company’s tax provision by $2.1 million. The significant change in fair value was caused by the expiration of the $100 million swap in October 2023 and the shorter remaining term on the $400 million swap, which offset the increase in market interest rates and the steepening of the yield curve. The one-month Term SOFR rate at December 31, 2023 was approximately 5.47%, higher than the 4.33% one-month Term SOFR rate at December 31, 2022 and significantly above the 1.98% arranged rate for the $400 million portion of the 2019 swaps.

Equity in earnings from unconsolidated joint ventures

For the twelve months ended December 31, 2023 we recognized equity in earnings from unconsolidated joint ventures of $6.4 million versus $10.4 million for the twelve months ended December 31, 2022, a decrease of $4.0 million or 38.1%. The decrease in equity in earnings from unconsolidated joint ventures was due to the formation of Arizona Diagnostic Radiology Group in November 2022, which operated at a net loss in 2023.

Net income attributable to noncontrolling interests

At December 31, 2023, our consolidated subsidiaries operated 321 imaging centers of which 85 were not wholly-owned and thus a portion of their operating results were attributable to noncontrolling interests. At December 31, 2022, our consolidated subsidiaries included 318 centers of which 81 were not wholly-owned. As noncontrolling interests only represent a portion of our imaging center business, and excludes our AI segment which generated losses of $21.2 million in 2023, we do not expect changes in net income attributable to noncontrolling interests to correlate with changes in consolidated operating income or pretax income.

For the twelve months ended December 31, 2023, we recognized net income attributable to noncontrolling interests of $27.3 million versus $23.0 million for the twelve months ended December 31, 2022, an increase of $4.3 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 as described in Note 4 to the consolidated financial statements. 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 improved as a result of our acquisition of various interests in 2022, which were able to operate for full twelve months in 2023. In October 2022, our consolidated joint venture New Jersey Imaging Network, LLC, acquired the assets of Montclair Radiological associates, P.A. In November 2022 we acquired a 75% controlling interest in Heart & Lung Imaging Limited. Additionally in April 2022 we formed a new majority owned subsidiary, Frederick County Radiology, LLC. See Note 4, Business Combinations and Related Activity, in the notes accompanying our consolidated financial statements included in this report, for a more detailed discussion of these acquisitions.

AI Segment

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Our AI segment develops and deploys clinical applications to enhance interpretation of medical images and improve patient outcomes with a current emphasis on breast, prostate, and lung cancer diagnostics. The breakdown of revenue and expenses of the segment for the twelve months ended December 31, 2023 and 2022 are as follows:

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The increase in revenues for the AI segment was driven by the launch of new imaging products, including our Enhanced Breast Cancer Detection product which was initially released in 2022 and is being rolled out in certain of our imaging centers. The increase in operating expenses for the AI segment was primarily related to salary expense as we increased headcount in connection with the commercialization of our initial AI products. Our net loss for the segment was consistent with the prior year. We expect that our AI segment will continue to generate net losses over the next several years.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

For the comparison of results of operations for the year ended December 31, 2022 to the year ended December 31, 2021, for both out Imaging Center and AI segments, please see Item 7 — "Management's Discussion and Analysis of Financial Condition and Operations" in our Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

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.

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The following is a reconciliation of the nearest comparable GAAP financial measure, net income, to Adjusted EBITDA for the years ended December 31, 2023, 2022, and 2021, respectively (in thousands):