agti-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2024


o			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: 001-40361

AGILITI, INC.

(Exact name of registrant as specified in its charter)


Delaware	11095 Viking Drive	83-1608463
(State or other jurisdiction of	Eden Prairie, Minnesota 55344	(I.R.S. Employer
incorporation or organization)	(Address of principal executive offices, including zip code)	Identification No.)

(952) 893-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001	AGTI	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of common stock outstanding as of May 2, 2024: 136,293,374

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Agiliti, Inc. and Subsidiaries

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		Page
PART I - FINANCIAL INFORMATION		1

ITEM 1.	Consolidated Financial Statements (unaudited)	1

	Consolidated Balance Sheets — March 31, 2024 and December 31, 2023	2

	Consolidated Statements of Operations — Three months ended March 31, 2024 and 2023	3

	Consolidated Statements of Comprehensive (Loss) Income — Three months ended March 31, 2024 and 2023	4

	Consolidated Statements of Equity — Three months ended March 31, 2024 and 2023	5

	Consolidated Statements of Cash Flows — Three months ended March 31, 2024 and 2023	6

	Condensed Notes to Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	24

ITEM 4.	Controls and Procedures	24

PART II - OTHER INFORMATION		27

ITEM 1.	Legal Proceedings	27

ITEM 1A.	Risk Factors	27

ITEM 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	28

ITEM 5.	Other Information	28

ITEM 6.	Exhibits	29

Signatures		30

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements — Unaudited.

Agiliti, Inc. and Subsidiaries

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Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	March 31, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	5,373	$	20,037
Accounts receivable, less allowance for credit losses of $4,295 as of March 31, 2024 and $6,236 as of December 31, 2023	246,344		215,684
Inventories	86,006		74,484
Prepaid expenses	17,327		20,231
Other current assets	8,334		7,307
Total current assets	363,384		337,743
Property and equipment, net	295,693		292,684
Goodwill	1,239,432		1,239,432
Operating lease right-of-use assets	76,804		78,157
Other intangibles, net	411,810		430,002
Other	21,149		20,926
Total assets	$	2,408,272	$	2,398,944
Liabilities and Equity
Current liabilities:
Current portion of long-term debt	$	26,281	$	18,468
Current portion of operating lease liability	25,362		25,603
Current portion of obligation under tax receivable agreement	1,862		12,796
Accounts payable	67,709		58,518
Accrued compensation	37,699		28,866
Accrued interest	21,363		21,451
Other current liabilities	35,902		30,906
Total current liabilities	216,178		196,608
Long-term debt, less current portion	1,059,377		1,061,062
Obligation under tax receivable agreement, pension and other long-term liabilities	9,723		10,467
Operating lease liability, less current portion	62,819		63,765
Deferred income taxes, net	120,142		126,219
Commitments and contingencies (Note 8)
Equity:
Common stock, $0.0001 par value; 500,000,000 shares authorized; 136,081,290 and 135,368,025 shares issued; 136,081,290 and 135,352,336 shares outstanding as of March 31, 2024 and December 31, 2023, respectively	14		14
Treasury stock, at cost; — and 54,256 shares as of March 31, 2024 and December 31, 2023, respectively	—		(419)
Additional paid-in capital	975,492		972,156
Accumulated deficit	(40,306)		(33,699)
Accumulated other comprehensive income	4,531		2,505
Total Agiliti, Inc. and Subsidiaries equity	939,731		940,557
Noncontrolling interest	302		266
Total equity	940,033		940,823
Total liabilities and equity	$	2,408,272	$	2,398,944

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Agiliti, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except share and per share information)

(unaudited)


	Three Months Ended March 31,
	2024		2023
Revenue	$	302,751	$	299,904
Cost of revenue	203,542		190,530
Gross margin	99,209		109,374
Selling, general and administrative expense	84,025		88,837
Operating income	15,184		20,537
Interest expense	22,918		15,831
Income (loss) before income taxes and noncontrolling interest	(7,734)		4,706
Income tax (benefit) expense	(1,218)		1,656
Consolidated net income (loss)	(6,516)		3,050
Net income attributable to noncontrolling interest	91		37
Net income (loss) attributable to Agiliti, Inc. and Subsidiaries	$	(6,607)	$	3,013

Basic income (loss) per share	$	(0.05)	$	0.02
Diluted income (loss) per share	$	(0.05)	$	0.02

Weighted-average common shares outstanding:
Basic	135,664,208		133,850,124
Diluted	135,664,208		139,293,662

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Agiliti, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024		2023
Consolidated net income (loss)	$	(6,516)	$	3,050
Other comprehensive income (loss):
(Loss) on minimum pension liability, net of tax of $5 and $12	(15)		(35)
Gain (loss) on cash flow hedge, net of tax benefit (expense) of $(695) and $1,375	2,041		(3,967)
Total other comprehensive (loss) income	2,026		(4,002)
Comprehensive (loss)	(4,490)		(952)
Comprehensive income attributable to noncontrolling interest	91		37
Comprehensive (loss) attributable to Agiliti, Inc. and Subsidiaries	$	(4,581)	$	(989)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Agiliti, Inc. and Subsidiaries

Consolidated Statements of Equity

(in thousands)

(unaudited)


	Common Stock		Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Agiliti, Inc. and Subsidiaries		Noncontrolling Interests		Total Equity (Deficit)
Balance as of December 31, 2023	$	14	$	(419)	$	972,156	$	(33,699)	$	2,505	$	940,557	$	266	$	940,823
Net income (loss)	—		—		—		(6,607)		—		(6,607)		91		(6,516)
Other comprehensive income	—		—		—		—		2,026		2,026		—		2,026
Reissuance of treasury stock	—		419		(419)		—		—		—		—		—
Share-based compensation expense	—		—		4,513		—		—		4,513		—		4,513
Stock options exercised	—		—		1,150		—		—		1,150		—		1,150
Shares forfeited for taxes	—		—		(1,908)		—		—		(1,908)		—		(1,908)
Cash distributions to noncontrolling interests	—		—		—		—		—		—		(55)		(55)
Balance as of March 31, 2024	$	14	$	—	$	975,492	$	(40,306)	$	4,531	$	939,731	$	302	$	940,033

Balance as of December 31, 2022	$	13	$	—	$	953,046	$	(14,274)	$	7,343	$	946,128	$	197	$	946,325
Net income	—		—		—		3,013		—		3,013		37		3,050
Other comprehensive (loss)	—		—		—		—		(4,002)		(4,002)		—		(4,002)
Share-based compensation expense	—		—		6,727		—		—		6,727		—		6,727
Stock options exercised	—		—		469		—		—		469		—		469
Shares forfeited for taxes	—		—		(5,314)		—		—		(5,314)		—		(5,314)
Cash distributions to noncontrolling interests	—		—		—		—		—		—		(57)		(57)
Balance as of March 31, 2023	$	13	$	—	$	954,928	$	(11,261)	$	3,341	$	947,021	$	177	$	947,198

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Agiliti, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Consolidated net income (loss)	$	(6,516)	$	3,050
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	20,980		19,620
Amortization	20,675		23,473
Remeasurement of tax receivable agreement	267		—
Provision for credit losses (gains)	(1,371)		404
Provision for inventory obsolescence	945		789
Non-cash share-based compensation expense	4,238		6,889
Gain on sales and disposals of equipment	(279)		(751)
Deferred income taxes	(6,767)		(4,229)
Changes in operating assets and liabilities:
Accounts receivable	(28,877)		(15,497)
Inventories	(12,467)		(4,399)
Other operating assets	5,431		3,930
Accounts payable	7,386		7,935
Accrued and other operating liabilities	10,117		13,682
Net cash provided by operating activities	13,762		54,896
Cash flows from investing activities:
Medical equipment purchases	(11,870)		(12,128)
Property and office equipment purchases	(6,674)		(6,734)
Proceeds from disposition of property and equipment	806		1,033
Intangible asset purchases	(27)		—
Net cash used in investing activities	(17,765)		(17,829)
Cash flows from financing activities:
Proceeds under debt arrangements	70,000		87,000
Payments under debt arrangements	(65,688)		(82,849)
Payments of principal under finance lease liability	(2,351)		(2,297)
Payments of deferred financing costs	(871)		—
Payments under tax receivable agreement	(10,938)		(24,822)
Distributions to noncontrolling interests	(55)		(57)
Proceeds from exercise of stock options	1,150		469
Dividend and equity distribution payment	—		(321)
Shares forfeited for taxes	(1,908)		(5,314)
Net cash used in financing activities	(10,661)		(28,191)
Net change in cash and cash equivalents	(14,664)		8,876
Cash and cash equivalents at the beginning of period	20,037		5,577
Cash and cash equivalents at the end of period	$	5,373	$	14,453

Supplemental cash flow information:
Interest paid	$	22,050	$	14,622
Income taxes paid	88		39

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Agiliti, Inc. and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Description of Business

Agiliti, Inc. and its consolidated subsidiaries (Federal Street Acquisition Corp (“FSAC”), Agiliti Holdco, Inc. and Agiliti Health, Inc. and subsidiaries (the “Company” or “Agiliti”)) is a nationwide provider of healthcare technology management and service solutions to the United States healthcare industry. Agiliti, Inc. owns 100% of FSAC. FSAC owns 100% of Agiliti Holdco, Inc. Agiliti Holdco, Inc. owns 100% of Agiliti Health, Inc. Agiliti Health, Inc. owns 100% of Agiliti Surgical, Inc., Agiliti Imaging, Inc., Agiliti Surgical Equipment Repair, Inc., Sizewise Rentals, LLC, and Agiliti Financing, LLC. Agiliti Financing, LLC owns 100% of Agiliti Receivables LLC. Agiliti Health, Inc. and subsidiaries are the only entities with operations. All other entities have no material assets, liabilities, cash flows or operations other than their investment and ownership of Agiliti Health, Inc. and subsidiaries.

The Merger Agreement

On February 26, 2024, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Apex Intermediate Holdco, Inc., a Delaware corporation (“Parent”), and Apex Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions and on the terms set forth therein, Merger Sub will merge (the “Merger”) with and into the Company, with the Company continuing as the surviving corporation (the “Surviving Corporation”). Parent and Merger Sub are affiliates of THL Agiliti LLC, an affiliate of Thomas H. Lee Partners, L.P. (“THL”) and the holder of a majority of the outstanding capital stock of the Company (the “Significant Company Stockholder”). Capitalized terms used herein but not otherwise defined have the meaning set forth in the Merger Agreement.

Merger Consideration

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, $0.0001 par value per share, of the Company (the “Shares” and each a “Share”) issued and outstanding immediately prior to the Effective Time (other than (i) Shares owned directly or indirectly by the Significant Company Stockholder, Parent or Merger Sub or any of their respective Subsidiaries (each such Share referred to in clause (i), a “Significant Company Stockholder Share” and, collectively, the “Significant Company Stockholder Shares”), (ii) the Rollover Shares (defined below) and (iii) Shares owned by the Company as treasury stock (each such Share referred to in clause (iii), an “Excluded Share” and, collectively, the “Excluded Shares”) and (iv) Shares that are owned by stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL (“Dissenting Stockholders”)), shall be converted into the right to receive $10.00 per Share in cash, without interest thereon (the “Merger Consideration”).

Refer to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 26, 2024 for additional information regarding the Company’s entry into the Merger Agreement.

Basis of Presentation

The interim consolidated financial statements have been prepared by the Company without audit. Certain disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto in the Company’s Annual report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 6, 2024 (“2023 Form 10-K Report”).

The interim consolidated financial statements presented herein as of March 31, 2024, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income, equity and cash flows for the periods presented. These adjustments are all of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year.

The Company is required to make estimates and assumptions about future events in preparing consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the amounts of assets, liabilities, revenue

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and expenses at the date of the unaudited consolidated financial statements. While the Company believes that the past estimates and assumptions have been materially accurate, its current estimates are subject to change if different assumptions are utilized to predict the outcome of future events. The Company evaluates its estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. The Company makes adjustments to its assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited consolidated financial statements.

A description of the Company's significant accounting policies is included in the audited consolidated financial statements. There have been no material changes to these policies for the three months ended March 31, 2024.

2. Recent Accounting Pronouncements

Standards Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (ASC 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on the consolidated financial statements and related disclosures.

3. Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Many of the Company’s customers have multiple contracts and have revenue reported in multiple service lines. The Company’s contracts may include a base level of services provided for a stated period of time, optional services provided upon request, or products. Each of these products and services are generally capable of being distinct and are accounted for as separate performance obligations.

The price for each performance obligation is stated in the customer contract and is based upon a price that would be charged to a customer if the product or service were sold on a standalone basis (the list price). Any discount from the list price provided to a customer for a product or service is allocated among the performance obligations based upon their individual standalone selling prices.

Service revenue is typically recognized over time as the services are provided. When services are provided for a stated period of time, revenue is generally recognized ratably over the period services are provided. In certain circumstances, optional services may be provided on a time and materials basis. In these circumstances, revenue is recognized in an amount that corresponds to the actual time and expense incurred. Product revenue is recognized when the Company transfers control of a good, which occurs at a point in time.

Revenue is recognized net of allowances for estimated rebates and group purchasing organization ("GPO") fees, which are established at the time of sale. Adjustments are made to these allowances at each reporting period. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and that are collected by the Company from a customer, are excluded from revenue.

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The following table presents disaggregated revenue by service solution:


	Three Months Ended March 31,
(in thousands)	2024		2023
Equipment Solutions	$	116,692	$	120,866
Clinical Engineering	125,164		113,475
Onsite Managed Services	60,895		65,563
Total revenue	$	302,751	$	299,904

The Company capitalizes contract costs incurred in obtaining new contracts. The contract asset included in other long-term assets in the consolidated balance sheets as of March 31, 2024 and December 31, 2023 was $14.1 million and $14.8 million, respectively. Capitalized costs are amortized over the expected life of the related contracts, which is estimated to be five years.

Amortization is computed on a straight-line basis, which coincides with the predominant expected life of the underlying contracts. Amortization costs are reflected in cost of revenue and selling, general, and administrative expenses. The amount of amortization included in cost of revenue was $0.4 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively. The amount of amortization included in selling, general and administrative expense was $1.3 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

There was no impairment loss in relation to the costs capitalized during the three months ended March 31, 2024 and 2023.

4. Fair Value Measurements

A description of the inputs used in the valuation of assets and liabilities is summarized as follows:

Level 1 — Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of non-exchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 are summarized in the following tables by type of inputs applicable to the fair value measurements:


	Fair Value as of March 31, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Deferred compensation assets	$	3,629	$	—	$	—	$	3,629
Interest rate swap	—		4,664		—		4,664
Liabilities:
Obligation under tax receivable agreement	$	—	$	—	$	4,896	$	4,896
Deferred compensation liabilities	3,629		—		—		3,629

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	Fair Value as of December 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Deferred compensation assets	$	3,390	$	—	$	—	$	3,390
Interest rate swap	—		3,140		—		3,140
Liabilities:
Obligation under tax receivable agreement	$	—	$	—	$	15,549	$	15,549
Interest rate swap	—		1,212		—		1,212
Deferred compensation liabilities	3,390		—		—		3,390

The deferred compensation assets are held in mutual funds. The fair value of the deferred compensation assets and liabilities is based on the quoted market prices for the mutual funds and thus represents a Level 1 fair value measurement.

On April 17, 2023, the Company entered into an interest rate swap agreement to manage interest rate exposure. For additional information on the interest swap agreement, see "Note 6 – Long-Term Debt". The carrying value of interest rate swap contract is at fair value, which is determined based on current interest rate and forward interest rates as of the balance sheet date and is classified within Level 2.

On January 4, 2019, the Company entered into a tax receivable agreement (“TRA”) with its former owners. The fair value of the liability was estimated using a discounted cash flow analysis given that the fair value of the liability is expected to approximate the maximum obligation under the TRA. The assumptions used in preparing the discounted cash flow analyses include estimates of interest rates and the timing and amount of incremental cash flows. Given that the information utilized in determining the obligation was not observable in the market, the measurement of the liability represents a Level 3 fair value measurement. The value of the obligation may decrease in-line with decreases in the Company's estimated taxable income. The Company made $0.3 million of remeasurement adjustments during the three months ended March 31, 2024 and no remeasurement adjustments during the three months ended March 31, 2023. The Company made payments of $10.9 million and $24.8 million under the TRA during the three months ended March 31, 2024 and 2023, respectively.

A reconciliation of the beginning and ending balance for the Level 3 measurement are as follows:


(in thousands)
Balance as of December 31, 2023	$	15,549
Additions	19
Payments	(10,939)
Remeasurement adjustment (1)	267
Balance as of March 31, 2024	$	4,896
____________________

(1)Remeasurement adjustments are recognized in selling, general and administrative expense in the consolidated statement of operations.

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Fair Value of Other Financial Instruments

The fair value of the Company's outstanding First Lien Term Loan (as defined in "Note 6 – Long-Term Debt") as of March 31, 2024 and December 31, 2023 is based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:


	March 31, 2024				December 31, 2023
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
First Lien Term Loan (1)	$	1,054,070	$	1,062,940	$	1,056,253	$	1,070,973
____________________


(1)			The carrying value of the First Lien Term Loan is net of unamortized deferred financing costs of $7.0 million and $7.3 million and unamortized debt discount of $8.5 million and $8.8 million as of March 31, 2024 and December 31, 2023, respectively.

5. Selected Financial Statement Information

Inventories

The Company's inventories consist of the following:


(in thousands)	March 31, 2024		December 31, 2023
Raw materials	$	12,461	$	13,376
Work-in-process	494		400
Finished goods	73,051		60,708
Total inventories	$	86,006	$	74,484

Property and Equipment

The Company separates its property and equipment into two categories - medical equipment and property and office equipment. Depreciation of medical equipment is provided on the straight-line method over the equipment’s estimated useful life, generally five to ten years. The cost and accumulated depreciation of medical equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in cost of revenue in the period the asset is retired or sold. Property and office equipment includes leasehold improvements, vehicles, computer software and hardware, and office equipment. Depreciation of property and office equipment is provided on the straight-line method over the lesser of the remaining useful life or lease term for leasehold improvements and three to ten years for office equipment. The cost and accumulated depreciation or amortization of property and equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in selling, general and administrative expense in the period the asset is retired or sold.

The Company's property and equipment consists of the following:


(in thousands)	March 31, 2024		December 31, 2023
Medical equipment	$	461,293	$	450,564
Less: Accumulated depreciation	(293,678)		(285,139)
Medical equipment, net	167,615		165,425
Leasehold improvements	61,784		59,422
Office equipment and vehicles	207,932		200,560
	269,716		259,982
Less: Accumulated depreciation	(141,638)		(132,723)
Property and office equipment, net	128,078		127,259
Total property and equipment, net	$	295,693	$	292,684

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Depreciation expense recognized during the three months ended March 31, 2024 and 2023 was $21.0 million and $19.6 million, respectively.

There were no impairment charges on property and equipment during the three months ended March 31, 2024 and 2023.

Goodwill and Other Intangible Assets

There were no additions to goodwill during the three months ended March 31, 2024. There were no impairment losses recorded on goodwill during the three months ended March 31, 2024 and 2023.

The Company's other intangible assets are amortized over their estimated economic lives of two to fifteen years. The straight-line method of amortization generally reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. However, for certain of its customer relationships, the Company uses the sum-of-the-years-digits amortization method to more appropriately allocate the cost to earnings in proportion to the estimated amount of economic benefit obtained.

The Company's other intangible assets consist of the following:


	March 31, 2024
(in thousands)	Cost		Accumulated Amortization		Net
Finite-life intangibles
Customer relationship	$	780,806	$	(371,283)	$	409,523
Non-compete agreements	1,225		(402)		823
Trade names	2,406		(1,263)		1,143
Patents	337		(16)		$	321
Total other intangible assets	$	784,774	$	(372,964)	$	411,810


	December 31, 2023
(in thousands)	Cost		Accumulated Amortization		Net
Finite-life intangibles
Customer relationship	$	780,806	$	(353,190)	$	427,616
Non-compete agreements	1,225		(341)		884
Trade names	7,806		(6,603)		1,203
Patents	310		(11)		299
Total other intangible assets	$	790,147	$	(360,145)	$	430,002

Total amortization expense related to intangible assets was $18.2 million and $21.0 million for the three months ended March 31, 2024 and 2023, respectively. There were no impairment charges during the three months ended March 31, 2024 and 2023 related to other intangible assets.

As of March 31, 2024, the future amortization expense related to other intangible assets is estimated as follows:


(in thousands)
Remainder of 2024	$	53,399
2025	65,056
2026	58,480
2027	51,915
2028	45,159
Thereafter	137,801
	$	411,810

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Supplementary Cash Flow Information

Supplementary cash flow information is as follows:


	Three Months Ended March 31,
(in thousands)	2024		2023
Non-cash activities:
Property and equipment purchases included in accounts payable (at end of period)	$	1,825	$	2,090
Finance lease assets and liability additions	4,181		3,989
Operating lease right-of-use assets and operating lease liability additions	3,541		3,650

6. Long-Term Debt

Long-term debt consists of the following:


(in thousands)	March 31, 2024		December 31, 2023
First Lien Term Loan	$	1,069,625	$	1,072,313
Revolving Credit Facility	7,000		—
Finance lease liability	29,165		27,374
	1,105,790		1,099,687
Less: Unamortized deferred financing costs and debt discount	(20,132)		(20,157)
	1,085,658		1,079,530
Less: Current portion of long-term debt	(26,281)		(18,468)
Total long-term debt	$	1,059,377	$	1,061,062

First Lien Credit Facilities

The Company is party to a seven-year senior secured delayed draw term loan facility due May 2030 which, as amended, provides an aggregate principal amount of $1.075 billion in borrowing capacity (the “First Lien Term Loan”). The Company also has access to a senior secured revolving credit facility due April 2028 in an aggregate principal amount of $300.0 million (the “Revolving Credit Facility”).

Additional information regarding the Company's indebtedness arrangements can be found within the notes to the consolidated financial statements in the most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The Company was in compliance with all financial debt covenants for all periods presented.

Interest Rate Swap Agreement

On April 17, 2023, the Company entered into an interest rate swap agreement for a total notional amount of $500.0 million, which has the effect of converting a portion of its Term Loan Credit Facility to fixed interest rates. The effective date for the interest rate swap agreement is July 1, 2023 and the expiration date is July 1, 2025. As a result of the interest rate swap agreement, the Company expects the effective interest rate on $500.0 million of the Term Loan Credit Facility to be 4.0685%, plus the Applicable Margin, through July 2025.

The interest rate swap agreement qualifies for cash flow hedge accounting under ASC 815, Derivatives and Hedging. Both at inception and on an on-going basis, the Company performs an effectiveness test. The fair value of the interest rate swap agreement as of March 31, 2024 was $4.7 million, of which $3.9 million is included in other current assets and $0.8 million is included in other long-term assets on the consolidated balance sheet. The change in fair value was recorded as a component of accumulated other comprehensive income on the consolidated balance sheet, net of tax, since the instrument was determined to be an effective hedge as of March 31, 2024. The Company has not recorded any amounts due to ineffectiveness for any periods presented.

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Accounts Receivable Securitization

On February 14, 2024, Agiliti Receivables LLC, a consolidated special purpose entity (the “SPV”), entered into an accounts receivable securitization facility (the “AR Facility”) of up to $150.0 million with MUFG Bank, Ltd., as administrative agent. In connection with the AR Facility, certain subsidiaries of Agiliti, as originators, will sell qualifying accounts receivable to the SPV.

The AR Facility represents borrowings secured by outstanding customer receivables. The use and repayment of borrowings under the AR Facility will be treated as financing activities while subsequent receipt of payment on outstanding customer receivables are treated as operating activities within the consolidated statement of cash flows.

As of March 31, 2024, the Company had no outstanding borrowings under the AR Facility.

7. Share-Based Compensation

2018 Omnibus Incentive Plan

The 2018 Omnibus Incentive Plan (“2018 Plan”) provides for the issuance of restricted stock units, performance restricted stock units, and nonqualified stock options to any of the Company’s executives, other key employees and certain non-employee directors. Remaining authorized options, restricted stock units and performance restricted stock units available for future issuance under the 2018 Plan was 18.3 million shares as of March 31, 2024.

Restricted Stock Units

The restricted stock units vest over one to four years. The fair value of the restricted stock units is based upon the stock’s fair market value at the date of grant. During the three months ended March 31, 2024 and 2023, the Company granted 241,296 and 718,647 shares of restricted stock units, respectively. As of March 31, 2024, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock units was $16.5 million, which is expected to be recognized over a weighted average period of 1.4 years.

Performance Restricted Stock Units

The performance restricted stock units cliff vest after three years and are subject to the level of achievement of a three year cumulative adjusted EBITDA target. The fair value of the market-based performance restricted stock units is estimated at the grant date using a Monte-Carlo simulation model. There were no issuances of performance restricted stock units during the three months ended March 31, 2024 and 2023. As of March 31, 2024, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock units was $1.0 million, which is expected to be recognized over a weighted average period of 2.0 years.

Nonqualified Stock Options

Stock options allow for the purchase of shares of common stock of the Company at prices equal to the stock’s fair market value at the date of grant. Options granted have a ten-year contractual term and vest over one to four years. The Company determines the fair value of options using the Black-Scholes option pricing model. There were no issuances of stock options during the three months ended March 31, 2024 and 652,394 shares of stock options granted during the three months ended March 31, 2023. As of March 31, 2024, the total unrecognized compensation expense related to the non-vested portion of the Company's stock options was $1.8 million, which is expected to be recognized over a weighted average period of 1.8 years.

Employee Stock Purchase Program

The Company adopted an Employee Stock Purchase Plan (“ESPP”) in April 2021 and a total of 3.3 million shares of the Company's common stock are reserved for issuance thereunder. Employees are permitted to purchase the Company’s common stock at 85% of market value at the end of the six-month offering periods ending on April 30 and October 31 each year. There were no shares issued under the ESPP during three months ended March 31, 2024 and 2023.

The following table summarizes stock-based compensation expense for the 2018 Plan and ESPP:

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	Three Months Ended March 31,
(in thousands)	2024		2023
Cost of sales	$	35	$	765
Selling, general, and administrative expense	4,203		6,124
Total stock-based compensation expense	$	4,238	$	6,889

8. Commitments and Contingencies

From time to time the Company is a party to various legal proceedings incidental to the conduct of our business. The results of legal proceedings are inherently unpredictable and uncertain. The Company is not presently party to any legal proceedings that management believes would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels. Management periodically reexamines estimates of probable liabilities and any associated expenses and receivables and makes appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on the Company's business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels for the proceedings and claims described in the condensed notes to the consolidated financial statements could change in the future.

Regardless of the outcome, legal proceedings have the potential to have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

The Company has received demand letters (“220 Demands”) from twelve purported stockholders of the Company (“220 Stockholders”) pursuant to Section 220 of the Delaware General Corporation Law (“Section 220”), seeking to inspect books and records of the Company relating to, among other things, the Merger. Three of the 220 Stockholders, Charles Hennig, Derrick Lescord, and Thomas Nighsonger, filed complaints seeking to compel inspection of the Company’s books and records pursuant to Section 220 in the Delaware Court of Chancery, on March 28, 2024, April 22, 2024, and April 30, 2024, respectively. Additionally, the Company has received demand letters (“Disclosure Demands”) from four purported stockholders of the Company (“Disclosure Stockholders”), which generally demand the disclosure of certain additional information that was allegedly omitted from the Schedule 14C filed in connection with the Merger (“Information Statement”).

9. Employee Benefit Plans

Pension plan benefits are to be paid to eligible employees after retirement based primarily on years of credited service and participants’ compensation. The Company uses a December 31 measurement date. Effective December 31, 2002, the Company froze the benefits under the pension plan.

The components of net periodic benefit (income) are as follows:


	Three Months Ended March 31,
(in thousands)	2024		2023
Interest cost	$	284	$	293
Expected return on plan assets	(345)		(358)
Recognized net actuarial (gain)	(20)		(47)
Net periodic benefit (income)	$	(81)	$	(112)

The Company made no contributions to the pension plan during the three months ended March 31, 2024 and does not expect to make contributions to the pension plan for the remainder of 2024.

10. Income Taxes

The Company recorded an income tax benefit of $1.2 million and an income tax expense of $1.7 million for the three months ended March 31, 2024 and 2023, respectively. The income tax benefit for the three months ended March 31, 2024 is primarily attributable to the tax-effect of pre-tax loss from operations less addbacks for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m) and a windfall deficit from exercised stock options. The income tax expense for the three months ended March 31, 2023 is primarily attributable to the tax-effect

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of pre-tax income from operations plus addbacks for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m) and windfall benefits received from exercised stock options.

11. Concentration

On December 14, 2022, the Company received a modification to the Company’s current agreement with the U.S. Department of Health and Human Services (“HHS”) and the Assistant Secretary for Preparedness and Response (“ASPR”) was due to expire on February 27, 2023 incorporating Federal Acquisition Regulation (“FAR”) 52.217-8, which resulted in the government extending the term of this current agreement to August 27, 2023.

Additionally, on December 14, 2022, the Company entered into a new agreement with HHS/ASPR (the "Agreement") for preventive maintenance services (“PMS”), management and storage for ventilator and powered air purifying respirator (“PAPR”) systems. The Agreement’s performance period commenced on August 28, 2023 and is anticipated to have a period of performance of four years and six months, consisting of a base period of twelve months, three one-year option periods and an additional six-month option period.

Approximately 12.5% and 11.1% of total Company revenue was attributable to various contracts with the HHS / ASPR for the three months ended March 31, 2024 and 2023, respectively.

12. Earnings (Loss) Per Share

The following is a reconciliation of the basic and diluted number of shares used in computing earnings (loss) per share:


	Three Months Ended March 31,
	2024		2023
Basic weighted average shares outstanding	135,664,208		133,850,124
Net effect of dilutive stock awards based upon the treasury stock method	—		5,443,538
Dilutive weighted average shares outstanding	135,664,208		139,293,662

Basic earnings (loss) per share	$	(0.05)	$	0.02
Diluted earnings (loss) per share	$	(0.05)	$	0.02

Anti-dilutive share-based awards excluded from the calculation of dilutive earnings (loss) per share	7,604,481		521,829

For the three months ended March 31, 2024, dilutive weighted-average shares outstanding is equal to basic weighted-average shares outstanding due to the Company’s net loss position as the inclusion of such stock awards within dilutive weighted-average shares outstanding would be antidilutive.

13. Subsequent Events

Closing of the Merger

On May 7, 2024 (the “Closing Date”), the Company, completed the Merger with Parent and Merger Sub, pursuant to the Merger Agreement. The Company merged with and into Merger Sub with the Company surviving the merger as a subsidiary of Parent (“Surviving Corporation”). Capitalized terms not otherwise defined herein have the meaning set forth in the Merger Agreement. The description of the Merger Agreement and related transactions (including, without limitation, the Merger) does not purport to be complete and is subject and qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 26, 2024 and the description of the closing of the Merger included in the Company’s Current Report on Form 8-K filed on May 7, 2024.

On May 7, 2024, Agiliti Health, Inc. (the “Borrower”) and Agiliti Holdco, Inc., subsidiaries of the Company, and certain of their subsidiaries, entered into an amendment (the “First Amendment”) to the Borrower’s Amended and Restated Credit Agreement, dated May 1, 2023 (as amended, the “Credit Agreement”), among the Borrower, the lenders party thereto, the subsidiary guarantors party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Among other things, the First Amendment increased the principal amount of initial term loans by $400 million under a new

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incremental term facility, which otherwise has the same terms as those applicable to the existing initial term loans under the Credit Agreement. The net proceeds from the new incremental term facility may be used to pay Merger Consideration (as defined in the Merger Agreement) in addition to general corporate purposes such as paying down borrowings under that certain Receivables Financing Agreement, dated February 14, 2024, among Agiliti Receivables LLC, a subsidiary of Agiliti, Inc., the Borrower, the lenders party thereto, the group agents party thereto and MUFG Bank, Ltd., as administrative agent.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes thereto in the Company’s Annual report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 6, 2024 (“2023 Form 10-K Report”). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the sections titled “Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements as well as the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q and in our 2023 Form 10-K Report.

BUSINESS OVERVIEW

Our Company

Unless otherwise specified, the terms “we”, “our”, “us” and the “Company” refer to Agiliti, Inc. and, where appropriate, its consolidated subsidiaries.

We believe we are one of the leading experts in the management, maintenance and mobilization of mission-critical, regulated, reusable medical devices. We offer healthcare providers a comprehensive suite of medical equipment management and service solutions that help reduce capital and operating expenses, optimize medical equipment utilization, reduce waste, enhance staff productivity, and bolster patient safety.

We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.

In our 85 years of experience ensuring healthcare providers have high-quality, expertly maintained equipment to serve their patients, we’ve built an at-scale, strong nationwide operating footprint. This service and logistics infrastructure positions us to reach customers across the entire healthcare continuum—from individual facilities to the largest and most complex healthcare systems. Likewise, our ability to rapidly mobilize, track, repair and redeploy equipment during times of peak need or emergent events has made us a service provider of choice for city, state and federal governments to manage emergency equipment stockpiles.

Our diverse customer base includes more than 10,000 national, regional, and local acute care hospitals, health systems and integrated delivery networks ("IDN"), and alternate site providers (such as surgery centers, specialty hospitals, home care providers, long-term acute care hospitals, and skilled nursing facilities). We serve the federal government as well as a number of city and state governments providing management and maintenance of emergency equipment stockpiles, and we are an outsourced service provider to medical device manufacturers supporting critical device remediation and repair services. We deliver our solutions through our nationwide network of more than 150 service centers and Centers of Excellence, a majority of which are certified to ISO 13485:2016. At our facilities, we employ a team of more than 800 specialized biomed repair technicians, more than 4,000 field-based service operators who work onsite within customer facilities or in our local service centers, and over 200 field sales and account managers. Our fees are primarily paid directly by our customers rather than by direct reimbursement from third-party payors, such as private insurers, Medicare, or Medicaid.

We deploy our solution offering across three primary service lines:

On-Site Managed Services: Onsite Managed Services are comprehensive programs that assume full responsibility for the management, reprocessing, and logistics of medical equipment at individual facilities and IDNs, with the added benefit of enhancing equipment utilization and freeing more clinician time for patient care. This solution monitors and adjusts equipment quantities and availability to address fluctuations in patient census and acuity. Our more than 1,300 onsite employees work 24/7 in customer facilities, augmenting clinical support by integrating proven equipment management processes, utilizing our proprietary management software and conducting daily rounds, and unit-based training to ensure equipment is being used and managed properly, overall helping to optimize day-to-day operations and care outcomes. We assume full responsibility for ensuring equipment is available when and where it is needed, removing equipment when no longer in use, and decontaminating, testing, and servicing equipment as needed between each patient use. Revenue attributable to such customers for the three months ended March 31, 2024 and 2023 represented 20% and 22% of our total revenue, respectively.

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Clinical Engineering Services: Clinical Engineering Services provides maintenance, repair, and remediation solutions for all types of medical equipment, including general biomedical equipment, diagnostic imaging equipment, and surgical equipment through supplemental and outsourced offerings. Our supplemental offering helps customers manage their equipment repair and maintenance backlog, assist with remediation and regulatory reporting, and temporarily fill open biotechnical positions. With our outsourced offering, we assume full management, staffing, and clinical engineering service responsibilities for individual or system-wide customer sites. The outsourced model deploys a dedicated, on-site team to coordinate the management of customer-owned equipment utilizing our proprietary information systems, third party vendors of services and parts, and a broad range of professional services for capital equipment planning and regulatory compliance. We employ more than 800 technicians across our more than 150 local market service centers and Centers of Excellence who can flex in and out of customer facilities on an as-needed basis, ensuring customers pay only for time spent directly servicing their equipment by an appropriately qualified technician. We use flex staffing for our supplemental clinical engineering solution and to augment support when additional technicians are needed to supplement our outsourced services during peak workload. We contract our Clinical Engineering Services with acute care and alternate site facilities across the U.S., as well as with the federal government and any medical device manufacturers that require a broad logistical footprint to support their large-scale service needs. Revenue attributable to such customers for the three months ended March 31, 2024 and 2023 represented 41% and 38% of our total revenue, respectively.

Equipment Solutions: Equipment Solutions primarily provides supplemental, peak need, and per-case rental of general biomedical, specialty, and surgical equipment to acute care hospitals and alternate site providers in the U.S., including some of the nation’s premier healthcare institutions and integrated delivery networks. We contract for Equipment Solutions services directly with customers or through our contractual arrangements with hospital systems and alternate site providers. We consistently achieve high customer satisfaction ratings, as evidenced by our Net Promoter Score ("NPS") of 40 for the year ended December 31, 2023. For these customers we deliver patient-ready equipment within our contracted equipment delivery times and provide technical support and educational in-servicing for equipment as-needed in clinical departments, including the emergency room, operating room, intensive care, rehabilitation, and general patient care areas. We are committed to providing the highest quality of equipment to our customers, and we do so through the use of our comprehensive QMS which is based on the quality standards recognized worldwide for medical devices: 21 CFR 820 and ISO 13485:2016. This commitment ensures that customers have access to patient-ready equipment with the confidence of knowing it has been prepared and maintained to the highest industry standard for optimal patient safety and outcomes. Revenue attributable to such customers for the three months ended March 31, 2024 and 2023 represented 39% and 40% of our total revenue, respectively.

Many of our customers have multiple contracts with Agiliti with revenue reported across multiple service lines. Our contracts vary based upon service offering, including with respect to term (with most being multi-year contracts), pricing (daily, monthly, and fixed fee arrangements) and termination (termination for convenience to termination for cause only). Many of our contracts contain customer commitment guarantees and annual price increases tied to the consumer price index. Standard contract terms include payment terms, limitation of liability, force majeure provisions, and choice of law/venue.

Further, the infrastructure and capabilities required to provide connected, responsive equipment lifecycle management is typically cost-prohibitive, even for large IDNs. Our nationwide network of clinical engineers, storage and repair facilities, vehicles, and analytics tools gives us scale to provide cost-effective services for individual facilities, systems, regional IDNs, governments, and device manufacturers.

RESULTS OF OPERATIONS

The following discussion addresses:

•our financial condition as of March 31, 2024; and

•the results of operations for the three-month periods ended March 31, 2024 and 2023.

This discussion should be read in conjunction with the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections included in our 2023 Form 10-K Report.

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The following table provides our results of operations for the periods indicated:


	Three Months Ended March 31,								Change
(in thousands)	2024				2023				$		%
Consolidated Statement of Operations			% of Total Revenue				% of Total Revenue
Revenue	$	302,751	100.0	%	$	299,904	100.0	%	$	2,847	0.9	%
Cost of revenue	203,542		67.2		190,530		63.5		13,012		6.8
Gross margin	99,209		32.8		109,374		36.5		(10,165)		(9.3)
Selling, general and administrative expense	84,025		27.8		88,837		29.6		(4,812)		(5.4)
Operating income	15,184		5.0		20,537		6.9		(5,353)		(26.1)
Interest expense	22,918		7.6		15,831		5.3		7,087		44.8
Income (loss) before income taxes and noncontrolling interest	(7,734)		(2.6)		4,706		1.6		(12,440)		N/A
Income tax expense (benefit)	(1,218)		(0.4)		1,656		0.6		(2,874)		N/A
Consolidated net income (loss)	$	(6,516)	(2.2)	%	$	3,050	1.0	%	$	(9,566)	N/A

Revenue

The following table presents revenue by service solution for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,				Change
(in thousands)	2024		2023		% of Total Revenue
Equipment Solutions	$	116,692	$	120,866	(3.5)	%
Clinical Engineering	125,164		113,475		10.3
Onsite Managed Services	60,895		65,563		(7.1)
Total revenue	$	302,751	$	299,904	0.9	%

Total revenue for the three months ended March 31, 2024 was $302.8 million, compared to $299.9 million for the three months ended March 31, 2023, an increase of $2.8 million or 0.9%. Equipment Solutions revenue decreased 3.5% primarily driven by lower capital sales partially offset by an increase in bed rentals. Clinical Engineering revenue increased 10.3% primarily due to new customer growth, timing of certain time and materials work, and scope of the renewed government contract. Finally, Onsite Managed Services revenue decreased 7.1% primarily as a result of renewal pricing and scope of the government contract.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2024 was $203.5 million compared to $190.5 million for the three months ended March 31, 2023, an increase of $13.0 million or 6.8%. On a percentage of revenue basis, cost of revenue increased from 63.5% of revenue in 2023 to 67.2% in 2024. The increase as a percentage of revenue was primarily driven by a combination of price erosion, cost increases, and a mix shift within the business to higher cost solutions.

Gross Margin

Gross margin for the three months ended March 31, 2024 was $99.2 million, or 32.8% of revenue, compared to $109.4 million, or 36.5% of revenue, for the three months ended March 31, 2023, a decrease of $10.2 million or 9.3%. The decrease in gross margin as a percentage of revenue was primarily driven by a combination of price erosion, cost increases, and a mix shift within the business to lower margin solutions.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased $4.8 million, or 5.4%, to $84.0 million for the three months ended March 31, 2024, as compared to the same period of 2023. Selling, general and administrative expense as a percentage of

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revenue was 27.8% and 29.6% for the three months ended March 31, 2024 and 2023, respectively. The decrease of $4.8 million was primarily driven by the reduction in intangible amortization and recoveries of bad debt.

Interest Expense

Interest expense increased $7.1 million to $22.9 million for the three months ended March 31, 2024 as compared to the same period of 2023 primarily due to the increase in interest rates.

Income Taxes

Income taxes were a benefit of $1.2 million and an expense of $1.7 million for the three months ended March 31, 2024 and 2023, respectively. The income tax benefit for the three months ended March 31, 2024 is primarily attributable to the tax-effect of pre-tax loss from operations less addbacks for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m) and a windfall deficit from exercised stock options. The income tax expense for the three months ended March 31, 2024 and 2023 was primarily due to the tax-effect of pre-tax income from operations plus addbacks for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m) and windfall benefits received from exercised stock options.

Consolidated Net Income (Loss)

Consolidated net loss was $6.5 million for the three months ended March 31, 2024. Consolidated net income was $3.1 million for the three months ended March 31, 2023. The decrease in net income was impacted primarily due to the lower gross margins and higher interest expense.

Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $62.1 million and $72.0 million for the three months ended March 31, 2024 and 2023, respectively. Adjusted EBITDA for the three months ended March 31, 2024 was lower than in 2023 primarily due to the lower gross margins.

EBITDA is defined as earnings attributable to Agiliti, Inc. before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding non-cash share-based compensation expense, management fees and other non-recurring gains, expenses or losses, transaction costs, remeasurement of tax receivable agreement and loss on extinguishment of debt. In addition to using EBITDA and Adjusted EBITDA internally as measures of operational performance, we disclose them externally to assist analysts, investors and lenders in their comparisons of operational performance, valuation and debt capacity across companies with differing capital, tax and legal structures. We believe the investment community frequently uses EBITDA and Adjusted EBITDA in the evaluation of similarly situated companies. Adjusted EBITDA is also used by the Company as a factor to determine the total amount of incentive compensation to be awarded to executive officers and other employees. EBITDA and Adjusted EBITDA, however, are not measures of financial performance under GAAP and should not be considered as alternatives to, or more meaningful than, net income as measures of operating performance or to cash flows from operating, investing or financing activities or as measures of liquidity. Since EBITDA and Adjusted EBITDA are not measures determined in accordance with GAAP and are thus susceptible to varying interpretations and calculations, EBITDA and Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. EBITDA and Adjusted EBITDA do not represent amounts of funds that are available for management’s discretionary use. EBITDA and Adjusted EBITDA presented below may not be the same as EBITDA and Adjusted EBITDA calculations as defined in the First Lien Credit Facilities. A reconciliation of net income attributable to Agiliti, Inc. to Adjusted EBITDA is included below:

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	Three Months Ended March 31,
(in thousands)	2024		2023
Net income attributable to Agiliti, Inc. and Subsidiaries	$	(6,607)	$	3,013
Interest expense	22,918		15,831
Income tax expense	(1,218)		1,656
Depreciation and amortization	40,858		42,106
EBITDA	55,951		62,606
Non-cash share-based compensation expense	4,238		6,889
Management and other expenses (1)	1,315		961
Transaction costs (2)	364		1,512
Tax receivable agreement remeasurement	267		—
Adjusted EBITDA	$	62,135	$	71,968
____________________

(1) Management and other expenses represent non-recurring expenses.

(2) Transaction costs represent costs associated with potential and completed mergers and acquisitions.

SEASONALITY

Quarterly operating results are typically affected by seasonal factors. Historically, our first and fourth quarters are the strongest, reflecting increased customer utilization during the fall and winter months.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are expected to be cash flows from operating activities and borrowings under our Revolving Credit Facility and Accounts Receivable Securitization Facility ("AR Facility"). Availability under our Revolving Credit Facility and AR Facility is $284.9 million and $150.0 million, respectively, as of March 31, 2024. Our principal uses of liquidity will be to fund capital expenditures related to purchases of medical equipment, provide working capital, meet debt service requirements and finance our strategic plans.

We believe our existing balances of cash and cash equivalents, our currently anticipated operating cash flows, and availability under our Revolving Credit Facility and AR Facility will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months. If new financing is necessary, there can be no assurance that any such financing would be available on commercially acceptable terms, or at all. To date, we have not experienced difficulty accessing the credit market; however, future volatility in the credit market may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the credit market could be limited at a time when we would like, or need to do so, which could have an adverse impact on our ability to refinance debt and/or react to changing economic and business conditions.

Net cash provided by operating activities was $13.8 million and $54.9 million for the three months ended March 31, 2024 and 2023, respectively. Net cash provided by operating activities decreased due to lower consolidated net income, the timing of accounts receivable collections, and an increase in inventory that will be sold in the second quarter.

Net cash used in investing activities was $17.8 million for the three months ended March 31, 2024 and 2023, respectively.

Net cash used in financing activities was $10.7 million and $28.2 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in net cash used in financing activities was primarily due to the lower payment on the tax receivable agreement.

RECENT ACCOUNTING PRONOUNCEMENT

See "Note 2 – Recent Accounting Pronouncements", to the consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

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OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2024, we did not have any unconsolidated SPEs.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “will”, “should”, “can have”, “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•the outcome of any legal proceedings that may be instituted following announcement or completion of the Merger;

•our ability to implement our business strategy following completion of the Merger;

•potential adverse reactions or changes to business relationships, including with customers, competitors, suppliers and employees resulting from completion of the Merger;

•imbalances in our selling mix;

•effects from political and policy changes that could limit our growth opportunities;

•our ability to maintain existing contracts or contract terms with, or enter into new contracts with customers;

•cancellations by or disputes with customers;

•our ability to maintain our reputation, including by protecting intellectual property;

•effects of a global economic downturn on our customers and suppliers;

•competitive practices by our competitors that could cause us to lose market share, reduce our prices or increase our expenditures;

•the bundling of products and services by our competitors, some of which we do not offer;

•consolidation in the healthcare industry;

•adverse developments with supplier relationships;

•our potential inability to attract and retain key personnel and employees following completion of the Merger;

•our potential inability to make attractive acquisitions or successfully integrate acquire businesses;

•our need for substantial cash to operate and expand our business as planned;

•our substantial outstanding debt and debt service obligations;

•restrictions imposed by the terms of our debt;

•a decrease in the number of patients our customers are serving;

•our ability to effect change in the manner in which health care providers traditionally procure medical equipment;

•the absence of long-term commitments with customers;

•our ability to renew contracts with group purchasing organizations and integrated delivery networks;

•changes in reimbursement rates and policies by third-party payors;

•the impact of health care reform initiatives;

•the impact of significant regulation of the health care industry and the need to comply with those regulations;

•difficulties or delays in our continued expansion into certain of our businesses/geographic markets and developments of new businesses/geographic markets;

•additional credit risks in increasing business with home care providers and nursing homes, impacts of equipment product recalls or obsolescence;

•impairment charges for goodwill or other long-lived assets;

•an increase in expenses related to our pension plan;

•potential claims related to the medical equipment that we outsource and service;

•incurrence of costs that we cannot pass through to our customers;

•a failure of our management information systems;

•limitations inherent in all internal controls systems over financial reporting;

•our failure to keep up with technological changes;

•our failure to coordinate the management of our equipment;

•challenges to our tax positions or changes in taxation laws;

SEC Form 10-Q filed by Agiliti Inc.