AGILITI, INC. \DE - Quarter Report: 2023 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2023


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 October 31, 2023: 134,844,437

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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 — September 30, 2023 and December 31, 2022	2

	Consolidated Statements of Operations—Three and nine months ended Sept ember 30, 2023 and 2022	3

	Consolidated Statements of Comprehensive Income (Loss) —Three and nine months ended Se ptember 30, 2023 and 2022	4

	Consolidated Statements of Equity — Three and nine months ended September 30, 2023 and 2022	5

	Consolidated Statements of Cash Flows — Nine months ended September , 2023 and 2022	7

	Condensed Notes to Consolidated Financial Statements	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28

ITEM 4.	Controls and Procedures	29

PART II - OTHER INFORMATION		30

ITEM 1.	Legal Proceedings	30

ITEM 1A.	Risk Factors	30

ITEM 5.	Other Information	31

ITEM 6.	Exhibits	32

Signatures		33

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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)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	30,386	$	5,577
Accounts receivable, less allowance for credit losses of $6,565 as of September 30, 2023 and $4,182 as of December 31, 2022	212,991		207,753
Inventories	79,195		70,132
Prepaid expenses	16,328		23,458
Other current assets	5,296		9,393
Total current assets	344,196		316,313
Property and equipment, net	284,035		273,958
Goodwill	1,239,432		1,239,106
Operating lease right-of-use assets	76,987		79,975
Other intangibles, net	449,826		512,020
Other	24,646		22,735
Total assets	$	2,419,122	$	2,444,107
Liabilities and Equity
Current liabilities:
Current portion of long-term debt	$	18,883	$	17,752
Current portion of operating lease liability	25,106		23,607
Current portion of obligation under tax receivable agreement	11,144		34,694
Accounts payable	70,995		59,163
Accrued compensation	33,782		25,928
Accrued interest	21,185		5,039
Other current liabilities	30,605		31,198
Total current liabilities	211,700		197,381
Long-term debt, less current portion	1,059,347		1,077,293
Obligation under tax receivable agreement, pension and other long-term liabilities	9,468		9,161
Operating lease liability, less current portion	63,160		67,332
Deferred income taxes, net	130,964		146,615
Commitments and contingencies (Note 10)
Equity:
Common stock, $0.0001 par value; 500,000,000 shares authorized; 135,193,414 and 133,608,495 shares issued; 134,787,318 and 133,608,495 shares outstanding as of September 30, 2023 and December 31, 2022, respectively	14		13
Treasury stock, at cost; 406,096 and — shares as of September 30, 2023 and December 31, 2022, respectively	(3,761)		—
Additional paid-in capital	969,617		953,046
Accumulated deficit	(27,988)		(14,274)
Accumulated other comprehensive income	6,361		7,343
Total Agiliti, Inc. and Subsidiaries equity	944,243		946,128
Noncontrolling interest	240		197
Total equity	944,483		946,325
Total liabilities and equity	$	2,419,122	$	2,444,107

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	291,633	$	271,185	$	882,618	$	839,613
Cost of revenue	194,875		169,582		577,071		516,218
Gross margin	96,758		101,603		305,547		323,395
Selling, general and administrative expense	87,295		86,044		257,373		254,303
Operating income	9,463		15,559		48,174		69,092
Loss on extinguishment / modification of debt	82		—		4,527		1,418
Interest expense	24,274		12,531		60,654		34,456
Tax indemnification expense	—		11,918		—		11,918
Income (loss) before income taxes and noncontrolling interest	(14,893)		(8,890)		(17,007)		21,300
Income tax (benefit)	(2,271)		(10,879)		(3,507)		(5,672)
Consolidated net income (loss)	(12,622)		1,989		(13,500)		26,972
Net income attributable to noncontrolling interest	79		38		214		131
Net income (loss) attributable to Agiliti, Inc. and Subsidiaries	$	(12,701)	$	1,951	$	(13,714)	$	26,841

Basic earnings (loss) per share	$	(0.09)	$	0.01	$	(0.10)	$	0.20
Diluted earnings (loss) per share	$	(0.09)	$	0.01	$	(0.10)	$	0.19

Weighted-average common shares outstanding:
Basic	134,971,632		133,212,218		134,498,671		132,313,218
Diluted	134,971,632		139,062,813		134,498,671		138,242,880

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 Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Consolidated net income (loss)	$	(12,622)	$	1,989	$	(13,500)	$	26,972
Other comprehensive income (loss):
(Loss) on minimum pension liability, net of tax of $10, $0, $29, and $0	(28)		—		(85)		—
Gain (loss) on cash flow hedge, net of tax of $(308), $(93), $312, and $(2,734)	892		269		(897)		7,953
Total other comprehensive income (loss)	864		269		(982)		7,953
Comprehensive income (loss)	(11,758)		2,258		(14,482)		34,925
Comprehensive income attributable to noncontrolling interest	79		38		214		131
Comprehensive income (loss) attributable to Agiliti, Inc. and Subsidiaries	$	(11,837)	$	2,220	$	(14,696)	$	34,794

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		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Accumulated Other Comprehensive Income		Total Agiliti, Inc. and Subsidiaries		Noncontrolling Interests		Total Equity (Deficit)
Balance as of June 30, 2023	$	13	$	963,965	$	(15,287)	$	—	$	5,497	$	954,188	$	225	$	954,413
Net income (loss)	—		—		(12,701)		—		—		(12,701)		79		(12,622)
Other comprehensive income	—		—		—		—		864		864		—		864
Purchases of treasury stock	—		—		—		(3,761)		—		(3,761)		—		(3,761)
Share-based compensation expense	1		5,130		—		—		—		5,131		—		5,131
Stock options exercised	—		568		—		—		—		568		—		568
Shares forfeited for taxes	—		(46)		—		—		—		(46)		—		(46)
Cash distributions to noncontrolling interests	—		—		—		—		—		—		(64)		(64)
Balance as of September 30, 2023	$	14	$	969,617	$	(27,988)	$	(3,761)	$	6,361	$	944,243	$	240	$	944,483

Balance as of June 30, 2022	$	13	$	938,906	$	(19,596)	$	—	$	9,221	$	928,544	$	166	$	928,710
Net income	—		—		1,951		—		—		1,951		38		1,989
Other comprehensive income	—		—		—		—		269		269		—		269
Share-based compensation expense	—		4,712		—		—		—		4,712		—		4,712
Stock options exercised	—		978		—		—		—		978		—		978
Shares forfeited for taxes	—		(121)		—		—		—		(121)		—		(121)
Dividend forfeited, net of payable	—		2		—		—		—		2		—		2
Cash distributions to noncontrolling interests	—		—		—		—		—		—		(53)		(53)
Balance as of September 30, 2022	$	13	$	944,477	$	(17,645)	$	—	$	9,490	$	936,335	$	151	$	936,486

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

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	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Agiliti, Inc. and Subsidiaries		Noncontrolling Interests		Total Equity (Deficit)
Balance as of December 31, 2022	$	13	$	953,046	$	(14,274)	$	—	$	7,343	$	946,128	$	197	$	946,325
Net income (loss)	—		—		(13,714)		—		—		(13,714)		214		(13,500)
Other comprehensive (loss)	—		—		—		—		(982)		(982)		—		(982)
Purchases of treasury stock	—		—		—		(3,761)		—		(3,761)		—		(3,761)
Proceeds from issuance of common stock	—		1,856		—		—		—		1,856		—		1,856
Acquisition consideration paid in equity	—		2,753		—		—		—		2,753		—		2,753
Share-based compensation expense	1		15,584		—		—		—		15,585		—		15,585
Stock options exercised	—		2,670		—		—		—		2,670		—		2,670
Shares forfeited for taxes	—		(6,292)		—		—		—		(6,292)		—		(6,292)
Cash distributions to noncontrolling interests	—		—		—		—		—		—		(171)		(171)
Balance as of September 30, 2023	$	14	$	969,617	$	(27,988)	$	(3,761)	$	6,361	$	944,243	$	240	$	944,483

Balance as of December 31, 2021	$	13	$	938,888	$	(44,486)	$	—	$	1,537	$	895,952	$	120	$	896,072
Net income	—		—		26,841		—		—		26,841		131		26,972
Other comprehensive income	—		—		—		—		7,953		7,953		—		7,953
Proceeds from the issuance of common stock	—		2,159		—		—		—		2,159		—		2,159
Share-based compensation expense	—		14,947		—		—		—		14,947		—		14,947
Stock options exercised	—		2,949		—		—		—		2,949		—		2,949
Shares forfeited for taxes	—		(14,488)		—		—		—		(14,488)		—		(14,488)
Dividend forfeited, net of payable	—		22		—		—		—		22		—		22
Cash distributions to noncontrolling interests	—		—		—		—		—		—		(100)		(100)
Balance as of September 30, 2022	$	13	$	944,477	$	(17,645)	$	—	$	9,490	$	936,335	$	151	$	936,486

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)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Consolidated net income (loss)	$	(13,500)	$	26,972
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	59,430		65,502
Amortization	70,477		71,254
Loss on extinguishment / modification of debt	4,527		1,418
Provision for credit losses	2,386		801
Provision for inventory obsolescence	1,717		859
Non-cash share-based compensation expense	15,861		15,066
Gain on sales and disposals of equipment	(1,429)		(793)
Deferred income taxes	(15,310)		(3,365)
Changes in operating assets and liabilities:
Accounts receivable	(6,880)		3,420
Inventories	(10,941)		(6,539)
Other operating assets	5,628		(7,566)
Accounts payable	11,534		13,123
Accrued and other operating liabilities	24,661		(18,251)
Net cash provided by operating activities	148,161		161,901
Cash flows from investing activities:
Medical equipment purchases	(35,960)		(37,494)
Property and office equipment purchases	(25,079)		(20,374)
Proceeds from disposition of property and equipment	3,116		2,695
Acquisitions, net of cash acquired	—		(3,125)
Net cash used in investing activities	(57,923)		(58,298)
Cash flows from financing activities:
Proceeds under debt arrangements	1,266,937		20,000
Payments under debt arrangements	(1,283,049)		(146,173)
Payments of principal under finance lease liability	(7,042)		(6,676)
Payments of deferred financing costs	(9,578)		—
Payments under tax receivable agreement	(24,822)		—
Distributions to noncontrolling interests	(171)		(100)
Proceeds from exercise of stock options	2,670		2,949
Dividend and equity distribution payment	(321)		(908)
Purchases of treasury stock	(3,761)		—
Shares forfeited for taxes	(6,292)		(14,488)
Payments of contingent consideration	—		(321)
Net cash used in financing activities	(65,429)		(145,717)
Net change in cash and cash equivalents	24,809		(42,114)
Cash and cash equivalents at the beginning of period	5,577		74,325
Cash and cash equivalents at the end of period	$	30,386	$	32,211

Supplemental cash flow information:
Interest paid	$	39,070	$	30,214
Income taxes paid	11,084		13,172

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. and Sizewise Rentals, 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.

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, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 7, 2023 (“2022 Form 10-K Report”).

The interim consolidated financial statements presented herein as of September 30, 2023, 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 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 predicates 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 quarter ended September 30, 2023.

2. Recent Accounting Pronouncements

Standards Adopted

In October 2021, the FASB issued ASU No. 2021-08 Business Combinations (ASC 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 improves the accounting for acquired revenue contracts with customers in a business combination. The amendments in this ASU require that an entity ("acquirer") recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2023. The adoption of this standard did not have a material impact on the unaudited consolidated financial statements.

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In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (ASC 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU No. 2022-06 Reference Rate Reform (ASC 848): Deferral of the Sunset Date of ASC 848 ("ASU 2022-06"), which delayed the optional adoption of Reference Rate Reform from December 31, 2022 to December 31, 2024. The Company adopted these standards on May 1, 2023. The adoption did not have a material impact on the consolidated financial statements. Refer to Note 7, Long-Term Debt for details surrounding the adoption of ASU 2020-04 and ASU 2022-06.

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.

The following table presents disaggregated revenue by service solution:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Equipment Solutions	$	113,199	$	103,103	$	348,075	$	331,810
Clinical Engineering	114,645		103,639		340,145		310,850
Onsite Managed Services	63,789		64,443		194,398		196,953
Total revenue	$	291,633	$	271,185	$	882,618	$	839,613

The Company capitalizes contract costs incurred in obtaining new contracts. The contract asset included in other long-term assets in the consolidated balance sheets as of September 30, 2023 and December 31, 2022 was $15.3 and $17.3 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 expense. Total amortization expense included in cost of revenue was $0.4 and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $1.0 and $0.8 million for the nine months ended September 30, 2023 and 2022, respectively. Total amortization expense included in selling, general, and administrative expense was $1.2 and $1.1 million for the three months ended September 30, 2023 and 2022, respectively, and $3.6 and $3.1 million for the nine months ended September 30, 2023 and 2022, respectively.

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There was no impairment loss in relation to the costs capitalized during the three and nine months ended September 30, 2023 and 2022.

4. Acquisitions

On December 15, 2022, the Company completed the acquisition of certain assets of a surgical laser equipment solutions provider for total consideration of approximately $51.2 million funded by cash on hand and a draw on the line of credit. On December 1, 2022, the Company completed the acquisition of certain assets of a surgical equipment and repair services provider for total consideration of $9.7 million funded by cash on hand and common stock issuance. During the second quarter of 2022, the Company completed the acquisition of certain small surgical equipment repair companies.

All fiscal year 2022 acquisitions qualify as business combinations under ASC 805, Business Combinations, and are accounted for using the acquisition method. The results of operations of acquisitions are included in the accompanying consolidated financial statements from the acquisition date. Unaudited pro forma financial information has not been disclosed for the fiscal year 2022 acquisitions as they are not considered material to the Company's consolidated results of operations.

Purchase accounting was finalized for the fiscal year 2022 acquisitions as of March 31, 2023.

The following summarizes the final fair value of assets acquired and liabilities assumed within the consolidated balance sheet for the fiscal year 2022 transactions:


(in thousands)
Accounts receivable	$	372
Prepaid expenses	80
Inventories	3,503
Property and equipment	9,001
Goodwill	26,312
Operating lease right-of-use assets	215
Other non-current assets	6
Other intangibles	24,980
Accrued expenses	(455)
Operating lease liability	(209)
Total purchase price	$	63,805

Prior to the finalization of purchase accounting, 2023 adjustments affecting the fair values of assets acquired and liabilities assumed decreased inventories by $0.2 million and increased accrued expenses and goodwill by $0.1 and $0.3 million, respectively.

5. 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

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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 are summarized in the following tables by type of inputs applicable to the fair value measurements:


	Fair Value as of September 30, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Deferred compensation assets	$	3,135	$	—	$	—	$	3,135
Interest rate swap	—		8,002		—		8,002
Liabilities:
Contingent consideration	$	—	$	—	$	188	$	188
Obligation under tax receivable agreement	—		—		14,732		14,732
Deferred compensation liabilities	3,135		—		—		3,135


	Fair Value as of December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Deferred compensation assets	$	2,681	$	—	$	—	$	2,681
Interest rate swap	—		9,212		—		9,212
Liabilities:
Contingent compensation	$	—	$	—	$	1,898	$	1,898
Contingent consideration	—		—		248		248
Obligation under tax receivable agreement	—		—		38,714		38,714
Deferred compensation liabilities	2,674		—		—		2,674

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 7, 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.

The Company made no earn-out payments in the form of equity awards during three months ended September 30, 2023, and $2.8 million of earn-out payments in the form of equity awards during the nine months ended September 30, 2023 related to the acquisition of several small surgical equipment repair companies in 2022.

The Company also accrued contingent consideration of $0.2 million as of September 30, 2023 as part of the acquisition of another small surgical repair company during the year ended December 31, 2022. The fair value of contingent consideration was determined utilizing a series of call options with strike prices at revenue thresholds defined in the acquisition purchase agreement and is classified within Level 3.

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 Company did not make any remeasurement adjustments during the three and nine months ended September 30, 2023 and 2022. The Company made $24.8 million of payments under the TRA during the nine months ended September 30, 2023 and no payments during the three months ended September 30, 2022 and 2023 and nine months ended September 30, 2022.

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


(in thousands)
Balance as of December 31, 2022	$	40,860
Additions (1)	1,635
Payments (2)	(27,575)
Balance as of September 30, 2023	$	14,920
____________________

(1)Additions consist of interest on the TRA, the accrual for contingent consideration, and the change in contingent compensation fair value.

(2)Includes payments on the TRA and earn-out payments related to contingent compensation.

Fair Value of Other Financial Instruments

The fair value of the Company's outstanding First Lien Term Loan (as defined in Note 7, Long-Term Debt) as of September 30, 2023 and December 31, 2022, is based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:


	September 30, 2023				December 31, 2022
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
First Lien Term Loan (1)	$	1,057,745	$	1,062,906	$	1,043,915	$	1,030,072
____________________


(1)			The carrying value of the First Lien Term Loan is net of unamortized deferred financing costs of $7.8 and $8.0 million and unamortized debt discount of $9.4 and $2.6 million as of September 30, 2023 and December 31, 2022, respectively.

6. Selected Financial Statement Information

Inventories

The Company's inventories consist of the following:


(in thousands)	September 30, 2023		December 31, 2022
Raw materials	$	14,810	$	14,575
Work-in-process	346		692
Finished goods	64,039		54,865
Total inventories	$	79,195	$	70,132

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

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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)	September 30, 2023		December 31, 2022
Medical equipment	$	436,350	$	405,149
Less: Accumulated depreciation	(275,583)		(250,620)
Medical equipment, net	160,767		154,529
Leasehold improvements	57,980		52,046
Office equipment and vehicles	190,074		165,737
	248,054		217,783
Less: Accumulated depreciation	(124,786)		(98,354)
Property and office equipment, net	123,268		119,429
Total property and equipment, net	$	284,035	$	273,958

Depreciation expense recognized during the three months ended September 30, 2023 and 2022 was $20.3 and $19.1 million, respectively, and $59.4 and $65.5 million during the nine months ended September 30, 2023 and 2022, respectively.

There were no impairment charges on property and equipment during the three and nine months ended September 30, 2023 and 2022.

Goodwill and Other Intangible Assets

Goodwill was recognized during the nine months ended September 30, 2023 due to purchase price adjustments for companies acquired in 2022.

The Company's goodwill consists of the following:


(in thousands)
Balance as of December 31, 2022	$	1,239,106
Acquisitions	326
Balance as of September 30, 2023	$	1,239,432

There were no impairment losses recorded on goodwill during the three and nine months ended September 30, 2023 and 2022.

During the period ended September 30, 2023, the Company evaluated whether there were any events or changes in circumstances for the Company that could indicate that the fair value of the Company may be below the carrying amount. Specifically, the Company evaluated, among other factors, (1) its revised projected earnings communicated to investors in the 3rd quarter, (2) changes in management, (3) industry and market considerations, (4) the fair value of the Company's common stock and debt as of September 30, 2023, in relation to the carrying amount of its assets and liabilities, and (5) observed market participate acquisition premiums. The Company considered the extent to which each of the events and circumstances identified could affect the comparison of its reporting unit's fair value with its carrying amount as of September 30, 2023. As a result of its assessment, the Company determined that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount as of September 30, 2023. The Company continuously monitors for events and changes in circumstances, such as the potential for a sustained decrease in the Company’s stock price, which could result in an impairment of Goodwill or other long-lived assets.

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.

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


	September 30, 2023
(in thousands)	Cost		Accumulated Amortization		Net
Finite-life intangibles
Customer relationship	$	780,806	$	(333,978)	$	446,828
Non-compete agreements	1,225		(280)		945
Trade names	7,806		(5,780)		2,026
Patents	32		(5)		27
Total other intangible assets	$	789,869	$	(340,043)	$	449,826


	December 31, 2022
(in thousands)	Cost		Accumulated Amortization		Net
Finite-life intangibles
Customer relationship	$	780,806	$	(275,522)	$	505,284
Non-compete agreements	6,225		(5,096)		1,129
Trade names	7,826		(3,311)		4,515
Developed technology	2,300		(1,208)		1,093
Total other intangible assets	$	797,157	$	(285,137)	$	512,020

Total amortization expense related to intangible assets was $20.6 and $21.7 million for the three months ended September 30, 2023 and 2022, respectively, and $62.2 and $64.4 million for the nine months ended September 30, 2023 and 2022, respectively. There were no impairment charges during the three and nine months ended September 30, 2023 and 2022 with respect to other intangible assets.

The estimated future amortization expense for other intangible assets during the remainder of 2023 and the next five years is as follows:


(in thousands)
Remainder of 2023	$	20,098
2024	71,603
2025	65,040
2026	58,465
2027	51,899
Thereafter	182,721
	$	449,826

Supplementary Cash Flow Information

Supplementary cash flow information is as follows:


	Nine Months Ended September 30,
(in thousands)	2023		2022
Non-cash activities:
Property and equipment purchases included in accounts payable (at end of period)	$	2,337	$	2,976
Finance lease assets and liability additions	7,887		4,104
Operating lease right-of-use assets and operating lease liability additions	13,210		19,580

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7. Long-Term Debt

Long-term debt consists of the following:


(in thousands)	September 30, 2023		December 31, 2022
First Lien Term Loan	$	1,075,000	$	1,054,549
Revolving Loan	—		28,500
Finance lease liability	24,693		23,892
	1,099,693		1,106,941
Less: Unamortized deferred financing costs and debt discount	(21,463)		(11,896)
	1,078,230		1,095,045
Less: Current portion of long-term debt	(18,883)		(17,752)
Total long-term debt	$	1,059,347	$	1,077,293

Revolving Credit Facility Amendment

On April 6, 2023, the Company entered into Amendment No. 6 (“Amendment No. 6”) to the credit agreement, dated January 4, 2019 (as further amended, supplemented, amended and restated or otherwise modified from time to time, the “First Lien Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders.

Amendment No. 6, among other things, provides for (i) a refinancing of the existing Revolving Credit Facility through a replacement of the existing $250 million Revolving Credit Facility with a $300 million revolving credit facility; (ii) extends the maturity of the Revolving Credit Facility to April 6, 2028; and (iii) updates the benchmark interest rate provisions to replace the LIBOR with a term rate based on the Secured Overnight Financing Rate (“Term SOFR”), for revolving loans extended in dollars, a term rate based on the Euro InterBank Offered Rate (“Adjusted EURIBOR”), for revolving loans extended in euros, and a daily rate (“Daily Simple RFR”) based on the Sterling Overnight Index Average (“SONIA”), for revolving loans extended in sterling, as the reference rates for purposes of calculating interest under the Revolving Credit Facility.

Following Amendment No. 6, the interest rate margin for borrowings under the Revolving Credit Facility are set at Adjusted EURIBOR, Daily Simple RFR or Term SOFR plus 2.75%, with step downs to (A) Adjusted EURIBOR, Daily Simple RFR or Term SOFR plus 2.50% if the first lien leverage ratio (as calculated under the First Lien Credit Agreement) is less than or equal to 3.75:1.00 and (B) Adjusted EURIBOR, Daily Simple RFR or Term SOFR plus 2.25% if the first lien leverage ratio is less than or equal to 3.25:1.00.

In connection with the Company's entry into Amendment No. 6, $3.7 million in lender and third-party fees were capitalized during the three and nine months ended September 30, 2023.

A&R First Lien Term Loan Agreement

On May 1, 2023, the Company entered into an amended and restated credit agreement, dated as of May 1, 2023 (the “A&R First Lien Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders from time to time party thereto, which amends and restates the First Lien Credit Agreement.

The A&R First Lien Credit Agreement among other things (i) provides for a refinancing of the existing term loan credit facility with a $1.075 billion term loan credit facility (the “Term Loan Credit Facility”); (ii) extends the maturity of the Term Loan Credit Facility to May 1, 2030; and (iii) updates the benchmark interest rate provisions to replace LIBOR with a term rate based on the Term SOFR, for term loans extended in dollars. Following the A&R First Lien Credit Agreement, the interest rate margin for the term loan borrowings under the Term Loan Credit Facility will be set at Term SOFR plus 3.00%.

The Term Loan Credit Facility amortizes in equal quarterly installments, commencing on December 31, 2023, in an aggregate annual amount equal to 0.25% of the original principal amount of such term loan, with the balance due and payable at maturity unless prepaid prior thereto.

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Except as described above, the A&R First Lien Credit Agreement does not give effect to other material changes to the terms of the First Lien Credit Agreement, including with respect to the representations and warranties, events of default and affirmative and negative covenants.

In connection with the Company's entry into the A&R First Lien Credit Agreement, $3.1 million in lender and third-party fees were capitalized during the three and nine months ended September 30, 2023. Meanwhile, $0.1 and $2.8 million in lender and third-party fees were expensed for the three and nine months ended September 30, 2023, respectively. Unamortized costs written off due to loss on extinguishment / modification of debt during the three and nine months ended September 30, 2023, totaled $1.7 million.

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 September 30, 2023 was $8.0 million, of which $4.9 million is included in other current assets and $3.1 million is included in other long-term assets on the consolidated balance sheets. The change in fair value was recorded as a component of accumulated other comprehensive income on the consolidated balance sheets, net of tax, since the instrument was determined to be an effective hedge as of September 30, 2023. The Company has not recorded any amounts due to ineffectiveness for any periods presented.

8. 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.

The Company granted 1,516 and 306,476 shares of market-based performance restricted stock awards during the three and nine months ended September 30, 2023, respectively. The awards cliff-vest after 3 years and vesting is dependent on meeting certain Adjusted EBITDA targets and total shareholder return against an index of peer companies.

The fair value of the market-based performance restricted stock units is estimated at the grant date using a Monte-Carlo simulation model which included the following assumptions:


			Nine Months Ended September 30, 2023
Risk-free interest rate			4.19%
Dividend yield			N/A
Historical volatility of the Company			51.19%
Expected term (years)			2.57

During the nine months ended September 30, 2023, the Company granted 652,394 shares of nonqualified stock options. No shares of nonqualified stock options were granted during the three months ended September 30, 2023. The Company determines the fair value of stock options using the Black-Scholes option pricing model. The estimated fair value of options is recognized as an expense on a straight-line basis over the options’ expected vesting periods.

The assumptions in the table below were used to determine the Black-Scholes fair value of stock options:

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	Nine Months Ended September 30, 2023
Risk-free interest rate	3.91 %
Expected volatility	39.71 %
Dividend yield	N/A
Expected option life (years)	6.00
Black-Scholes value of options	$	6.64

As of September 30, 2023, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock units and performance restricted stock units was $17.6 million, which is expected to be recognized over a weighted average period of 1.90 years. As of September 30, 2023, the total unrecognized compensation expense related to the non-vested portion of the Company's nonqualified stock options was $4.6 million, which is expected to be recognized over a weighted average period of 2.12 years.

Employee Stock Purchase Program

The Company adopted an Employee Stock Purchase Plan (“ESPP”) in April 2021. 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 September 30, 2023. During nine months ended September 30, 2023, 130,601 shares were issued under the ESPP.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Cost of sales	$	740	$	—	$	2,290	$	—
Selling, general, and administrative expense	4,647		4,859		13,571		15,065
Total stock-based compensation expense	$	5,387	$	4,859	$	15,861	$	15,065

9. Common Stock Repurchases

On August 21, 2023, the Company announced that its board of directors approved a share repurchase program, pursuant to which, the Company is authorized to repurchase up to $50 million of shares of the Company’s common stock (exclusive of any fees, commissions or other expenses related to such repurchases), over a 12-month period. Share repurchases were made on the open market. The shares repurchased by the Company are held as treasury shares and may be used in the issuance of share-based compensation awards or for general corporate purposes. Any share re-issuance will be accounted for using the first-in first-out method. During the three and nine months ended September 30, 2023, the Company repurchased 406,096 shares for $3.8 million.

10. Commitments and Contingencies

The Company, in the ordinary course of business, is subject to liability claims related to employees and the equipment that it rents and services. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. For certain claims where the loss is probable, a provision is recorded based on the Company’s best estimate. While the ultimate resolution of these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote.

11. 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.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Interest cost	$	295	$	212	$	886	$	635
Expected return on plan assets	(358)		(285)		(1,075)		(854)
Recognized net actuarial (gain)	(38)		—		(114)		—
Net periodic (income)	$	(101)	$	(73)	$	(303)	$	(219)

The Company made no contributions to the pension plan during the three months ended September 30, 2023 and $0.2 million of contributions to the pension plan during the nine months ended September 30, 2023. The Company does not expect to make additional contributions to the pension plan for the remainder of 2023.

12. Income Taxes

The Company recorded an income tax benefit of $2.3 and $10.9 million for the three months ended September 30, 2023 and 2022, respectively, and an income tax benefit of $3.5 million and $5.7 million for the nine months ended September 30, 2023 and 2022, respectively. The income tax benefit for the three months ended September 30, 2023 was primarily due to the tax-effect of pre-tax loss from operations offset by addbacks for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m). The income tax benefit for the three months ended September 30, 2022 was primarily due to the release of the reserve related to the Sizewise Acquisition offset by the tax-effect of pre-tax income from operations. The income tax benefit for the nine months ended September 30, 2023 was primarily due to the tax-effect of pre-tax loss from operations and benefits received from exercised stock options and vested stock compensation offset by add-backs for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m). The income tax benefit for the nine months ended September 30, 2022 was primarily due to the release of the reserve related to the Sizewise Acquisition and benefit from stock options and stock compensation offset by the effect of pre-tax income from operations plus addbacks for non-deductible expenses related to executive compensation.

13. 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.

Revenue related to various contracts with HHS/ASPR represented 10.4% of total revenue for both the three months ended September 30, 2023 and 2022, and 10.5% and 10.8% of total revenue for the nine months ended September 30, 2023 and 2022, respectively.

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14. 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic weighted average shares outstanding	134,971,632		133,212,218		134,498,671		132,313,218
Net effect of dilutive stock awards based upon the treasury stock method	—		5,850,595		—		5,929,662
Dilutive weighted average shares outstanding	134,971,632		139,062,813		134,498,671		138,242,880

Basic earnings (loss) per share	$	(0.09)	$	0.01	$	(0.10)	$	0.20
Diluted earnings (loss) per share	$	(0.09)	$	0.01	$	(0.10)	$	0.19

Anti-dilutive share-based awards excluded from the calculation of dilutive earnings per share based upon the treasury stock method	5,581,395		9,203		5,024,941		9,203

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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, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 7, 2023 (“2022 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 2022 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 manufacturing, 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 more than 80 years of experience ensuring healthcare providers have high-quality, expertly maintained equipment to serve their patients, we have established a nationwide operating footprint that supports our offering. This at-scale, local market 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. 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 the federal government in the management of 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 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 International Organization for Standardization ("ISO") 13485:20016. At our facilities, we employ a team of more than 800 specialized biomed repair technicians, more than 5,000 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 integrated delivery networks ("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. The Company's more than 1,300 onsite employees work 24/7 in customer facilities, augmenting clinical support by integrating proven equipment management processes, utilizing 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. The Company assumes 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 represented 21.9% and 23.8% of our total

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revenue for the three months ended September 30, 2023 and 2022, respectively, and 22.0% and 23.5% of our total revenue for the nine months ended September 30, 2023 and 2022, respectively.

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. The Company's supplemental offering helps customers manage their equipment repair and maintenance backlog, assist with remediation and regulatory reporting and temporarily fill open biotechnical positions. With outsourced offerings, the Company assumes 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 the Company's proprietary information systems, third party vendors of services and parts, and a broad range of professional services for capital equipment planning and regulatory compliance. The Company leverages more than 800 technical resources from over 150 local market service centers and Centers of Excellence to flex staff 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. The Company uses flex staffing for the supplemental clinical engineering solution and to augment support when additional technicians are needed to supplement the outsourced services during peak workload. The Company contracts its 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 represented 39.3% and 38.2% of our total revenue for the three months ended September 30, 2023 and 2022, respectively, and 38.5% and 37.0% of our total revenue for the nine months ended September 30, 2023 and 2022, 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. The Company contracts for Equipment Solutions services directly with customers or through contractual arrangements with hospital systems and alternate site providers. The Company consistently achieves high customer satisfaction ratings, as evidenced by Agiliti's net promoter score ("NPS") of 47 for the year ended December 31, 2022, by delivering patient-ready equipment within contracted equipment delivery times and by providing 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. The Company is committed to providing the highest quality of equipment to customers, and the Company does so through the use of a comprehensive quality management system ("QMS"), which is based on the quality standards recognized worldwide for medical devices: 21 Code of Federal Regulations ("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 to deliver optimal patient safety and outcomes. Revenue attributable to such customers represented 38.8% and 38.0% of our total revenue for the three months ended September 30, 2023 and 2022, respectively, and 39.5% and 39.5% of our total revenue for the nine months ended September 30, 2023 and 2022, respectively.

Many of our customers have multiple contracts and have revenue reported in 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 September 30, 2023; and

•the results of operations for the three and nine-month periods ended September 30, 2023 and 2022.

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 2022 Form 10-K Report.

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The following tables provide our results of operations for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,								Change
(in thousands)	2023				2022				$		%
Consolidated Statement of Operations			% of Total Revenue				% of Total Revenue
Revenue	$	291,633	100.0	%	$	271,185	100.0	%	$	20,448	7.5	%
Cost of revenue	194,875		66.8		169,582		62.5		25,293		14.9
Gross margin	96,758		33.2		101,603		37.5		(4,845)		(4.8)
Selling, general and administrative expense	87,295		29.9		86,044		31.7		1,251		1.5
Operating income	9,463		3.2		15,559		5.8		(6,096)		(39.2)
Loss on extinguishment / modification of debt	82		—		—		—		82		N/A
Interest expense	24,274		8.3		12,531		4.6		11,743		93.7
Tax indemnification expense	—		—		11,918		4.4		(11,918)		N/A
(Loss) before income taxes and noncontrolling interest	(14,893)		(5.0)		(8,890)		(3.2)		(6,003)		(67.5)
Income tax (benefit)	(2,271)		(0.8)		(10,879)		(4.0)		8,608		79.1
Consolidated net income (loss)	$	(12,622)	(4.2)		$	1,989	0.8		$	(14,611)	N/A


	Nine Months Ended September 30,								Change
(in thousands)	2023				2022				$		%
Consolidated Statement of Operations			% of Total Revenue				% of Total Revenue
Revenue	$	882,618	100.0	%	$	839,613	100.0	%	$	43,005	5.1	%
Cost of revenue	577,071		65.4		516,218		61.5		60,853		11.8
Gross margin	305,547		34.6		323,395		38.5		(17,848)		(5.5)
Selling, general and administrative expense	257,373		29.2		254,303		30.3		3,070		1.2
Operating income	48,174		5.5		69,092		8.2		(20,918)		(30.3)
Loss on extinguishment / modification of debt	4,527		0.5		1,418		0.2		3,109		219.3
Interest expense	60,654		6.9		34,456		4.1		26,198		76.0
Tax indemnification expense	—		—		11,918		1.4		(11,918)		N/A
Income (loss) before income taxes and noncontrolling interest	(17,007)		(1.9)		21,300		2.5		(38,307)		N/A
Income tax (benefit)	(3,507)		(0.4)		(5,672)		(0.7)		2,165		38.2
Consolidated net income (loss)	$	(13,500)	(1.5)		$	26,972	3.2		$	(40,472)	N/A

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Consolidated Results of Operations for the three months ended September 30, 2023 compared to the three months ended September 30, 2022

Revenue

The following table presents revenue by service solution for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Change
(in thousands)	2023		2022		%
Equipment Solutions	$	113,199	$	103,103	9.8	%
Clinical Engineering	114,645		103,639		10.6
Onsite Managed Services	63,789		64,443		(1.0)
Total revenue	$	291,633	$	271,185	7.5

Total revenue for the three months ended September 30, 2023 was $291.6 million, compared to $271.2 million for the three months ended September 30, 2022, an increase of $20.4 million or 7.5%. Equipment Solutions revenue increased 9.8% primarily driven by new business growth and a prior year acquisition, partially offset by lower utilization of our peak need rental medical equipment. Clinical Engineering revenue increased 10.6% primarily due to new customer growth. Finally, Onsite Managed Services revenue decreased 1.0% due to the renewal pricing and scope of the government contract.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2023 was $194.9 million compared to $169.6 million for the three months ended September 30, 2022, an increase of $25.3 million or 14.9%. On a percentage of revenue basis, cost of revenue increased from 62.5% of revenue in 2022 to 66.8% in 2023. The increase as a percentage of revenue was driven by a lower mix of peak need rental placements as well as the renewal pricing and scope of the government contract.

Gross Margin

Gross margin for the three months ended September 30, 2023 was $96.8 million, or 33.2% of revenue, compared to $101.6 million, or 37.5% of revenue, for the three months ended September 30, 2022, a decrease of $4.8 million or 4.8%. The decrease in gross margin as a percentage of revenue was primarily impacted by a lower mix of peak need rental placements as well as the renewal pricing and scope of the government contract.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $1.3 million, or 1.5%, to $87.3 million for the three months ended September 30, 2023, as compared to the same period of 2022. Selling, general and administrative expense as a percentage of revenue was 29.9% and 31.7% for the three months ended September 30, 2023 and 2022, respectively. The increase of $1.3 million was primarily due to severance charges related to a reduction in workforce and a charge related to the change in Chief Executive Officers totaling $5.1 million, partially offset by lower acquisition costs.

Loss on Extinguishment / Modification of Debt

Loss on extinguishment / modification of debt for the three months ended September 30, 2023 was $0.1 million, compared to no loss on extinguishment / modification of debt for the three months ended September 30, 2022.

Interest Expense

Interest expense increased $11.7 million to $24.3 million for the three months ended September 30, 2023 as compared to the same period of 2022 primarily due to the increase in interest rates.

Tax Indemnification Expense

Tax indemnification expense decreased $11.9 million for the three months ended September 30, 2023 as compared to the same period of 2022 due solely to non-recurring expense incurred from the release of the indemnification asset related to the Sizewise Acquisition, which occurred in 2021.

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Income Taxes

Income taxes were a benefit of $2.3 million and $10.9 million for the three months ended September 30, 2023 and 2022, respectively. The income tax benefit for the three months ended September 30, 2023 was primarily due to the tax-effect of pre-tax loss from operations offset by addbacks for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m). The income tax benefit for the three months ended September 30, 2022 was primarily due to the release of the reserve related to the Sizewise Acquisition offset by the tax-effect of pre-tax income from operations.

Consolidated Net Income (Loss)

Consolidated net income decreased from $2.0 million to a loss of $12.6 million for the three months ended September 30, 2023 as compared to the same period of 2022. The decrease in net income was primarily due an increase in interest expense, a decrease in tax benefits, and lower gross margins.

Consolidated Results of Operations for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Revenue

The following table presents revenue by service solution for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,				Change
(in thousands)	2023		2022		%
Equipment Solutions	$	348,075	$	331,810	4.9	%
Clinical Engineering	340,145		310,850		9.4
Onsite Managed Services	194,398		196,953		(1.3)
Total revenue	$	882,618	$	839,613	5.1

Total revenue for the nine months ended September 30, 2023 was $882.6 million, compared to $839.6 million for the nine months ended September 30, 2022, an increase of $43.0 million or 5.1%. Equipment Solutions revenue increased 4.9% primarily driven by new business growth and a prior year acquisition, partially offset by lower utilization of our peak need rental medical equipment as compared to utilization due to the impact of COVID-19 in the prior year. Clinical Engineering revenue increased 9.4% primarily due to new customer growth. Onsite Managed Services revenue decreased 1.3% as a result of the renewal pricing and scope of the government contract.

Cost of Revenue

Cost of revenue for the nine months ended September 30, 2023 was $577.1 million compared to $516.2 million for the nine months ended September 30, 2022, an increase of $60.9 million or 11.8%. On a percentage of revenue basis, cost of revenue increased from 61.5% of revenue in 2022 to 65.4% in 2023. The increase as a percentage of revenue was driven by a lower mix of peak need rental placements post COVID-19 as well as the renewal pricing and scope of the government contract.

Gross Margin

Gross margin for the nine months ended September 30, 2023 was $305.5 million, or 34.6% of revenue, compared to $323.4 million, or 38.5% of revenue, for the nine months ended September 30, 2022, a decrease of $17.8 million or 5.5%. The decrease in gross margin as a percentage of revenue was primarily impacted by a lower mix of peak need rental placements as well as the renewal pricing and scope of the government contract.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $3.1 million, or 1.2%, to $257.4 million for the nine months ended September 30, 2023, as compared to the same period of 2022. Selling, general and administrative expense as a percentage of revenue was 29.2% and 30.3% for the nine months ended September 30, 2023 and 2022, respectively. The increase of $3.1 million was primarily driven by severance charges related to a reduction in workforce and a charge related to the

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change in Chief Executive Officers totaling $5.7 million, partially offset by lower incentive expense based on the Company's financial performance.

Loss on Extinguishment / Modification of Debt

Loss on extinguishment / modification of debt for the nine months ended September 30, 2023 was $4.5 million, compared to $1.4 million for the nine months ended September 30, 2022, an increase of $3.1 million. Loss on extinguishment / modification of debt for the nine months ended September 30, 2023 consisted of the write-off of unamortized costs and new costs incurred relating to the refinancing of the Company's First Lien Term Loan and Revolving Credit Facility. The loss in 2022 was the result of the write-off of unamortized debt discount related to the partial prepayment of our First Lien Term Loan.

Interest Expense

Interest expense increased $26.2 million to $60.7 million for the nine months ended September 30, 2023 as compared to the same period of 2022 primarily due to the increase in interest rates.

Tax Indemnification Expense

Tax indemnification expense decreased $11.9 million for the nine months ended September 30, 2023 as compared to the same period of 2022 due solely to non-recurring expense incurred from the release of the indemnification asset related to the Sizewise Acquisition, which occurred in 2021.

Income Taxes

Income taxes were a benefit of $3.5 million and a benefit of $5.7 million for the nine months ended September 30, 2023 and 2022, respectively. The income tax benefit for the nine months ended September 30, 2023 was primarily due to the tax-effect of pre-tax loss from operations and benefits received from exercised stock options and vested stock compensation offset by add-backs for non-deductible expenses related to executive compensation disallowed under Internal Revenue Code Section 162(m). The income tax benefit for the nine months ended September 30, 2022 was primarily due to the release of the reserve related to the Sizewise Acquisition and benefit from stock options and stock compensation offset by the 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).

Consolidated Net Income (Loss)

Consolidated net income decreased from $27.0 million to a loss of $13.5 million for the nine months ended September 30, 2023 as compared to the same period of 2022. The decrease in net income was primarily due to higher interest expense and lower gross margins.

Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $199.5 million and $225.2 million for the nine months ended September 30, 2023 and 2022, respectively. Adjusted EBITDA for the nine months ended September 30, 2023 was lower than in 2022 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

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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:


	Nine Months Ended September 30,
(in thousands)	2023		2022
Net income (loss) attributable to Agiliti, Inc. and Subsidiaries	$	(13,714)	$	26,841
Interest expense	60,654		34,456
Income tax (benefit)	(3,507)		(5,672)
Depreciation and amortization	126,277		133,711
EBITDA	169,710		189,336
Non-cash share-based compensation expense	15,861		15,066
Tax indemnification expense (1)	—		11,918
Management and other expenses (2)	7,572		1,959
Transaction costs (3)	1,858		5,465
Loss on extinguishment / modification of debt (4)	4,527		1,418
Adjusted EBITDA	$	199,528	$	225,162
____________________

(1) Tax indemnification expense related to the Sizewise Acquisition, which occurred in 2021.

(2) Management and other expenses represent non-recurring expenses, including a severance charge related to the Chief Executive Officer transition and charges related to a reduction in workforce.

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

(4) Loss on extinguishment / modification of debt for the nine months ended September 30, 2023 consists of the write-off of unamortized costs and new costs incurred in relation to the amendment of the First Lien Term Loan and Revolving Credit Facility. Loss on extinguishment / modification of debt for the nine months ended September 30, 2022 consists of the write-off of the unamortized debt discount related to the partial prepayment of the First Lien Term Loan.

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 cash flows from operating activities and borrowings under our Revolving Credit Facility, which provides for loans in an amount of up to $300.0 million. Our principal uses of liquidity are to fund capital expenditures related to the purchase 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 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 $148.2 million and $161.9 million for the nine months ended September 30, 2023 and 2022, respectively. Net cash provided by operating activities decreased primarily due to lower net earnings for the nine months ended September 30, 2023 as compared to net earnings for nine months ended September 30, 2022.

Net cash used in investing activities was $57.9 million and $58.3 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in net cash used in investing activities was primarily due to a decrease in cash paid for acquisitions in the current year.

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Net cash used in financing activities was $65.4 million and $145.7 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in net cash used in financing activities was primarily due to net proceeds from the First Lien Term Loan refinancing partially offset by payments made under the tax receivable agreement in 2023.

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.

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 September 30, 2023, 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:

•negative reaction of our investors, our suppliers, our customers or our employees to our leadership transition;

•market volatility of our common stock as a result of our leadership transition;

•the risk that the leadership transition may not provide the results that the company expects;

•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;

•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;

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•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;

•litigation that may be costly to defend;

•federal privacy laws that may subject us to more stringent penalties;

•our contracts with the federal government that subject us to additional oversight;

•effects of high interest rates; and

•potential recall or obsolescence of our large fleet of medical equipment.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and elsewhere in our filings with the SEC. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk arising from adverse changes in interest rates, fuel costs and pension valuation. We do not enter into derivatives or other financial instruments for speculative purposes.

Interest Rates

We use both fixed and variable rate debt as sources of financing. As of September 30, 2023, we had approximately $1,099.7 million of total debt outstanding before netting with deferred financing costs and unamortized debt discount, of which $575.0 million was bearing interest at variable rates. Based on variable debt levels as of September 30, 2023, a 1.0 percentage point change in interest rates on variable rate debt would have resulted in annual interest expense increasing by approximately $5.8 million. We estimate we will incur an additional $30.0 million of interest expense in 2023 primarily as a result of higher interest rates.

Fuel Costs

We are exposed to market risks related to changes in the price of gasoline used to fuel our fleet of delivery and sales vehicles. A hypothetical 10% increase in the first nine months of 2023 average price of unleaded gasoline, assuming gasoline usage levels for nine months ended September 30, 2023, would lead to an increase in fuel costs of approximately $0.7 million.

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Pension

Our pension plan assets, which were approximately $21.0 million as of December 31, 2022, are subject to volatility that can be caused by fluctuations in general economic conditions. Continued market volatility and disruption could cause declines in asset values, and if this occurs, we may need to make additional pension plan contributions and our pension expense in future years may increase. A hypothetical 10% decrease in the fair value of plan assets as of December 31, 2022 would lead to a decrease in the funded status of the plan of approximately $2.1 million.

Other Market Risk

As of September 30, 2023, we have no other material exposure to market risk.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of September 30, 2023.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As described below, we previously identified material weaknesses in our internal control over financial reporting. As a result of these material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2023.

Notwithstanding the existence of the material weaknesses described below, management performed additional analysis and other procedures to ensure that the consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of and for the periods presented, in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

Previously Reported Material Weaknesses

As reported in Part II, Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K, we previously identified material weaknesses in our internal control over financial reporting related to an insufficient amount of trained resources with expertise in implementation and operation of internal control over financial reporting and information technology systems resulting in ineffectiveness of controls in the following areas: (1) identification of risks and related responses, (2) control activities related to the design and operation of process-level controls, and (3) information technology general controls (“ITGC”) across all financial reporting processes. Specifically, as it relates to ITGCs, the material weakness relates to ineffective user access provisioning, change management, and segregation of duties, within systems supporting the Company’s accounting and reporting processes. Many of the Company’s manual controls, dependent upon the information derived from these information technology systems, are also deemed ineffective. As a result, management could not rely on the information or implement effective controls to validate the completeness and accuracy of underlying data utilized in the operation of those manual controls.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Although these material weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, there is a possibility they could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control deficiencies constitute material weaknesses.

In response to the material weaknesses, management, with oversight of the Audit Committee of the Board of Directors, has begun to implement steps to remediate the material weaknesses. Our internal control remediation efforts include the following:

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•Enhancing policies and procedures to improve our overall control environment and monitoring controls around timely evaluation and communication of internal control deficiencies to those parties responsible for taking corrective action, including senior management and the board of directors, as appropriate.

•Continuing to recruit key positions within our technology, accounting, internal audit and other support functions with appropriate qualified experience to enhance our risk assessment processes and internal control capabilities, allow for appropriate segregation of duties and change management, and provide appropriate oversight and reviews.

•Providing additional training and education programs for personnel responsible for the performance of key business processes throughout the Company in order to facilitate their understanding of the risks being addressed by the controls they are performing as well as educate them in the documentation requirements of the internal controls framework.

•Enhancing user access provisioning and monitoring controls to enforce appropriate system access and segregation of duties as well as controls supporting change management.

We are committed to ensuring that our internal controls over financial reporting are designed and operating effectively. Management believes the efforts taken to date and the planned remediation will improve the effectiveness of our internal control over financial reporting. While these remediation efforts are ongoing, the controls must be operating effectively for a sufficient period of time and be tested by management in order to consider them remediated and conclude that the design is effective to address the risks of material misstatement.

Changes in Internal Controls Over Financial Reporting

Except for the steps taken as part of the remediation activities described above, there have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations , internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company, in the ordinary course of business, is subject to liability claims related to employees and the equipment that it rents and services. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. While the ultimate resolution of these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote. See the additional information in Note 10, Commitments and Contingencies, to the consolidated financial statements included in Part I, Item 1 of the Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our 2022 Form 10-K Report under Part I, Item 1A for the quarter ended September 30, 2023.

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

The following table shows information with respect to purchases of our common stock made during the three months ended September 30, 2023 by us or any of our “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Exchange Act:


Period	Total Number of Shares Repurchased (1)	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans at Period End (in thousands) (1)
July 1-31	—	$	—	—	$	—
August 1-31	—	—		—	50,000
September 1-31	406,096	9.2618		406,096	46,247
Total	406,096	$	9.2618	406,096	$	46,247

(1)On August 21, 2023, our Board of Directors approved a share repurchase program, pursuant to which, the Company is authorized to repurchase up to $50 million of shares of the Company’s common stock (exclusive of any fees, commissions or other expenses related to such repurchases), over a 12-month period (the “Repurchase Plan”). Share repurchases may be made from time to time, on the open market, through privately negotiated transactions, through an accelerated share repurchase, or in any other manner permitted by the applicable federal and state securities laws and regulations. There is no minimum number of shares, if any, that the Company is required to repurchase and the Repurchase Plan may be suspended or discontinued at any time without prior notice.

Item 5. Other Information

Rule 10b5-1 Trading Plans

On August 25, 2023, Thomas J. Leonard, a member of our Board of Directors and our Chief Executive Officer since October 1, 2023, adopted a prearranged trading plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 trading plan”). Mr. Leonard’s Rule 10b5-1 trading plan authorizes the potential sale of up to 172,674 shares of common stock including shares of common stock issuable upon the exercise of outstanding stock options and expires no later than March 12, 2024.

Other than as disclosed above, none of our directors or officers adopted, modified or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements (as such terms are defined in Item 408(c) of Regulation S-K) during the three months ended September 30, 2023.

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Item 6. Exhibits


Exhibit Number						Description

31.1						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

10.1						Offer Letter, dated as of September 29, 2023, by and between Agiliti, Inc. and Thomas J. Leonard (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 2, 2023).

101.INS						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101.

____________________

* Furnished, not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 7, 2023


			Agiliti, Inc.

			By			/s/ Thomas J. Leonard
			Thomas J. Leonard
			Chief Executive Officer
			(Principal Executive Officer and Duly Authorized Officer)

			By			/s/ James B. Pekarek
			James B. Pekarek
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)