RadNet, Inc.

Ladies and gentlemen, and welcome to the RedNet Inc. second quarter 2022 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RedNet Inc. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RADNET's second quarter 2022 financial results. Before we begin today, we'd like to remind everyone of the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance, Radnet's ability to continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and adjusted EBITDA for the acquired operations as estimated, among others, are forward-looking statements within the meaning of the safe harbor. Forward-looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties which may cause RADNET's actual results to differ materially from the statements contained herein. These risks and uncertainties include those risks set forth in RADNET's reports filed with the SEC from time to time, including RADNET's annual report on Form 10-K for the year ended December 31st, 2021. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RADNET undertakes no obligation to update publicly any forward-looking statements to reflect new information events or circumstances after the date they were made or to reflect the occurrence of unanticipated events. And with that, I'd like to turn the call over to Dr. Berger.

Thank you, Mark. Good morning, everyone, and thank you for joining us today. On today's call, Mark and I plan to provide you with highlights from our second quarter 2022 results, give you more insight into factors which affected this performance, and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest in our company and for dedicating a portion of your day to participate in our conference call this morning. Before I start, I would like to say on behalf of myself and the entire team at RadNet, we hope all of you and your loved ones are healthy and staying safe. We are extremely grateful for all our stakeholders, including our employees, business partners, lenders, and shareholders, and wish you all well during this challenging time. Let's begin. I am pleased that our performance in the second quarter is tracking towards our full year guidance, which we released in conjunction with our 2021 fourth quarter earnings and then subsequently raised in May after the strong first quarter 2022 results. When we set the guidance levels, we anticipated a number of challenges for 2022, including significant inflationary pressures, particularly around the cost of our labor force, certain Medicare reimbursement reductions, and the ongoing impact of COVID-19. I am pleased that our team is rising to the occasion to meet these challenges. During the second quarter, revenue increased 6.1% relative to last year's second quarter on aggregate on aggregate procedural volume growth of 4.5% and same center procedural volume growth of 2.2%. Adjusted EBITDA, excluding the losses of our AI segment, was 55.5 million. Though this was slightly behind last year's second quarter adjusted EBITDA, as anticipated in our internal projections, our growth and expansion has been able to mitigate much of the financial impact of the rising costs of labor and supplies, as well as the $7.4 million we estimated in 2022 for Medicare reimbursement reductions. While far from its impact in 2020, COVID-19 is still impacting our business in several ways. First, we have our own employee base impacted by COVID. Employee COVID leave has at times resulted in our use of more expensive temporary labor and overtime charges, as well as, in some cases, caused us to reschedule or cancel patient exams. While we also continue to see that the procedures we perform that are the most elective in nature, particularly mammography, remain impacted by patients delaying or postponing services. Despite these challenges, we continue to make progress on all fronts related to our long-term operating and growth plans. First, we are focused on driving growth in our core imaging center business through creating same center performance and through a more recent initiative to build de novo facilities in targeted local markets. As I discussed in our last financial results call, we have 15 new sites in various stages of construction and development, with almost half of this expansion occurring within existing health system joint ventures. These new sites are focused in areas where we currently are unable to meet the demand for services due to capacity constraints or because we simply do not have locations overlapping significant patient populations that we, or in certain cases our hospital partners, have identified. We believe these de novo sites should be major contributors to our performance in the latter part of 2022 and throughout 2023. Second, we continue to expand our hospital and joint venture offerings. During the second quarter, we established two new joint ventures. The first in Frederick, Maryland with Frederick Health Hospital established a joint venture with six centers, two of which were contributed to the venture by Frederick Hospital. The joint venture became operational in April and is our second joint venture with Frederick Hospital. The second joint venture established in June is with Dimension Health, an affiliate of the University of Maryland Medical System. Under this JV, RadNet and Dimension Health have each made a capital commitment to build two new locations in the Largo and Laurel regions of Maryland. We anticipate these centers to begin servicing patients sometime in the second or third quarter of next year. This is the fourth joint venture in partnership with the University of Maryland Medical System and its affiliates. We now have 102 of our 353 facilities, or 29% of our centers, held within partnerships with hospitals and regional health systems. We believe that within the next three to four years, we could have over 50% of our facilities held in joint venture structures. We continue to enjoy the benefits from these partnerships, which include increased patient volumes, expanded breadth of services, improved patient access, and closer relationship with regional insurance companies and health plans. Third, we continue to seek tuck-in acquisitions in our core markets. We seek to acquire individual centers or small groups of centers that strategically fit with our existing regional networks, which can offer more capacity, more access, and enhanced geographic reach to our patient communities. We endeavor to acquire these businesses for four to six times EBITDA and look for businesses where we can create efficiencies and synergies to enhance their financial profile once part of RADNet. We are opportunistic in our approach and attempt to remain disciplined about the types of assets we purchase and the prices we pay. An example, in the first two quarters of 2022, we purchased a group of three centers in Maryland called IFRC, or Fairfax Radiology, as the centers are more commonly known. These three centers enhanced our geographic access and capacity to provide effective population health and network solutions to the patient populations of Southern Maryland, a state where we are the primary alternative to more expensive hospital-based imaging. Lastly, we continue to drive our AI initiatives. As many of you are aware, on January 20th of this year, we completed the acquisition of Aidens Holding BV and Quantiv BV to address opportunities in lung and prostate diagnosis and screening with artificial intelligence. When combined with RadNet's existing Deep Health Demography AI operations, these artificial intelligence businesses provide RadNet with the basis for future offerings for widespread cancer screening programs for three of the most prevalent cancers, breast, prostate, and lung. AIDEN's AI for chest and lung CT scanning is currently used by customers in seven countries, and its leading product is pending FDA approval for use in the United States. With customers in 20 countries worldwide, Quantip solutions for prostate and brain MRIs already have FDA 510 clearance in the United States and CE mark in Europe. Currently, we have one algorithm submitted to the FDA pending its review and approval. This submission for AIDENS' VIA lung nodule detection solution was submitted to the FDA in December of last year, and we anticipate getting clearance towards the end of this year or in early 2023. We currently have the Deep Health Diagnostic mammography in use in the vast majority of our centers which provide mammograms, currently over 200 centers. We are also in the process of distributing quantitative prostate AI to our facilities that currently perform prostate MRI. We continue to believe that our investments in AI will ultimately result in the improved productivity and accuracy of our contracted radiologists, and more importantly, provide significant new revenue streams from large-scale screening programs for some of the most prevalent chronic diseases and cancers. But we expect that our AI reporting segment, consisting of Deep Health Agents and Quantib, will experience losses through 2023. We are making progress. During the second quarter of 2022, the AI segment recorded 1.6 million of revenue a substantial increase from our first quarter AI revenue of $599,000. Much of this growth came from success Aidens is having in licensing its technology in Europe, particularly in the United Kingdom. Consistent with our efforts throughout the pandemic, we continue to carefully manage our liquidity and financial leverage. At second quarter's end, unadjusted for the losses in our AI reporting segment, our leverage ratio was 3.2 times net debt to trailing 12-month EBITDA. Our liquidity also remained strong. We ended the quarter with $99.2 million of cash, and we were undrawn upon our $195 million revolving credit facility. Our day sales outstanding, or DSOs, at June 30, 2022, was 39.3 days, which we believe to be one of the best in the industry. The improvement in revenue cycle operations and collections has significantly contributed to our ability to manage the challenges presented by COVID-19 and to make important investments for our future. While we are committed to growing and expanding our business, we will also continue to follow a methodical and disciplined approach to managing our financial leverage. At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2022 performance. When he is finished, I will make some closing remarks.