RadNet, Inc.

Thank you for standing by. You're on hold for the RadNet Inc. 3rd Quarter 2022 Financial Results Call. At this time, we're gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Thank you. Thank you for standing by. You're on hold for the RadNet Inc. Third Quarter 2022 Financial Results Conference Call. At this time, we're gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Thank you. Thank you. Please stand by. We're about to begin. Good day and welcome to the RadNet, Inc. Third Quarter 2022 Financial Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Thank you for joining Dr. Howard Berger and me today to discuss RadNet's Third 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 third 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. 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. During the third quarter, revenue from imaging centers reporting unit increased 5.2%, aggregate procedural volume increased 5.7%, and same store, same center procedural volumes increased 3.9%. This performance would have been substantially better, but for staffing shortages that prevented us from both utilizing the capacity we have in our facilities and expanding hours to service the growing demand we are experiencing. We believe the strong demand for imaging services is being driven by increasing efforts from payors to direct procedural volumes outside hospitals into ambulatory pre-standing imaging centers. During the quarter, we were forced to utilize expensive temporary labor and absorb extraordinary amounts of overtime charges, which impacted our EBITDA profitability and operating margins. Although we anticipated increased salaries, benefits, and wages in our initial guidance, the labor market has been more challenging than we originally projected. More recently, we are seeing signs of improvement in the labor market. In the last couple of months, we have been more effective in filling open positions. In September, our number of open positions peaked at 850, representing almost 10% of the entire workforce. The latest report I have received in November is that our open positions have fallen to 262 positions. Additionally, the COVID-19 impact on our workforce, which previously hurt our ability to staff our centers appropriately has substantially abated. Furthermore, we believe staffing shortages will continue to improve as we are noting that many large companies, including the likes of Amazon, Walmart, Twitter, Meta, just to name a few, and certain large hospital systems have recently announced staffing reductions. The demand for our services is strong and growing. We are experiencing increasing patient volumes in virtually all of our regional markets. October was the strongest revenue month we have experienced all year, and the start to November appears to be equally robust. As a result, we are anticipating improved fourth quarter performance, which we believe will continue as we move into 2023. We are focused on executing key company-wide initiatives. I'm going to briefly review some of these initiatives before I turn the call back over to Mark. First, as we have discussed throughout the year, we have been in development of 15 de novo facilities spanning almost all of our markets. Three of these facilities are now open, and another eight facilities should be producing revenue by the end of the second quarter of next year. While de novo facilities have not been a big part of our historical growth strategy, many of the facilities we are developing are in markets where we have backlogs, capacity constraints, or where our current network coverage lacks access for certain patient populations. Another one of our significant initiatives is expansion through hospital and health system joint ventures. In the past, we have stated that we see a path forward towards holding as much as 50% of our imaging centers in these partnerships. With two recent JV expansions, which I will discuss shortly, we now have 119 of our facilities within health system partnerships, or roughly 33% of our entire network of centers. Most hospitals have been challenged by the loss of patient volumes to outpatient freestanding facilities who offer significantly lower pricing along and along with better and more convenient patient experience. Many of these health systems recognize that creating a partnership with an outpatient operator like RADNET gives them an opportunity to participate in recapturing revenue that they have otherwise already lost or will likely lose in the future. Recently, we announced that our joint venture with RWJBioNTech Health, New Jersey Imaging Network, acquired the outpatient radiology outpatient radiology assets of Montclair Radiology. For more than 75 years, Montclair Radiology has been a leading provider of diagnostic imaging in northern New Jersey. Montclair Radiology owns and operates six multimodality centers and performs over 200,000 procedures per year. We are projecting that this acquisition will add over 40 million of revenue on an annual basis to NGIN and bring the total number of centers in this joint venture to 30 facilities. In addition, we completed an expansion of our Arizona diagnostic radiology joint venture with Dignity Health. In conjunction with the expansion, Dignity Health contributed three hospital-affiliated outpatient imaging centers into the existing outpatient partnership with RadNet. These locations include one multimodality center and two women's imaging facilities. In addition to these newly contributed locations by year end 2022, the joint venture will open a 30,000 square foot facility called Park Central in proximity to downtown Phoenix. With this expansion, we now have a platform of 11 centers in the Phoenix area and look forward to executing on future opportunities to expand our capacity and footprint. particularly pleased to announce that we have initiated a pilot of our new enhanced breast cancer detection EBCD service in Delaware. The offering works in concert with a patient's annual breast screening regimen. For an additional fee, patients can elect to enroll in a suite of premium mammography-related services, including the use of Deep Health Sage personalized lifetime risk assessment, an additional AI-driven review for certain exams, and access to a dedicated 1-800 support line. SageDx analyzes each mammogram in detail, and if suspicious findings are present, the AI identifies the lesion in the exam for the radiologist and categorizes the level of suspicion. Many of our radiologists who have been using DXAI indicate that AI has improved their accuracy in detecting breast cancers. Accord, the name we have given to an additional AI-driven review for suspicious findings, is designed to be an effective quality assurance tool unparalleled in our industry. I believe that the innovative EBCD program is one of the most important endeavors the company has pursued for our patients. Currently, we perform over 1.4 million screening mammograms annually, and we anticipate expanding this program to all radnet markets during the first half of next year. I invite you to read more about EBCD at www.myebcdmammo.com. We recently announced the acquisition of a controlling interest in Heart and Lung Health, a London-based teleradiology network focused on lung cancer screening. With a network of over 70 expert cardiothoracic radiologists, HLH has established itself as the leading provider of lung cancer screening services in the UK to the UK national health services targeted Lung Health Check Program, which mandates the combined use of AI and expert radiologist interpretation for widespread population health lung cancer screening. Under this program, patients aged 55 to 74 who have ever smoked are being screened through low dose CT for lung cancer and related diseases. In September 2022, the success of this program pilot originally launched in England, paved the way for the UK National Screening Committee to recommend that population-based targeted screening of lung cancer be introduced for high-risk patients across all of the nations of the UK. HLH utilizes software from RadNet's AI subsidiary, Aidens, and it is anticipated that the program could drive over one million lung scans in England alone on an annual basis when the program becomes fully implemented, which is targeted by the end of 2026. This is Radna's first example of combining specialty teleradiology interpretation services with artificial intelligence algorithms to enable a comprehensive cancer screening program. We believe these types of screening programs, combining specialty radiology interpretation with AI represents the future of widespread population health screening for a variety of cancers and other chronic diseases. Lastly, with respect to our growth initiatives, we believe the opportunities for continuing consolidation could accelerate as a result of reimbursement pressures, challenged labor markets, and rising interest rates. Our low financial leverage, less expensive cost of capital, and greater liquidity places us in a favorable position to complete accretive acquisitions which may arise. Our cash balance at the end of the third quarter was over $95 million, and we are undrawn upon our $195 million revolving credit facility. Our DSOs are at a record low of 37 days, and we are producing a substantial amount of free cash flow. In most instances, our scale and operating expertise provide us unique synergy and cost saving opportunities resulting from local market consolidation. While we are committed to growing and expanding our business through all of the growth initiatives I have reviewed this morning, 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 third quarter 2022 performance. When he is finished, I will make some closing remarks.