RadNet, Inc.

The conference will begin momentarily. Please continue to hold and thank you for your patience. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Good morning and welcome to RedNet Inc. First Quarter 2023 Financial Results Call. All participants will be in a listen-only mode. Should you need assistance, please sign up a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press the star one on your telephone keypad. To withdraw your question, please press the star then two. Please note this event is being recorded. I would now like to turn the conference over to Mark Stolper, Executive Vice President and Chief Financial Officer at RadNet, Inc. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's first quarter 2023 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 Radnett's reports filed with the SEC from time to time, including Radnett's annual report on Form 10-K for the year ended December 31st, 2022. 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 first quarter 2023 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. Let's begin. I am very pleased with our performance in the fourth quarter. It was the strongest first quarter in our company's history with record revenue and EBITDA. Relative to last year's first quarter, our core imaging center segment revenue increased 13.9% and imaging center EBITDA increased 26.2% from last year's first quarter. This strong performance resulted in improved EBITDA margins increasing from 12.2% in the first quarter of 2022 to 13.6 percent in the first quarter of 2023, an improvement of 140 basis points. This improvement was the combination of strong volumes, careful management of expenses, and an improving labor market. With respect to volumes, we are experiencing heavy demand in virtually all of our markets. Aggregate procedural volumes increased 14.0 percent and Same-center procedural volumes increased 9.3% compared with the first quarter of 2022. This performance is the result of a combination of several factors. First, the aging and growing population in our markets is driving increasing utilization for diagnostic imaging services. As people age, we rely on diagnostic imaging with greater frequency. On average, for example, senior and Medicare patients utilize imaging two to three times more frequently than patients under the age of 65. As baby boomers continue to age and life expectancy continues to increase, we expect this utilization trend to continue. Second, technology in our industry continues to evolve and improve, creating additional medical indications for ordering diagnostic imaging procedures. Advances in MRI technology and post-processing software have shortened scanning times and improved image quality. New contrast materials and radioactive pharmaceuticals are driving novel applications such as PMSA or prostate-specific membrane antigen PET scans and Alzheimer's imaging. Lastly, and perhaps most significantly, we are benefiting from a shift in site of care. More and more outpatient volumes are being shifted from hospital-based facilities towards freestanding outpatient facilities, where the cost to patients and the insurance companies are substantially less. Not only is the cost lower, but we strongly believe the quality and the patient experience is improved in well-run outpatient facilities like the ones we operate. We do not see an end in sight to these industry trends that are driving procedural volumes and believe that these trends will continue to help drive our consistent same-store performance for years to come. On the labor front, we are experiencing some stability and improvement. We have been more successful in filling open positions and have been reducing our reliance on expensive temporary staffing services and overtime hours of our existing team members. While attracting new talent and retaining our existing employee base remains challenging, we are no longer being plagued by service interruptions from staffing issues like those we faced for most of last year. We have seen a 12% reduction in open positions since the end of the fourth quarter of last year. While hiring and retaining technologists remains our biggest challenge, We have been refining and increasing our visibility in the marketplace by repositioning our brand, utilizing our scale and industry leadership to better leverage partnerships with local trade schools and colleges, and have been adjusting compensation practices to meet the demands of the marketplace. We are engaging in direct mailing campaigns, partnering with accrediting bodies to identify qualified candidates, hosting open houses and hiring events, and instituting incentives such as referral payments and sign-on bonuses. There has been no magic formula for success. However, these grassroots efforts are slowly paying dividends. As a result of the strong performance in this year's first quarter and the confidence we are feeling for the remainder of the year, we have elected to increase key financial guidance levels for 2023. though we remain vigilant about the economic environment, labor shortages, supply chain disruptions, inflation, and COVID-19. We are executing on opportunities to expand operations in all of our markets, both organically and through new acquisitions and joint ventures, resulting in what we believe will be stronger results for the year than originally projected. Mark and his prepared remarks We'll review the increases we've made to our revenue and EBITDA guidance levels upon releasing our financial results this morning. 2023 will also be a year of reinvestment in our business to accelerate future growth. We currently have 13 de novo facilities in various stages of development, which will open for operations in the second half of 2023 and throughout 2024. These facilities are located in markets where we have patient backlogs, require additional capacity, or in locations where we currently lack access points to service identified patient populations. Six of these de novo facilities are scheduled to open in the second half of 2023 and early 2024, and another seven facilities should be producing revenue in the second half of next year. While these projects are requiring us to make capital investments Above our normal spending, we are confident that these centers will be material contributors to our long-term performance and growth. We continue to grow our hospital and health system joint venture business. Currently, 121 of our 363 centers, or 33%, are held within health system partnerships. Our partners are some of the strongest and most successful systems in our geographies. Partners include RWJBarnabas, Memorial Care, Dignity Health, LifeBridge, University of Maryland Medical System, Adventist, Cedars-Sinai, and others. These and other health systems are seeking solutions for long-term strategies around outpatient imaging and have recognized that cost-effective and efficient freestanding centers will continue to capture market share from hospitals as payers and patients migrate their site of care towards lower-cost, high-quality solutions. We are in the process of expanding our joint venture business with both existing as well as new health systems. We expect that by year-end, our joint venture centers could represent closer to 40 percent of our total center count, and we believe that we could reach 50 percent in the next in the coming years. Our hospital and health system partners have been instrumental in increasing our procedural volumes through influence on their physician partners to send patients into our jointly owned centers, which we otherwise might not have seen. Additionally, our joint venture partners are helpful in providing support, if needed, in establishing long-term, equitable outpatient reimbursement rates for our services. We continue to make progress with our artificial intelligence initiatives. Our enhanced breast cancer diagnostic program in mammography offering continues its rollout within our East Coast markets. We are refining the program as we learn from our early rollouts. We are testing different levels of pricing, various service offerings, new marketing collateral, local market sales and marketing strategies. While there is much work to be done to optimize the program, we are experiencing positive results. We are identifying cancers that otherwise would not have been found until at later stages and more advanced stages. Since the inception of the EBCD program, we have diagnosed over 300 breast cancers that, without the intervention of artificial intelligence, would have gone undetected. Detecting cancer sooner allows for better patient outcomes through earlier treatment and intervention and reduces cost to the healthcare delivery system. Furthermore, we are reducing callback rates for patients through the use of artificial intelligence by being more definitive with the initial screening exam. This saves time and money for our patients and their insurance companies and enables our radiologists to be more efficient as well as reducing stress on our patients. We are currently experiencing approximately 20% adoption rate from our mammography screening patients and believe we will see greater uptake as we get better at communicating and marketing the benefits to our patients and their referring physicians. The recognition our centers are receiving from offering this unique program has benefited our local branding and distinguished our quality from our competitive centers who do not offer similar capabilities. We expect to see an increase in this business throughout the remainder of 2023 and into 2024 and look forward to providing updates each quarter with our progress. Consistent with our efforts throughout the pandemic, we continue to carefully manage our liquidity and financial leverage. Despite having front-loaded capital expenditures in the first quarter, which included liberal spending to fund our de novo centers in development, at first quarter's end, excluding the losses in our artificial intelligence reporting segment, our leverage was 3.4 times net debt to trailing 12-month EBITDA. Our liquidity also remained strong. We ended the first quarter with $90.8 million of cash, and we were undrawn on our $195 million revolving credit facility. Our day sale outstanding at March 2023 was 35.6 days, which we believe to be one of the best in the industry. 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. Our low leverage, lower cost of capital, and strong liquidity relative to many other industry operators position us to capitalize on acquisition opportunities. With the significant rise in interest rates over the past 12 months, along with the challenging labor market, there are many struggling operators in our industry. Some of these operators will be unable to compete for acquisitions that may arise, while others may be targets of consolidation themselves. We remain patient and disciplined in our approach to acquisition. focus first on our core markets where we bring unique synergies and cost savings. While we are interested in expanding our geographic reach with larger platform acquisitions and new geographies, those acquisitions must come with scale, have a path to organic growth, and be actionable without causing our leverage to increase materially. At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our first quarter 2023 performance. When he is finished, I will make some closing remarks.