Q4 2019 Earnings Call
And event specialists will join you.
Thank you for calling me I have to conference you'd like to join.
I would like to do for Radnet earnings call.
And your first and last name of spelling.
First name David last name Brown.
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Two one to 90 grow 3697.
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I R.A.I.E.R.A.
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Executive Vice President and Chief Financial Officer of Rabbit, Inc. Please go ahead Sir.
Thank you.
Good morning, ladies and gentlemen, and thank you for joining Dr., Howard Berger and need today to discuss Radnets fourth quarter and full year 2019 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 at 1995, specifically statements concerning anticipated future financial and operating performance Radnets ability to continue to grow the business by generating patient referrals and contract.
Yes, 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 our full.
Payments 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 radnets actual results to differ materially from the statements contained herein.
These risks and uncertainties include those risks set forth in Radnets reports filed from the FCC from time to time, including Radnet Annual report on form 10-K for the year ended December 30, Onest 2019 to be filed shortly.
Undue reliance should not be placed on forward looking statements, especially guidance on future financial performance, which speaks only as of the data dismayed.
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.
[music].
Thank you Mark.
Morning, everyone. Thank you for joining us today.
On today's call Montana tune to provide you with highlights from our fourth quarter and full year 2019 results give you more insight into the centers, which affected the 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 through interest in our company and for dedicated a portion of your data participated in our conference call. This.
Slide 19 was certainly are very productive year, and one which sets the stage for what we are anticipated to be a strong and active 2020 as indicated by our guidance levels, We announced this morning, and which Mark will review in his prepared remarks.
During 2019, when the progress on all strategic fronts, and I believe our performance, particularly in the fourth quarter demonstrated the strength of the Radnet model and the multifaceted aspects to our business that make it unique within healthcare.
I would like to begin by highlighting some of these accomplishments of 2019.
First and most importantly, our operations teams were successful in driving same center growth.
On a same center basis procedure volumes grew 2.3%, 3.5%, 4.7% and 3.3 person in each of the four quarters of 2019, respectively.
So all of 29 team and as a basis, our revenues increased 18.4% and our EBITDA increased 15.8%.
Although we had an excellent fourth quarter last year, some red and records for revenue and EBITDA at the time, we were able to exceed last year's fourth quarter revenue by 17%.
And last year's fourth quarter EBITDA by 5.5%.
Our similar level performance has been driven by our focus on patient experience, providing high quality service to the referring physician communities and expanding our relationships with capitated and private payers.
As a company we have been diligent in investing in our technology, which also attracts additional patient volumes.
As an example, most of our east coast sites offering mammography have deployed Threed tomosynthesis and many of our most users nationwide and have been upgraded to enable shorter skin protocols for patients.
Additionally, many of our centers in the past several years has been renovated to provide a more comfortable and modern field, which is more appealing to patients and referring physicians.
Really to make substantial capital investments further distances us our centers and service offering from those of most of our smaller competitors. We believe the medical communities that we serve recognize these differences that set radnet apart.
Second during 2019, we completed a number of strategic acquisitions, which further our market position in certain regions and position us well for future expansion profitability.
On April 1st of 2019, we completed the acquisition and established operated with fiber imaging centers in Bakersfield, California, a market. We first entered in 2010.
This operator currently allergy has operated in Kern County for more than 50 years and provides radiology services to several of the local hospitals.
Also on April 1st we completed the acquisition of Zilkha Radiology consisted of two Multimodality centers in Iceland, New York in Long Island, Suffolk County, This acquisition builds upon the long Island Medical US acquisition, we completed in the fourth quarter.
Lets 2018.
Lastly, with respect to acquisitions on a consolidated joint venture New Jersey imaging network on the conjunction with our partner our WJ Barnabas health system purchase to Multimodality centers and Central New Jersey.
And Jay and has experienced steady growth and reason our partner looking forward to continue expanding our reach into.
Further parts of New Jersey.
Third throughout 2019, we engaged in conversations with health systems to expand our joint venture operations. Currently about 25% about 335 facilities are held within joint ventures, given the acceleration of certain trends within healthcare that I will discuss shortly we see an opportunity to grow our June.
Joint venture offerings to incorporate as much as 50% of all of our centers within the next three to five years.
During 2019, we established our second joint venture with dignity health in California, The second joint venture and enter accounting accounting of over 900000 residents started operations in March with three of Radnets exist in rolling oats facilities and one facility contributed by the video.
Health in Oxnard, California.
And lastly throughout 2019, we made important progress in the areas of information technology and infrastructure to more favorably position us to grow and manage a larger scale business in the future and capitalize on the benefits of machine learning and artificial intelligence, which we will continue to which we continue to believe.
Will transform our business.
The infrastructure investments, we made in 2018 and continued to support in 2019 are designed to address challenges in our business, which should result in better future performance and more efficient operations, most notably we invested significantly in our revenue cycle operations as we have discussed in the past.
We are attempting to keep pace with the challenges in healthcare around effective billing and collection for services.
We are required to collect more money than ever from patients as a result of higher deductible health plans and more significant office business charges and co payments.
As a result, we have recruited and hired new senior management in this area.
Expanded customer services call center personnel and hours of operation increased the size of our patient collection teams and invest in the new tools and technology to increase productivity.
Other infrastructure investments made we're in the area financial systems and information technology, we migrated to a new accounting system, Microsoft dynamics, Great Plains. This has been benefiting us in more timely and detailed financial reporting that will allow our field operators and executive manner.
Just to have valuable dashboards and real time data that will provide us advantages in the competitive environment.
We also invested heavily in cyber security software and compliance systems to ensure that our patient financial data is protected and conforms to all regulatory requirements.
We also made strategic investment and technologies that we believe maybe importance to our business or our industry in years to come.
As you May recall in 2018, we invested in the company called Turner imaging, which is which is developing an ultra portable X ray for us with the unit that we believe could have numerous important applications Turner received FDA approval for us device and 29 team signed a distribution agreement with Siemens medical and.
Now delivering its imaging systems to commercial customers.
During 2019, we purchased the remaining interest we do not already owned the company called New logics, which is developing artificial intelligence algorithms that we believe can support both our business processes as well as provide our radiologists tools to make them more accurate and productive.
With yesterday's announcement of our acquisition of detail the team that new projects and its initiatives will be combined with data details in our artificial intelligence division, which will be directed by Dr., Greg Sorenson upon the closing of the details transaction on April 1st.
We will be discussing detailed in our artificial intelligence strategy in greater detail tomorrow on especial analyst and shareholder conference call, which which you all invited to participate.
Also in 2019, we began a partnership with white rabbit.
Artificial intelligence during December of 2019, we completed a pilot program and then this Delaware in foreign markets, which combined to use and machine learning and patient outreach to bring women into facilities for the screening mammograms and compliance.
Based upon success of the pilot program, we licensed the light Rabbit technology and back in operation platform. We can we began deploying the platform to all other end markets during the fourth quarter and we anticipate completion of the rolled up by the end of the second quarter 2020.
Amagansett comprises almost 15% of our net revenue and we completed approximately 1.4 million mammography exams in 2019.
In addition to the system wide rollout and platform licensing agreement, we made an equity investment in white Rabbit and our new Division will work with right rabbit to develop furniture future solutions.
Slide 12 is accomplished accomplishments in 2019, the operating environment and industry trends for our core business remained positive.
We had excellent results in January and February 2020, but it is too early to tell what the impact the current on a virus may have under diagnostic imaging sector in our markets.
We continue to see the number of potentially.
Potential acquisition opportunities are numerous discussions with health systems to establish new joint ventures or expand existing ones and we continue to some very positive trends of patients and health plans choosing freestanding outpatient centers over hospital settings. In fact last month segment of the nation's fourth largest.
Healthcare ensure announced a new site of care medical coverage policy for advanced diagnostic imaging.
The policy slated to go into effect on April 15, 2020 applies to MRI safety and pet scanning and outlines limited circumstances for the medical necessity of imaging performed in a hospital setting.
Other than a narrowly defined set of circumstances 60 patients beginning on April 15th we'll have to get their outpatient imaging needs met by freestanding imaging centers like ours signal is essentially joining anthem and United health in the move to direct outpatient imaging away from hospitals in favor of.
Of lower costs settings.
Clearly radnet stands to benefit from this continuing trend.
At this time I'd like to turn the call back over to Mark to discuss some of the highlights of our fourth quarter and full year 2019 performance. When is finished I will make some closing remarks.
Thank you Howard.
I'm now going to briefly review, our fourth quarter and full year 2019 performance and attempt to highlight what I believe to be some material items.
I will also give some further explanation at certain items in our financial statements as well as provide some insights into some of the metrics that drove our fourth quarter and full year 2019 performance.
I will also provide 2020 financial guidance levels, which were released in this morning's financial results press release.
In my discussion I will use the term adjusted EBITDA, which is a non-GAAP financial measure the company defines adjusted EBITDA as earnings before interest taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment other income or loss loss.
On debt Extinguishments and non equity compensation.
Noncash equity compensation adjusted EBITDA includes equity earnings and unconsolidated operations and subtract allocations that earnings to non controlling interests and subsidiaries and as adjusted for noncash or extraordinary and onetime events taking place during the period.
A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to Radnet Inc. common shareholders is included in our earnings release.
With that said.
I'd now like to review, our fourth quarter and full year 19 2019 results.
For the three months ended December 31, 2019, Radnet reported revenue of $300.8 million and adjusted EBITDA of $46.9 million.
Both were the highest quarterly levels, we've ever produced at our history.
Revenue increased $43.6 million or 17% over the prior year same quarter, and adjusted EBITDA increased $2.4 million or 5.5% over the prior year same quarter.
The increase in revenue and adjusted EBITDA was the result at the combination of same center growth performance as well as the contributions of the current radiology and Zika radiology acquisitions acquired earlier in the year continued improvement in New York operations and the Emblemhealth capitation contract.
On the operational initiatives that Dr. Berger spoke about in his prepared remarks.
For the fourth quarter of 2019 as compared with the prior years fourth quarter.
Aggregate MRI volume increased 6.7% Siti volume increased 9.3% and pet Cts volume increased 13.6%.
Overall volume taking into account routine imaging exams inclusive of the X Ray ultrasound mammography and all other exams increased 5.6% over the prior years fourth quarter.
In the fourth quarter of 2019, we performed at 2.035 million 439 total procedures.
The procedures were consistent with our Multimodality approach whereby 74.9% of all the work we did by volume was from routine imaging.
Our procedures in the fourth quarter of 2019 were as follows.
281646 enterprise as compared with 264062 and rise in the fourth quarter 2018.
217804, Cts as compared with 199342 Cts in the fourth quarter of 2018.
11380 wide pet Cts as compared with 10021 pets Cts in the fourth quarter of 2018.
And 1 million 524608 routine imaging exams, compared with 1 million 453416 of all these exams in the fourth quarter of 2018.
Net income for the fourth quarter was to $10.4 million or 21 cents per diluted share.
This compares to an adjusted net income of $4.5 million or nine cents per diluted share in the fourth quarter 2018, adjusted to exclude a $39.5 million gain from the re measurement of the company's equity interest in New Jersey imaging network upon its consolidation and 19.
Right $1 million of expenses from changes in the organization of East Coast in International operations on a tax effected basis, which occurred during the fourth quarter of 2018.
These per share values are based upon weighted average number of diluted shares outstanding at $50.6 million 50.6 million shares in the fourth quarter 2019, and 49.3 million of diluted shares outstanding in the fourth quarter 2018.
Affecting net income in the fourth quarter of 2019, or certain noncash expenses and nonrecurring items, including the following.
$1.8 million of non cash employ stock compensation expense.
$564000 of severance paid in connection with head count reductions related to cost savings initiatives.
898000 dollar loss on the disposal of certain capital equipment.
$1.3 million net gain on the Remeasurement of preexisting interest related to two transactions.
And $1.1 million at amortization of deferred financing costs and bone discounts related to our existing credit facilities.
With regards to some specific income statement accounts overall GAAP interest expense for the fourth quarter of 2019 was $11.5 million. This compares with GAAP interest expense in the fourth quarter 2018 of $12.1 million.
Cash paid for interest during the period, which excludes noncash deferred financing expense and accrued interest was $10.9 million as compared with $9.9 million in the fourth quarter of last year.
For full year 2019, the company reported revenue of 1 billion $154.179 million adjusted EBITDA of $164.1 million and net income of $14.8 million.
Revenue increased $179 million or 18.4% and adjusted EBITDA increased $22.4 million or 15.8% over 2018.
For the year ended December 31, 2019, as compared to 2018, MRI volume increased 8.9% CTP volume increased 12.2% and pet C.T. volume increased 9.6%.
Overall volume and taking into account routine imaging exams inclusive of X Ray ultrasound mammography and all other exams increased 9.4% for the 12 month of 2019 over 2018.
In 2019, we performed $8 million 84481 total procedures.
The procedures were consistent with our multimodality approach, whereby 75.1% of while all the work we did by volume was from routine imaging.
Our procedures for 2019 were as follows.
1 million 108496, MRI assets compared with 1 million 18057 MRI than 2018.
863716, Cts as compared with 770103 Cts in 2018.
43341, pet Cts as compared with 39545 type fees in 2018.
At 6.068 million 829 routine imaging exams as compared with 5 million 564977 of all these exams in 2018.
Net income for 2019 was $14.8 million or 29 cents per diluted share.
This compares to an adjusted net income of $7.6 million or 16 cents per diluted share in 2018.
The per share values are based upon a weighted average number of diluted shares of 50.2 million shares in 2019, and 48.7 million diluted shares in 2018.
Affecting net income in 2019 were certain noncash expenses and nonrecurring items, including the following.
$8.7 million of noncash employee stock option compensation expense.
$1.6 million of severance paid in connection with headcount reductions related to cost savings initiatives.
$2.4 million loss on the disposal of certain capital equipment.
And $868000 net gain on the re measurement of preexisting interests related to transactions.
And $4.2 million of amortization of deferred financing costs and bone discounts related to our existing credit facilities.
With regards to set a specific income statement accounts overall GAAP interest expense in 2018 was $43.5 million.
Adjusting for non cash impacts treading items, such as amortization of financing fees and accrued interest cash interest expense was $37 million in 2019.
This compares with GAAP interest expense in 2018 of $40.6 million and cash paid for interest of $34.2 million in 2018.
With regards to our balance sheet as of December 31, 2019, unadjusted for bond and term loan discounts, we had $672.4 million of net debt, which is our total debt at par value less our cash balance this compares with $677 million and.
Net debt at December 31 to 2018.
As of year end 2019, we were undrawn on our on our third 137.5 million dollar revolving line of credit and it had a cash balance of $40.2 million, which was substantially up from the $10.4 million cash balance we had at year end 2018.
At December 30, Onest 2019, our accounts receivable balance was $154.8 million, an increase of $5.8 million from year end 2018.
A small increase in accounts receivables, mainly from increased revenue, partially mitigated by additional efforts on resources dedicated to patient collections.
Our dsos or days sales outstanding was 44.7 days at December 31, 2019, lower by six days when compared to 50.7 days as of that gate one year ago.
Throughout 19, 2019, we had total capital expenditures net of asset dispositions and sale of imaging center assets and joint venture interest of $71.5 million.
This amount excludes $2.6 million of capital expenditures at New Jersey imaging network.
Approximately all of our capital expenditures were paid for in cash and we recognized about $1.2 million and proceeds from the sale of equipment.
Capital expenditures were slightly higher than we budgeted as the result of additional investments we made in my Barra mammography capacity in conjunction with a white rabbit rollout in the second half of 2019.
I will now discuss how radnet performed relative to 2019 guidance levels, which we released upon our fourth quarter and full year 2018 financial results and updated throughout 2019.
For total net revenue.
Our guidance range was $1.1 billion to $1.150 billion, our actual results were slightly higher than the guidance ranges at $1.154 billion.
For adjusted EBITDA.
Our revised guidance range was $158 million to $168 million.
Our actual results were slightly higher than the midpoint of the guidance range at $164.1 million.
For capital expenditures, our guidance range was $65 billion to $70 billion, our actual results were $71.5 million.
For cash paid for interest.
Our guidance range was $43 million to $48 million.
Our actual results or towards the high end of that guidance range at $47 million and for free cash flow generation, which we define.
As adjusted EBITDA.
Last 100% of our capital expenditures, whether paid in cash or financed and less cash paid for interest our guidance range was $45 million to $55 million, our free cash flow.
Actual results came in at $45.6 million slightly higher than the low end to the range.
At this time I'd like to review, our 2020 guidance levels, which we released this morning in conjunction with our financial results press release.
Our total net revenue our guidance range as 1.175 billion to $1.225 billion.
Our adjusted EBITDA guidance range, as 165 million to $175 million.
Our capital expenditures range is between 70 million and $75 million.
Our cash paid for interest.
It's between $43 million and $48 million.
And our free cash flow generation, our guidance ranges between $48 million and $58 million.
The guidance levels are built on a number of assumptions first we expect 2020 to have stable reimbursement Medicare rates for 2020 are commensurate with 2019 reimbursement and our relationships with private payers and cap and Capitated medical groups represent.
Potential upside in our rates.
Second we expect to benefit from the contributions of recent acquisitions and initiatives that were either part of Radnet for only a portion of 2019 or and were not part of 2019 at all these include the acquisitions of current radiology Zilkha radiology and the two facilities purchased by it.
In Japan, and Central New Jersey, the establishment of a new joint venture with dignity health in Ventura, California.
And the continuing rollout of the White Rabbit AI mammography program.
Lastly, we anticipate driving approximately 2% organic growth from significant capital expanding if expenditures we completed in 2019, which included a commitment to threed mammography the upgrade of certain MRI equipment and the expansion of a number of our wholly owned in joint venture centers.
Yeah.
I'd now like to turn the call back over to Dr., Berger, who will make some closing remarks.
Thank you Mark.
I continue to believe that ran its core operating tenants ideally position us for the changing landscape with healthcare. We've designed our company to scale through June get geographic concentration Multimodality approach health system partnerships population health management and capitation and.
Coming quarters, we will continue to grow our business, but following these key tenants and through leveraging our core competencies to improve our regional operations.
One of our core competencies as information technology.
As many of you are aware almost 10 years ago. We concluded that we must on our own information technology backbone in order to successfully scale out platformed cost efficiently.
And to provide the level of service and care, where patients are referring physician communities above that of our competition.
This decision that us to purchase you ran into customized software over the last decade to support our growing complexity and demanding workflow.
We recently made a similar decision with regards to radiology artificial intelligence solutions. We believe that these technologies will be transformative to our business and our industry.
As such we believe that we must.
Control. These how these solutions are developed and how they are deployed.
I very much look forward to give you more details about system to model Special conference call in their call. We plan to discuss our detailed acquisition and outline our artificial intelligence strategy.
Operator, we're now ready for the question and answer portions of the CLO.
Yes, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure you beat function is turned off color signal to reach our equipment.
Again press star one to pose the question, we'll pause for just a moment to allow everyone an opportunity signal for questions.
Alright, well now take our first question from Brian.
Jefferies. Please go ahead.
Hey, Good morning, guys I guess powered my first question for you.
Robin is obviously, a very relevant topic right now how are you thinking about that in terms of your potential exposure.
People.
Alter their daily routines and what are you seeing so far.
Hi, I know your friends that are there in California. So have you seen any impact in terms of cancellations on procedures and how do you think they'll play out in terms of being able to recapture.
Any delays if they occur in future quarters.
Hey, Brian its Mark I think I'll take that question.
As you can imagine.
Our HR Department has been focused on this for a number of weeks. We've got people that are dedicated team that's dedicated a 100% of their time.
Creating a robust communication program, both externally for patients and referring physicians as well as internally to.
The 8000 Radnet team members.
With respect to our external communications we have.
Imposed patient screening.
Scripts that we have trained our schedulers and our front office.
Personnel that is.
Backed by the CDC best practices.
And we have recorded messages that are going out to all all patients and referring physicians that.
Deal with.
The fact that if patients.
Our SEC and there potentially have symptoms.
With respect to Cove at 19 that they should.
We'll go and visit their doctor and they're referring physician again and not come in.
For further exams.
We have also.
I'm trained our front office personnel with regards to emergency protocols, if a patient.
Shows up to as that into one of our centers NSS and is suspected.
As being infected.
So.
We are fielding lots of calls from patients and ADVATE from excuse me from our employees.
And as well and we have a.
Some some policies that we put into place with regard to.
Six day policies, we are encouraging our employees if they're feeling.
Ill to not come to the office, we put a travel bans.
For core corporate travel.
On our employees only very mission critical travel is being accepted.
We are him.
Encouraging employees.
Who are not at the centers if possible to work remotely depending upon what their job functions are.
And we are putting in place right now both on the East coast in West Coast with regard to respective Chief Bob Chief operating officers contingency plans.
If we ultimately have a labor shortage at any at any of our facilities. So that's the communication plan.
With respect to the company the performance so far in the first three months of the year I'll, let dr. Berger comments on that good morning, Brian.
Morning.
Given the somewhat precipitous developments here in the last week to 10 days.
We have not as yet been unable to estimate what the impact of the current of Iris circumstances will be on our centers. Fortunately, we had a very robust January and February and there was only at the very beginning of March.
We began to see some softening of our volumes relative to our budgets.
In the early part of March However, it is very much different on a market by market basis at the present time for example, we've seen very little impact.
Our markets in Maryland in New Jersey.
And.
Generally speaking that has held up well here throughout California, the place, where we seem to be having some more substantive impact in the last several days isn't the new York market predominantly.
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It's hard to anticipate what this is going to.
Set does and how long it will be given the uncertainty surrounding level.
Corona virus situation, but.
We do feel read the.
Situation will be relatively short lived and domain impact that will feel is to the extent that patients don't go into their doctors offices will affect our volumes.
I've been pleased with the first half of this month, where.
In terms of held up reasonably well.
Mostly in the market said I indicated to you before so.
I think we'll just going to have to wait this out and see.
Not so much what's happening now, but how long the effective.
Cool grew on a virus policies impact us.
And for that matter everybody else, but at this point in time.
I haven't factored anything into forecasting and we haven't for that matter changed any of our staffing volumes as our centers are still very busy.
All the markets, including New York.
All right and just a follow up on that I mean, as I think about killing the fundamental drivers are your volume if ER as receive procedures getting delayed for example in New York as you mentioned, how do you think about the ability to recapture that and subsequent subsequent quarters when the Corona virus kind of dies down I mean, do you think the volume or the demand is.
There is something that stays there or do you is or is there leakage that we should be thinking about.
As we think about future quarters.
Well.
The impact of the Corona viruses similar in my opinion to work weather conditions are like particularly on the east coast them in the northeast when we are affected by severe storms.
Primarily snow storms.
That was volume while it made delays treatment is something that we don't necessarily recover from given two factors number one.
It delays patient visits and then those studies that on order and filling our centers, while they may get done later the spread out through our backlog in our centers unless they are really urgent or emergent studies.
The place, where I think we will rebound from.
And where I see more than the impact from modality standpoint is in mammography, which is an elective procedure totally at the discretion of the patient.
Particularly for the follow up screening mammography, given the fact that those patients will eventually come back again I believe we can recover those because weve built additional capacity into our centers as a result of these initiatives with light rabbit too.
In fact improve compliance by those patients. So I think is kind of a mixed bag on the mammography silent expected to be.
Something that will recover soon is the major impact from the corn teams and the reduction in travel.
Is over the other volumes I think will.
We'll recover but may not be noticeable in the overall volumes that we see and expect to see throughout the coming.
Months.
No I appreciate that I guess shifting gears Howard you talked in your prepared remarks about the payers efforts to shift volume out of pricier inpatient their hospital owned facilities.
I look at your volume performance for Q4, obviously very good.
Is that an early sign of the benefits from these payer driven efforts in second obviously kicks in in April. So how are you see I guess view the follow up to that would be how are you thinking about your ability to grow at this sort of two to four at 2% to 5% level.
Well I think it's hard to pinpoint any.
Any particular.
Issue that is helping to drive our business I think if you look at what we do and the industry that were in meeting.
Healthcare in general and imaging in particular, we expect to see growth simply as the population increases in ages, both of which will generally generate more imaging. Additionally, as mark and I talked about in our prepared remarks, we have invested so.
Inefficiently in our centers to handle additional capacity and that capacity is not just more referrals, but also the ability for us to do exams.
Older pieces of equipment, either with less capable of doing or the new.
Equipment allows us greater throughput because as improved.
Computer processing and faster scanning times, so when you mix all that together along with the fact that in our markets were very competitive.
With our.
Our offerings, both against hospitals as well as the other smaller operators I think the all add to the dynamic of.
An expectation for increasing volume at the rate that we're talking about I think that the inevitable move from hospitals into the outpatient centers as I've said on.
Prior calls.
It is an inexorable, one, but which will be slow because it's not just a matter of the health plans and the patients adopting this but it's also changing the behavior of the referring physicians, which.
And with the payers that we deal with virtually at all levels is becoming considerably more aggressive that and has been in the past so.
I'd like to believe that that movement will help us with our volumes, but I think it'll take us a while to go ahead and quantitate.
What the impact or that is given the fact that we will also our continued to consolidate in our markets and take out competitors that helps us drive our volumes.
No I appreciate that Mark.
Shifting gears really quickly capitation revenue was pretty strong during the quarter is there anything to call out there and is that the rate number to be thinking about going forward for.
Capitation contribution per quarter.
Sure.
Yes, one of the things that we focused on throughout 2019 was.
Going after up potential price increases on a number of our contracts you know as as I think you're probably aware, we benchmark the reimbursements that we get from each one of our contracts against the other books of business that we have and based upon utilization of the services.
And whether there's been pricing increases in recent years. There are number of contracts that could fall behind where we want to be where our targeted.
Reimbursement as relative to other books of business that we have and in 2019, we made a concerted effort to go to a number of our large.
Capitated contracts, where it was the case, where we were lower than where we wanted to be with reimbursement and we were able to get pretty significant pricing increases and so thats why you see some real nice growth in our capitated business throughout the year a number of those.
Capitated contract increases came through towards the second half of the year on also I would say that enrollment in.
In these capitated contracts, which these are HFO patients as a reminder has been strong as premiums have increased.
Many people have migrated towards HML products in California and in particular.
Most of the dollars for HFO care are being sent from the insurance companies to these large capitated medical groups and then we sub capitate for the imaging piece from those from those medical group. So enrollment has been strong, particularly in the area of Medicare advantage, where we've seen the senior life.
Lives.
Increasing substantially and the way we price our capitated contracts as we bifurcate the pricing between commercial lives in senior life. So to the extent that there's some growth in the senior life side of the of the visa enrollment.
Statistics, we get better reimbursement.
Yes presented last question for me really quickly as I look at your guidance, you're showing flat margins.
For that.
Should we be thinking about the margin opportunity as you drive.
Above average same store growth.
Well I think that there is that possibility.
2020, as we move forward light, mostly the other healthcare companies, we are subject to increase in salaries, which is.
Our biggest single line item expense due to a.
Very competitive marketplace for the shortage of technologist and other.
Health care professionals that we seek to employ so.
On margin expansion is something that we hope initiatives.
In our infrastructure Eni to improved reimbursement operations and ultimately artificial intelligence initiatives will help us on but I believe weve projected what we think is very achievable and conservative guidance levels that we'll be able to.
Comment more on as the year unfolds.
All right got it thanks guys.
Okay all right.
All right, we'll now take our next question from John Ransom at Raymond James. Please go ahead Sir.
[noise] Obrien us all the good question, so feel kind of bad.
Okay.
Just.
One thing I think the market's trying to wrap it set around and probably not very successfully is.
What is the defense if any against a nice symptomatic covert patient wandering in and impacting a whole bunch of people on a center.
And then you obviously units you don't have a way to test them and then you have to shut us in a down because everybody came in contact with this person is there any.
Anything in the works to try to mitigate that risk I know that people up sometimes you can.
Send them, but how do we keep a symptomatic people from infecting like mass mass workplaces.
Well I think debts.
Go back in time to 64000 dollar question John.
Yeah. The best that we can do is to try to screen are.
Patients and the referring physicians for those patients that are coming in with a presumptive diagnosis or rule out diagnosis.
Corona.
I think asymptomatic patients, which by and large is the preponderance of the people who will be insecticide is.
And then possible situation for everybody unless there unless the testing.
Was expanded in such a dramatic and almost in.
Sensible way too.
Identified.
Identify these patients and then.
Of course, the consequences of that in and of themselves have a substantial.
Potential impacted.
Just wanted really think about so.
On the ended the day.
If you listen to the experts on this there's a lot of factors.
That even if somebody.
Isn't.
Symptomatic.
And as the virus number one doesn't automatically make them even contagious it has to do with the volume.
The virus.
That's in their body.
Beyond just the fact that they may even test positive for it so.
I don't know, how we're going to be able to manage that any different than a typical.
Physician office or.
Any other healthcare provider.
I will take precautions that if somebody is ultimately identified.
We take the necessary steps at that center that may have been impacted and number one number two on a daily basis, we use of the appropriate.
If occasion and cleansing.
Techniques that have advocated by.
Most of the.
By the CDC and others and overseas.
This responsibility.
Thanks, and then another another question obviously your.
What may be impossible question to ask but what would you.
Estimate your your.
Imaging.
Thats separate out or what I'd call it kind of elective diagnostic versus.
Stuff that has to be done medical office medically necessary do you have any any idea like I'm thinking about.
Am I getting on X ray on the MRI before they get a total new they could in theory push that off but do you have any idea kind of break down the elective versus the non elective stance.
Well.
Yes.
Technically speaking every precision we do is an elective procedure.
If it's a true immersion procedure, which we do see a very very small percentages I would say there.
Urgent procedure with somebody has to come in.
Immediately up is probably 1% of our volume is season that so the proponents of owning who is in fact elective and people can put it off.
They tend not to put it off because once you have been told by a physician that you need a test.
The ratings I'd have to add overweight is perhaps other issues but.
This is more a matter of people not going to their doctors for how elect.
Opportunities to do just routine physicals or specific disease concerns that ultimately, we then don't see those patients in our offices. So there is a certain selection process. If you will that occurs well before the patients made make their decision as to.
And when they're going to get one of our procedures.
And maybe the tele medicine can break some of that.
Hopefully.
And then just the last one from me kind of a micro versus macro.
What explained the jump MCT procedures on do you expect that to continue and also are you anticipating any like.
Increase MCT scanning for people, who might have this virus and looking for a long long damage you take us anything less that's going to happen at that you are in hospital.
Yes.
The explanation on the CP scanning.
Is that.
We see more and more people are coming in for screening see team that may hands in the past not been getting as for example, one of the initiatives that we have inside the company, which we think artificial intelligence will help accelerate that is the new.
Low dose see to screen for.
People have been smokers are have history, otherwise so we've seen of a substantial increase in RCT volume for Chelsea TV screen and at this point in the marketplace. That's still only a very small fraction of the people who are eligible for that but I think there is.
Greater recognition, whether its CTG scanning for the lung or other seating procedures.
It can be done very cost effectively.
For example, we sign you see an increase in.
CTG Colin on Skippy, which is a much less expensive than much easier procedure and going through flexible coolant skippy and I think we're going to continue to see those kind of.
Increases in the second as I mentioned, just a moment ago that was one of the initiatives that brought us to incorporate details as a subsidiary of remnant because I think we need tools that will help identify these patients and then bring products to the marketplace.
Payers and patients will find attractive and we'll talk a little bit about that tomorrow on the special okay.
Scott.
And one for Mark.
No.
Again, I think estimates are kind of out the window for until we got our analysts virus, but they just look like.
No, there's seasonality and whatnot, but if I just if I take your Fourq you.
EBITDA than I compare that to your guidance that got us just looks awfully conservative relative to the quarter you just put up.
So I know you talked about some labor.
Some wage increases for your folks but.
Just how should we think about that in that context.
Yes sure.
And there is substantial.
Seasonality in our business.
For Q4 tends to be strong as as folks try to.
Who have already blown through their deductibles throughout the year there liberal in.
Dealing with.
With imaging and medical services towards the end of year, and then as the deductibles reset.
We generally see lower volumes in the first quarter as well as were impacted by East coast Winter weather condition. So we can't just take fourth quarter, even three at third quarter, and just multiply that by four and come up with something that fight that makes it sort of sense and in setting the guidance we assumed too.
Percent same center volumes.
Obviously, we've surpassed that throughout 2019, and so to the extent that we over achieve our same center projection I think that theres significant upside in the in the guidance, we do expect and built into our our budget.
Continuing labor inflation costs.
It's a very very tight labor market, we don't have.
Cost of living increases with our employees, but we had to on a case by case basis edits.
Extremely common these days have to get married increases in order to keep people and in order to fill spots, particularly technologists and for an office people we've had to pay.
Higher hourly rates to get those people. So we are assuming continued.
Labour inflation, who knows where the the economy will be this year and.
Stabilizes or slows down maybe maybe there's some upside there I'm clearly there's upside on the margin.
Part of our business as it relates to some of the technology investments that we're making.
In AI to the extent that needed towards the end of the year, perhaps we could be utilizing a mammo tree as.
Product, which.
Which we'll talk about you know much much more in detail tomorrow on the call back it back and.
Help our efficiency and productivity on the physician side. So I think you know we tried to set our our budget fairly conservatively with the ability to.
As as we go through the year.
To increase guidance if if.
If it where appropriate.
And.
So I think we feel comfortable with it right now.
Yeah, and I would I look forward to tomorrow, because I do think.
There's a gap between sort of a high level understanding of the potential of AI in your business to lower your.
Improve throughput and lower your.
And prove your read efficiency, but just.
How quickly that comes in.
What it looks like.
And you know is it two years five years and how quickly can it go I think there's a bit of a gap.
Out there to an understanding that look order them up.
Thanks, John.
Alright, thank you.
All right. We're now taken next question from Mitra Ramgopal Sidoti. Please go ahead.
Yes, hi, good morning, just wanted to follow up on the guidance.
Mark It seems like with that 2% same store you might be baking in some conservatism regarding the outgrown the virus I've. Just also wondering if you're assuming any benefits from me Paul So pro system installations on any incremental immediate or near term revenue from.
Signal with their new policy.
Sure well with respect to the toll so pro.
Installations and.
We're expecting to have our first installation up and running by the end of March in our West Hills, California market, which is in the San Fernando Valley of Los Angeles, It's it's a little too early to tell its I don't think it's going to be material.
To our financial results.
But it's it's an interesting.
It's an interesting opportunity because it brings radnet from being strictly a diagnostics business to one where we're using our imaging equipment.
Yes on the treatment side, and we do have a number of interventional facilities across our network that does invasive technology, a invasive procedures under the guidance of our imaging equipment, but with respect to prostate cancer and this whole cipro installation. It is very exciting I buy.
Believe we have four patients already being.
Scheduled.
For that and it should be exciting we it's right now not being reimbursed by private insurance and it is a very expensive or Medicare by the way and it is a very expensive procedure. So it's out of pocket to that to the patients.
But.
The patient we believe will receive.
Full functioning of.
You know of.
The prostate and.
Urinary and sexual functioning so.
We are seeing some demand for it but I think it's it's too early to tell whether it'll be more not in and how successful will be and I think once the.
When Theres, a CPT code in both Medicare and private insurance start reimbursing for it I think then it becomes a real opportunity for our company across our network.
Let me just add one other elements of this.
Rather than looking at.
Revenue just from the treatment side of it. It's the fact that we're offering this in general we believe will drive more prostate M.R. MRI scans to our facilities as part of the screening to see which patients in fact may be candidates for this so.
This is a tool that while it has some interesting long term implications regarding.
Turning imaging and to a treatment tool.
Generating more revenue fundamentally what this is about it is coming up with better screening tools for prostate cancer, and ultimately having treatments, which are substantially less invasive than the current ones available part of that will be a discussion that we'll have tomorrow.
So when we're talking about artificial intelligence.
That would fit maybe.
One of the real keys to driving a prostate scanning into a more routine preventative.
Maintenance and not preventive maintenance, but preventive health concept much like mammographies and women, but.
To the extent that you have interest in this I would ask you to listen into Tomorrow's.
Call regarding.
Artificial intelligence.
Initiatives by Radnet.
Okay. Thanks for taking the question, though fourth of the call Tomorrow.
Thanks manager.
[noise] therapists be no further questions the time to turn the conference back to the speakers for any additional closing remarks.
Matt.
Thank you operator, again I would like to take this opportunity to think all of our shareholders for their continued support and employees of redness for their dedication and hard work management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you for your time today.
And I look forward to our next call and for those of you can participate in the call tomorrow regarding details in artificial intelligence.
The.
See you tomorrow. Thank you good day.
This now concludes todays call. Thank you for your participation you may now disconnect.
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