Q2 2020 RadNet Inc Earnings Call
Ladies and gentlemen, you talked a little or no.
Oh, it's just.
Those are there.
Yeah.
We appreciate your friendship.
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Ladies and gentlemen, your gross sales calls for today's conference call. If they spyware lets say lunch today, it's all deals Oh gosh well underway. Shortly we appreciate your patience. Please remain on the line.
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Good day and welcome to the Nike Inc. second quarter 20 to 26 financial results call.
Today's conference is being recorded.
At this time I would like to turn the call crossed over to the luck <unk> Executive Vice President and Chief Financial Officer, Oh, My God lifting. Please go ahead.
Thank you.
Good morning, ladies and gentlemen, thank you for joining Dr. Howard <unk> today to discuss ride that second quarter 2020 financial results.
Before we begin today, we'd like to remind you every one of the safe Harbor statement under the private Securities Litigation Reform Act 1995.
This presentation contains forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act at 1995, [laughter], specifically statements concerning anticipated future financial and operating performance and liquidity our response to be expected future impact it's cool Goodnight.
Chain, our ability to stabilize you continue to grow the business by generating patient referrals and contracts with radiology practices.
Recruiting and retaining technologists, consummating acquisitions and joint ventures.
Leaving third party reimbursement for diagnostic imaging services successfully integrating acquired operations generating revenue and adjusted EBITDA for do you acquired operations as the estimated among doctors 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 radnets actual results to differ materially from the statements contained herein.
These risks and uncertainties, including those risks set forth in Radnets reports filed with the FCC from time to time, including Radnets Annual report on form 10-K for the year ended December 31st 2019.
Our quarterly report on form 10-Q for the quarter ended June Thirtyth 2020.
I did you ever Lions should not be placed on forward looking statements, especially guidance I'd future financial performance, which speaks only as of the date 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 [noise].
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 2020 results gives you more insight into factors, which affected this performance and discuss our future strategy.
After our prepared not actually will open the call to your questions.
I'd like to thank all of your for just a companies are dedicating a portion of your day two parts to participate in our conference call. This morning.
Before we start I would like to see I'd have to myself and the entire.
And that GE, we hope all is your and your loved ones are healthy and staying states that are extremely grateful for all of our stakeholders, including all employees business partners lenders and shareholders.
This morning, Mark and I will pick up where we left on last quarter's financial close call by giving you believe understanding of what we have been facing under called <unk>.
The actions, we've taken to reduce cost and conserve cash our current and projected liquidity position.
Businesses recovery bubbles and some discussion around the post cold it operating opportunity.
I'd like to sell off that give you a status update on where our business stands.
Oh, there has been impacted by cold at night.
As a reminder, after having strong operating results in January and February ones. This year.
Yeah performed ahead of our original internal operating plan was again this year volumes dropped dramatically getting the third week of March.
This is when we began to take swift and decisive actions to secure business from one material drop in the anticipated procedural volumes.
We analyzed all aspects of our business and focused on ways to most effectively reduce our cash.
We created a multi blown playing into impaired major its benches and cash flow categories, specifically focused on reducing salaries and professional fees and low enough to silage rental payments.
The good every local lucky in which we operate two identified centers, we could just the clothes and where we start with a high degree of confidence we could direct pictou volumes.
Two facilities.
We also evaluated on large categories, its cash spend and identified vendors that would work with us to lower our close for deferred payments.
The objective was to it quickly and instant Institute its programs beginning April 1st.
First we analyzed all about 332 locations and identified sites in our clustered approach there could be temporarily closed and whose business could be consolidated into nearby facilities.
Turning to stay at home orders, we closed 102 of our locations.
Temporarily closed facilities and read the recipe that they should slow to other radnet sites were able to substantially reduced employee cost utilities repairs and maintenance and other center level operating cost.
Oh, what preserving the revenue we would have otherwise recognized at the close sites.
Geographically concentrated approach and central scheduling departments were instrumental in making this happen.
Just a little bit closing these facilities enabled us to flow about 3600.
Place about roughly 800 8600 total team members while slowed we continue to fund the benefit plans of these employees.
But are able to suspend testing their salaries and corresponding employee, Texas. We assisted these employees was seeking unemployment benefits.
Including the employment subsidies from federal and state southern cells ads.
In addition to the full furloughs, we cut the salaries of the vast majority of non certain level employees, who remain working.
These cuts were led by our executive management team, who remain 50% of their normal salaries.
Our landlords also greatly contributed to our catastrophic <unk> conservation measures most of all landlords agreed to three to six month full or partial deferrals of rent payments and most of the writing I was six to 12 months Stewart pay these deferrals.
Certain cases, we elected to extend the terms of leases in exchange for deferrals and other rent concessions as a result, a cast cash expenditures for rent payments in second quarter, we reduced by almost 70%.
Though through GAAP accounting required us to expense all brands, whether or not.
Additionally, all of our source with whom we have operating leases on equipment, including the Oems and third party.
Finance companies agreed to structure.
Rental agreements to allow us starting the payment we would have made in April so just for up to six months.
All these amounts to the back end bite out of the leased equipment.
We also spent suspended new capital projects.
That's a majority of capital spend just expenditures we made during the first after the year, what's the project commitments that were put in place prior to the onset.
<unk> desk.
In addition to our variable expenses. In addition, our variable expenses substantially decreased during the second quarter with the lower procedural volume.
Skipping a these very outflows our payments that we made to third party contract it radiology groups, which generally a function of president.
[noise] other variable expenses that adjusted with revenue and procedural volumes include medical Thomas' wise.
Chili's equipment repairs and maintenance in certain employee related expenses, such as travel meals and other employee expense reimbursement items. All these expenses and cash outflows, it's just that more than proportionately to our lower procedural volume levels.
I'm extremely proud to say that feeds clause and acquaintances matches resulted in an $84.6 million cash balance at quarter end.
And I'd be undrawn on our <unk> hundred 37.5 million.
While the credit facility.
Despite our continued declines in a broad despite a resident of declining approximately 125 million since the beginning of the cold. The 18 been done that all aggressive actions allowed us to achieve positive EBITDA and cash for.
This is pretty remarkable it. This is that he has a higher component of six Clos.
Our cash balance was influenced by payments we received in April and June the two separate appropriations under the kids.
And advances we received from Medicare and one private Payor, specifically, we received 25.5 million under the 50 billion appropriation of the Corona is eight relief and economic security.
Well cares that this allocation to Radnet was calculated based on their share of old you on Medicare buildings relative to the relative to all Medicare providers. During 2019, we do not anticipate the required to repay this morning.
In addition to this grant money, we received 39.1 million, it's an accelerated Medicare advance payments. This money is to be repaid CNS over a 90 day period. Beginning later this month and she'll be repaid through the adjudication of future Medicare services, we provide.
Furthermore, one, California insert insurance company provided us a 5 million dollar advance to repay against future collections.
As I mentioned in last quarter's financial results call a procedural volumes here the trough during mid April whereby a procedural volume declined to about 28% on a blended basis nationwide of the three colder per day volumes.
We began to see a steady recovery in early may well. She has continued to the present day.
The week before the west a procedural volumes return to about 90% of the tree called the per day procedures. Why we were impacted by the tropical storm that hit the mid Atlantic in northeast last week, we expect to recover quickly from this I'm also very happy to report that we have loved approximately.
2500, 3600 employees, who work flow and we've been able to return a portion of our corporate staff, who took salary cuts to the normal day state.
Throughout the call. The terrorists are capitation business has remained strong.
Well our aggregate sees the service revenue, excluding capitation decreased 39.7% from last year's second quarter, our transportation revenues actually increased 12.7% from the second quarter of 29, just because we get paid a fixed capitated amount.
Perfect and locally managed by the medical groups with whom we control our capitation revenue and the associated cash flow have remained strong throughout the call that period.
Well move to these H, a more patients and our contracts and medical groups has remained intact as patients and their employers even for those where that flow has continued to pay health care for it means.
Before I turn the call over the Mark to discuss the hatches I'd again like to take this moment to recognize our workforce our center level employees and their managers continue to come to work each day to service our medical communities with essential services provided by the Red et cetera.
He and patients in need despite the associated with which we have done everything you're not powered to mitigate I. It should be grateful for these employees and ran it as a company can play an important role in an unprecedented times.
At this time I'd like to turn the call back over to Mark just discuss some of the highlights of our second quarter 220 performance. When he was finished I will make some closing remarks.
[noise] [noise]. Thank you Howard.
I'm now going to briefly review, our second quarter 2020 performance and attempt to highlight what I believe to be some material items.
I will also give some further explanation of certain items in our financial statements as well provide some insight into some of the metrics that drove our second quarter 2020 before that's.
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 I mean, the disposal of equipment other income or loss loss on debt debt extinguishments and non cash equity compensation.
Adjusted EBITDA adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non controlling interests in subsidiaries and is adjusted for noncash or extraordinary and one time events taking place during that 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 and our current report on form and <unk> 8-K filed with the FCC.
With that said I'd now like to review our second quarter results.
For the second quarter, 2020, Radnet reported revenue of $190.6 million and adjusted EBITDA of $22.6 million.
Revenue decreased to $98.5 million or 34.1% as a result of the impact its covert 19.
Adjusted EBITDA decreased to $20.5 million or 47.6%.
We were extremely pleased at our ability to reduce expenses, particularly salaries and professional fees by approximately $45 million relative to last year same quarter.
We achieved that's through temporary closing facilities, furloughing workforce and instituting salary cuts for general and administrative staff.
But the second quarter 2020, as compared to the prior year second quarter, and MRI volume decreased 39.7% C.T. volume decreased 13.6% and pet C.T. volume decreased 17.6 percents.
Overall volume taking into account routine imaging exams inclusive of the X Ray ultrasound mammography and all other exams decreased 43.7% over the prior year a second quarter.
In the second quarter of 2020, we performed 1 million 137287 total procedures.
The procedures were consistent with our Multimodality approach, whereby 73.8 percentage of all the work we did by volume was from the routine imaging.
Our procedures in the second quarter 2020 were as follows.
No that that C.T. volumes for last year had been restated to account for change we made as of January 1st of this year and how we account for one of our seed key CPT codes that comparative numbers that follow or on an apples to apples basis.
171047, m. arise as compared with 283717 ever eyes, and the second quarter of 2019.
117732, Cts as compared with 172076 Cts in the second quarter of 2018.
8935, pets, Cts as compared with 10840 pet Cts in the second quarter 2019.
And 839567 routine imaging exams, compared with 1 billion 554869.
These exams in the second quarter of 2019.
At the second quarter Radnet reported net loss attributable to Radnet inc. common shareholders of $10.6 million.
Decline of approximately $15.5 million from the second quarter 2019.
Adjusting for the impact that noncash change in the fair value of an interest rate hedge during the quarter on a tax effected basis at $2.6 million adjusted net loss was $8 million in the second quarter, a decline of $12.9 million 'cause it second quarter 2019.
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First share diluted net loss for the second quarter was negative 21 cents per share compared to diluted net income per share of 10 cents in the second quarter 2019 based upon weighted average number of diluted shares outstanding 50.7 millions.
Shares in 2020 at 50.1 million shares in 2019.
Adjusting for the impact of the noncash change in the fair value of the interest rate hedge Pershare thing you did adjusted net loss was negative 16 cents in the second quarter compared to per share diluted net income of 10 cents in the second quarter 2019.
[noise] affecting net loss in the second quarter, 2020, where certain non cash expenses or gain and nonrecourse recurring items, including the following.
$3.8 million was noncash expense from the change in the fair value of an interest rate hedge.
$1.5 million of noncash employee stock compensation expense, resulting from the vesting of certain options and restricted stock.
$859000 of severance paid in connection with headcount reductions related to cost savings initiatives.
$569000 gain on the sale of certain capital equipment.
And $1.1 million of noncash amortization of deferred financing costs and loan discount our debt issuances.
Overall GAAP interest expense for the second quarter 2020 was $10.8 million.
This compares with GAAP interest expense in the second quarter of 2019 of $12.4 million.
Cash paid for interest during the period, which excludes noncash deferred financing expenses and accrued interest was $12.9 million as compared with $13 million and the second quarter of last year.
With regards to our balance sheet as at June Thirtyth 2020 on an adjusted for bond and churn lung guest counts, we had $604.5 million of net debt.
Which is our total debt at par value, that's our cash balance.
This compares with $706.1 million that debt at June Thirtyth 2019.
Note that this debt balance includes new Jersey imaging network debt of approximately $556.1 million for which a ride that is neither a borrower nor guarantor.
As of June Thirtyth 2020, we were arvind drawn on our $137.5 million revolving line of credit and they had a cash balance of $84.6 million.
We expect that this cash balance could grow by year end absent any acquisitions or a major step back from my second wave of covert 19.
At June Thirtyth 2020, our accounts receivable balance was $125.7 million a decrease of $29 million from year end 2019.
They drink trees and accounts receivable is mainly the result at the dramatic decline in our procedure volumes and revenues since March and our cash collections I previously existing accounts receivable.
Our days sales outstanding or DSL was 49 days at June Thirtyth 2020, higher by approximately 4.3 decades as the year end of 2019.
The higher D.S., so it's primarily a function at the lower revenue in the second quarter.
As revenue normalizes, and we expect Dsos to return to the low to mid 40 level.
Through June.
Thirtyth 2020, we had total capital expenditures net of asset dispositions of $64.2 million. This includes $5 million of capital expenditures of the New Jersey, averaging network, our joint venture with RW, Jay Barth us.
Note that each year, we frontload the majority of our capital decisions into the first half of the year most of what we paid for during the first half was this year was for equipment delivered to the company or construction projects that were in process before the start of Kogan 19.
As Dr. Berger mentioned in his remarks, we had suspended all new capital projects for the remainder of the year.
I'll now take a few minutes to give you an update on 2021 reimbursement and discuss what we know with regards to 2021 anticipated Medicare rates.
With respect to Medicare reimbursement last week, we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about this time every year.
We completed an initial analysis and compare those rates to 2020 rates.
We volume weighted our analysis using expected 2020 procedural volumes excuse me expected 2021 procedural volumes.
In the proposal CMS has moved forward with an increased reimbursement for a valuation and management CPT codes, which favor certain physician specialties that regularly bill for these types of services, particularly primary care doctors.
CMS proposed doing so with budget neutrality, meaning that as it is proposing to reallocate reimbursement from physicians, who rarely bill for email E and M codes to physicians, who regularly bell for these codes.
In the proposed rule CMS has initiated a 10.6 decrease in the conversion factor used to calculate Medicare reimbursement for all specialties in 2021.
For radiology CMS has made a material upward adjustment to the technical RV use in the reimbursement formula.
These RV use our multiplied by that's now lower conversion factor <unk> to determine our reimbursement.
Our initial analysis of these opposing forces show that Radnet will suffer and approximately 11 million dollar revenue hits in 2021 from Medicare.
While we are now pleased with this outcome, we have plans in place to more than fully mitigate this potential class.
In order to affect the cost in cash savings measures, we instituted during its covert 19 period, which dr. Berger discussed in his prepared remarks.
We have to read reevaluate every aspect of our business.
The made against for this Medicare caught next year come from this exercise directly and come predominantly from four areas.
First there will be permanent staffing reduction reductions both from regional operations as well as corporate support functions.
Second we have identified significant reductions in future employee travel and reimbursement expenses.
Third.
We will be consolidating certain sites and modalities in order to lower regional operating costs and filing we have rate increases that will go into effect in 2021.
From private Payors and Capitated medical groups.
We are confident that the aggregate of these cost savings will exceed the proposed CMS rate cut.
Of course, the proposed rates for the physician fee schedule and are subject to comment from lobbying in industry groups and there's no assurance that the final rule to be released in the November 2020 timeframe will reflect the same proposed rates.
There are many lobbying groups and the various medical service specialties aggressively opposing the budget neutrality aspect of the E and M code reimbursement changes, including radiology two main lobbying forces the association for quality imaging the eight key lie and the American College of radiology.
The HCR.
In light of the impact of covert 19 on all physicians radiologists included we remain hopeful that CMS may decide not to move forward with the budget neutrality requirement.
In November during our third quarter financial results call. We hope to have more to update would be to update you with the with on this matter.
I'd now like to turn the call back to Dr., Berger, who will make some closing remarks.
[noise]. Thank you Mark.
During the first part of my prepared remarks, I discussed performance the actions we've taken during the close the period and current status of the business I'd now like to take a few months moments to discuss the future.
I strongly believe that the coal that then Doug will be a catalyst for opportunity.
And as I mentioned during our first quarter financial results call Cold. It has caused us to analyze everything we do as a company and evaluate how we deliver our services it hasn't sensitivity that we closely evaluating how we are spending their money and ways that we can become more efficient we've learned a lot during the success.
Just as Mark mentioned in his discussion of reimbursement and the litigation was proposed Medicare cuts for next year.
Post cold weather environment, we will reduce what we have historically been spending unemployed travel and other reimbursed expenses.
We will be able to staff of centers and supporting general and administrative functions more efficiently.
Able to.
Procure medical supplies equipment services and perform general and administrative functions at a lower cost.
Markets, where we will consolidated centers, thereby eliminating class permanently.
I also believe that post cold environment will provide us with opportunities to accelerate our growth.
As difficult as this period has been for Radnet smaller operators as that even more challenging time most of our competitors left the scale capital and human resources to emerge from the cold it.
Financial and operating strays as a result weeks that more M&A activity for us in the post covert period at multiples that are consistent with that.
The test.
This issue isn't going to be more.
Pardon if the Medicare reimbursement reductions proposed for 2021 R&D summit.
Furthermore, during the cold period much of the outpatient business that has historically been performed within hospitals has shifted to Angela providers such as read.
This means.
That patients and referring physicians will become accustomed to using outpatient providers as opposed to the hospital systems and we don't believe this business, where we recaptured by hospitals once the cold period ends.
This could have a material impact on our volumes in the future and could accelerate the existing trend, mostly because of the differential in cost of hospitals, losing outpatient business to Andrew switched into buyers.
The acceleration of this trend could also drive more hospitals tools joint ventures, and partnerships, which now represent over 25%.
Radnet facilities.
Additionally, during the cold imagine period, Tele health and Tele medicine has flourished.
I believe this is here to stay because telemedicine does not allow sort of traditional physical exams I lose physicians water more diagnostic tests and rely on their results for diagnosing and treating that patients at a distance in particular I believe this will drive increased utilization.
He imaging, specifically ultrasound and that's right as tools that we utilized earlier in the patient diagnosis stage.
Furthermore, I believe artificial intelligence will have an even more important role in health care pulls coated.
There will likely be more of an emphasis on screen tools and wellness and diagnostic imaging will play an important role in these initiatives as many of you have seen last week, we announced a multifaceted collaboration agreement with whole logics focused on improving women's health.
Specifically hologic will contribute capabilities and insights behind this larger than not get leading hardware and software and then it will share David with a logic produced by then that's fleet.
Solution that mammography systems largest in the nation.
The data will be used to train in the fine current and future products based on artificial intelligence.
Management will also provide any guess knowledge of patient works a little needs to help make a positive and.
Plus the best care continuum.
Most companies will work together to enable new joint market opportunities and further afterwards to build clinician confidence and development integrate new technologies.
The collaboration will also result in the upgrade of Redmond slated for logic minimizes the machines.
She was the largest leading edge threed core and genius Threed imaging technology, we see this partnership between the two companies just potentially transformative so those organizations and for the future of breast health. We look forward to keep you informed as the collaboration progresses.
So even in this challenging time, who continue to be very optimistic about the future Radnet and we expect to emerge from coal that as the best position company.
The industry.
Operator, we're now ready for the question and answer portion of the call.
Thank you, ladies and gentlemen, if you would like to ask a question. Please take note by pressing star <unk> only with telephone keypad.
It feels like the speaker phone. This next trillium, yes function funnel, so long lasting welcome each on equipment.
Well I forget trust thought to want to ask a question well pause for just a moment to allow everyone of them up a children's.
First question [noise].
I will now take a first question Saddam, but I am sorry quilt with Jefferies. Please go ahead.
Hey, good morning Guy.
Yeah. Congrats for the hard work you guys that's up that ordering.
So those labor.
I guess, Mark I'll, just jump right into the Medicare class.
11 billion revenue that.
I think about it yeah.
Interesting component in there and then there's a second component right. So it's part is up 11 million possible through the physician that aren't the independent radiology groups that you reimburse on a Kelly direct they are pastor basis.
Yes, yes, so the way that cuts are proposed to be implemented is that the.
Conversion factor in the Medicare fee schedule is is set to declined by 10.6% I think it's a total of $3.83, it's moving from $36 a change to $33 and change and.
That that is apply applied that conversion factors that multiply to both the in the technical and professional RV used in the case of radiology. What CMS is proposing is that the technical RV use are actually going up so that the proportion of the technical.
Oh RV used to the total RV use which then that incorporate the professional RV use it's higher and that ratio is used in the formula that we have with our third party affiliated medical groups to determine what portion of the revenue.
Our cash collections that our professional fees get so.
There are professional groups are going to be absorbing significant amount of this.
Hi, with us the $11 million that I mentioned it net of the portion of our physician groups that are gonna be absorbing a on a portion of this guy.
Gotcha Okay.
Technical RV use going up was a function of of Medicare reevaluating the cost of equipment, which had died as you know from time to time then.
They they have talked about gets along with its you know the <unk> E and M code caused you know really for the last several years. So I think they you know as they introduce the conversion factor decrease they then readjusted the technical component of the RV use.
Got it wouldn't market.
You just from an EBITDA growth perspective without going into guidance. Obviously, so you laid out your mitigation.
So do you think you know apples to apples right I mean to cover did not happen and that the god willing to happen.
Wrapping you would've seen.
Seen a certain level growth that you could our thinking of an EBITDA level for next year, but with all the cost cuts the you're putting through.
Do you think that 2021 EBITDA that you would have contemplated in January 2020 would still be wouldn't say ballpark after accounting for both Medicare cuts and the cost cuts you Patrick.
Well, let me as I think I understand what you're asking I mean, some of these cuts that are made against that are going into place in 2021 would have been executed anyway, just because we constantly are looking for areas of our business that that weekend.
You know improve on on but I would tell you that the exercise that we had gone through during the pandemic which was.
Necessitated by the fact that our revenue was what so pressured and our patient volume with so pressure on also uncovered other areas of the business, where we feel we can save money I'll give you. One example of that which is employee travel and reimbursement.
Spend says we have.
Kept historically had a fair bit of travel as as you know our facilities are across six states and you know some on the east coast I'm on the West Coast and along with that travel you know as is the cost of airlines and hotels and labors and and all related expenses, while we've been operating just fine.
Line.
Over the last few months with almost no travel and very little employee reimbursement expenses and so that's that showed us that some of the travel that we bought we've you know enjoyed over the past.
Several years as as you know it is we're able to reduce that significantly. So that's one of the things that has come directly out of code that that perhaps you know we wouldn't have fully appreciate it if we hadn't had been necessity to look at every aspect of our business.
Brian It's Howard let me, perhaps amplify and I think the question that you're in answering a there are certain aspects of our business. We look at all the time to try to become more efficient a in the delivery services and then that would have had.
Regardless of calls it I think with a cold that experience.
It has allowed us to do is reduce the company down to its foundation and reevaluated as you are well aware or the company has grown significantly over the past six seven years.
Merely through acquisitions and given our particular strategy of be clustered in specific lead you know areas. We appear to his head facilities that were legacy facilities that we continued to operate and.
We're reluctant to making significant changes this cold period has allowed us to work.
The greater flexibility that patients are you, referring physicians are willing to undergo as to where they can send their patients and that we've identified a number of centers, where we believe we can't eliminate those centers and consolidate.
Into our more centers of excellence to those handle that volume and probably would do it on a more efficient basis. So anyway. We're trying to take this opportunity do we look at the business and even our unique strategy that I think a is unlike.
Almost any other and [noise].
On the.
The industry or health care industry I should say.
Look at what we can do to become more efficient is the way that we deliver our services and also the quality I might add for that so.
Yes that will be a by product, which will be significant really good.
To the Medicare reimbursement cuts.
We will experience a most likely in 2021.
So that makes Oh, I got Mark for Howard because I think about the ramp of your business now you're running at 90%.
Average.
Basis recovered.
How many how should we be thinking about the re wrap up expenses I'm. Good I'm trying to think about staffing levels at the centers.
And then I know you cut.
Position by up to 50% like.
What is that we ramp you know look like.
2020.
Okay, well I'll answer that in two parts, Brian first on the revenue side of getting above the 90%.
With that we're currently at there's two factors that are at play here there were very much depend upon the continued a code that experience.
The that.
Some of our emo high volume.
He has been impacted by the lack of.
Sports at have been curtailed virtually at every level I think excluding the professional sports.
Which is a very limited number of people to begin with relative to the total population, but every other level, whether you're talking about college high school.
Italy.
Picked up clubs, even just routine scrimmages order pickup games that.
Individuals.
Participate in had been substantially curtailed and sports medicine is a huge driver of imaging, particularly a m. arise so.
We've seen that a number of our orthopedic surgical referrals and colleagues.
You have been slow to cover more to their normal levels and we think that's what this is due.
It's very likely that the impact of sports medicine, Junco that is likely to extend well into next year. So RM of I'm arise I am I believe will be.
Challenge at least in that regard in the does to the other area, where we're seeing a big lag is in routine X rays, particularly chest X rays.
As the coded input at a very much curtailed the.
Routine physicals and HM two annual visits by patients to doctors as well as the substantial decrease in elective surgeries, which almost always require a chest pretty chest X ray to be done has been pretty dramatic.
Impact on the business and which is the biggest lagging.
Daily to return so I think again, while I'm very pleased at the level of 90% we've achieved a we are.
Still very.
Focused on monitoring you the rest of that growth above 90%, we think we'll get back to that 100% level, but probably not until maybe the second quarter of next year in regards to the expenses as Mark mentioned Uh Huh.
Marks about two thirds of the employees that were furloughed has now been brought back.
Menu that.
We're full load has either chosen not to return or through some of our consolidation.
Probably do permanently.
Or terminated.
And I see that is something that we are going to continue to benefit Islam along with the closing Oh shuttering in closing of senators that will help reduce.
The overall Clos as running any center, which include not only the staffing but equipment rent and utilities.
And other expenses that go along with that so I think our operating results for the third and fourth quarter. This year, assuming that we don't have any more serious waves or surges, whether you call that.
A surge of the first wave or a spike she's mistake is a first ways, where a surge from the second wave you get a little bit nuts with the Lady that I'll try to stay in this designation but.
As long as we don't suffer any major setbacks in all markets are then I believe.
We are very comfortable with not only were gonna be from it.
Operating standpoint, but other important things like or cash liquidity and our.
Covenant for our leverage ratios.
So in short I think.
Well I believe the senior management will continue through the remainder of this year at the 50% reduction that has been taken a we're anxious to get the rest of the companys employees back loaded already deck at their full base pay.
Back to that as.
The procedural volumes and performance allow us.
Gotcha, and then how lucky about M&A right I mean I'm guessing.
The struggled.
Got you saw this quarter on your earnings I know, the governor supervisors support, but not not I mean.
I can imagine that's smaller guys or even though the.
You can find rebuilds are struggling with this do you think that's open.
Now the gain for you all are you more focused right now in capital conservation there given ongoing covenants are they.
Well I think right now we're focused on capital conservation and Ah.
Well I think you M&A.
Opportunities will present themselves to us and we will look at them very carefully.
We need to be very targeted as we have always been making certain that those M&A activities, primarily core inside of the regions in which we currently operate I think.
As as we gain more and more.
[noise] presence in those markets it benefits us throughout the entire organization.
Makes us a more profitable company more so than going into new regions that being said I believe that entire healthcare industry is reevaluating the ambulatory strategies outpatient strategies and then.
Maybe a better opportunity for us to perhaps go into new markets.
As long as they fit the criteria.
As a path forward for us to become a significant player in those markets and partnering with a health system.
That has already been shown to be a very valuable part of the radnet strategy. So.
I don't want a rule anything out we're comfortable in our current position both with.
The highest liquidity that the company is ever.
Experience.
And confidence in our.
Future operating results.
And perhaps now is not was the time to look at opportunities that may not have been as obvious a in the pre covert period.
How's lots left for me Hologic. If you don't just give me a little more color.
You talked about it little bit your prepared remarks, but well what do you see that partnership going.
And what how did that blend in with the overall radnet strategy longer term AI in the background.
Yeah. Thanks, Brian It's a great question.
As I've said in prior earnings calls and as a.
Hopefully everybody as notice with the acquisition of Oh official intelligence company called Deep health.
He has felt very strongly that artificial intelligence in general for the health care industry, but in particular for radiology imaging will be transformative.
Well I see this intersects with the whole logic collaboration is that.
Breast imaging and their model three.
There is the quintessential.
Yeah aspect or example, I should say of potential population health.
It is truly a screen exam, we believe that screening you exams, such as for the prostate lung colon our opportunities for the future to better manage population health and for which we want to be a in the forefront.
This is the logic.
Collaboration two things are happening number one.
Approximately 95% of our entire Mamograms C suite assistance uncle logic and every one of those systems within the next 12 months, we'll be upgraded.
Into orbit, please with the latest a whole logic technology, which not only involves high resolution detectors, but also.
More.
Oh official having more artificial intelligence to help lead the exams faster and more accurately.
We will allow us to boost.
About 1.2 million or more models the exams annually, which is approximately 4% of all of them, obviously done in the United States all the screening them and if you've done in the United States and for which the logic will be getting that data [noise] too.
Oh them. Some further evaluate the clinical assistance, we could see and accuracy as it's a technology along with our development of artificial intelligence to we add more accurately diagnose earlier.
Cancers that combined with a robust plan to incorporate other imaging and and screening data for for patients will I believe allow us to be more aggressive and going to the pay yours and patients and also.
You know products to advance population health and has just wouldn't potentially reimbursement models, maybe like capitation, rather list Sherry models, which I think I'm very much part of the future. So I think for both Hologic and for Radnet, we potentially.
Patients as is as it relates to certainly glentel breast health in general as well as.
And those were all appreciation of the benefits of artificial intelligence are gonna be extraordinarily kind of sequential.
Our second so much appreciate the thoughts right.
Thanks, Brian said it well.
And then I'll take on next question move that I got bar with Sidoti. Please go ahead.
Yes. Good morning, Thanks for taking the questions asked for US out I was wondering does it give a sense. This in terms of the geography or with the bounced back you're seeing it yeah.
Volumes, how much of that I assume most about is essentially from New York, but then you're seeing a surge of cases in California, Colby I was wondering how.
The mix has changed so maybe a few months ago.
Hi Mitra.
Yes, the the growth on the East Coast I has been a steady growth with many of our markets outside of Metro New York, achieving closer to 100% of the tree cold as levels [noise].
So that has been a a very pleasant or development for us as you can imagine with the the stringent.
Procedures and.
Oversight in New York, which I am a from a lever as both so both the results as well those.
Appropriateness of a New York has been slower return is now gaining a little bit of.
Additional momentum, which I think would be held by a government cuomo's recent announcement of the reopening of the schools.
So I would expect that the east coast will continue.
Assuming there's no further surges a in its growth the it's procedure volume growth the California has been challenging it was.
A head of the East coast initially, but as the surge.
Here in California, like many other states, notably, Florida, Texas in Arizona.
He has gotten out of control.
There's been a did have a flattening and maybe even a very slight decrease here in California, which we anticipated.
Fortunately as you're aware.
A disproportionate amount of our revenue in California is from our capitation contracts.
Which whose.
Revenue to the company has remain unabated and in fact has actually grown slightly.
As more people I think they're seeking that form of insurance coverage, even so while I believe we're at a bit of applause here I expect this will come under control probably within the next 30 to 60 days and a growth will continue.
Here, but at least we have the benefit of the more stable and liable capitation contracts to rely on I. Also think this represents an opportunity for us to actually do more capitation or or alternative reimbursement.
Those as I think many of the.
Hey orders now are you have momentum into shift of business away from hospitals, a I believe that though that's the by leading insurance companies to directed away from the considerably higher cost.
Yeah hospitals has actually been facilitated by coded as most patients are reluctant regardless of the efforts that hospitals make to maintain safety. Most hospitals. Most patients are reluctant to go to hospitals for elective outpatient services. So.
I believe over a period of time, we will continue to benefit from that as well and conversations that I believe will be study. The has right. After the first of the year with pay ores in more.
Interesting and new reimbursement models.
Should accelerate.
Okay.
[laughter] young.
Okay.
Got to be permanently closing.
Oh facilities I'm, just wondering if you have a little 25, there are still we open if we should expect any potential close told me from that or maybe some that have already reopened.
Mixture.
Yeah, I would expect a number of facilities that main close or somewhere in that range could be permanent closures. You know amato is a hub and spoke model and so we have a lot of a small satellite facilities, where we do a Jack just X ray.
Or.
Other routine imaging and really were seeing that many of those centers are probably can be close permanently and that line to absorb the nearby centers.
So some others that we think a closed acquisitions are very close to other centers that we have where we can.
Probably eliminate some of those centers also without losing any of that volume. So I would not be surprised just.
The number of centers that are currently close could remain permanently close as a result is this.
Visiting the.
Operating model that are somewhat unique to read them.
Looking into the space and then finally I'm just a quick thoughts I think you've mentioned detailed they have a plan to submit their firstly I thought. It later this year just curious in terms of how meaningful you think that could be theory I initiative.
I was wondering.
How much easier I initiative.
Well I think it's been very meetings there the first product will be what we call a tree ice product, which will.
Essentially take mammogram and sort of the into normal and not abnormal categories, which will then allow the radiologists to prioritize whose reading of the mammograms.
Those that are more likely to has cancers in them or that are highly suspicious that ER and the more normal which are probably about 80% of our screening.
He is normal indeed looked read more quickly given that though has at least some indication that ER that.
That exams, most likely to be normal so we expect efficiencies for primarily our radiologists.
And since a lot about radiology.
Professional fees are fixed or that could have substantial no benefit to the company and that's just the first of two products. The first two products.
Second one we hope to get sometime in the early part of 2021, who which will actually be a diagnostic interpretation for mammographic.
Okay. Thanks, again for taking the questions.
Thank you Andrew banks that Jeff.
No no further questions that I.
I would like to some of the calling for banks on hold what I know this now all close to my line.
[noise] again, I would like to take the separately opportunity to think all of our shareholders for their continued support and the employs redness for their dedication and hard work.
Management will continue its endeavor to be market leader that provides great services was appropriate return on investment for all stakeholders. Thank you for your time today and I look forward to our next call.
Sure all of you in your feelings good health and safety during this unprecedented times.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.