Q3 2020 RadNet Inc Earnings Call
Ladies and gentlemen, you're coming out.
Third quarter 2020 financial results Conference call I would just tell me I wish to make additional participants to kind of get away approximately five minutes.
Michigan patients, that's a pretty meaningful.
[music].
Ladies and gentlemen that can yield.
For today's Radnet Inc. third quarter 2020 financial results call at this time.
Participants.
Really.
Appreciate your patience rescue please are minimal.
[music].
Good day and welcome to the Radnet Inc. third quarter, a 2020 financial results call.
Conference is being recorded.
It's Tom I'd like to turn the conference over to Mr., Mark Stolper, Executive Vice President and Chief Financial Officer of Radnet. Please go ahead Sir.
Thank you.
Good morning, ladies and gentlemen, thank you for joining Dr., Howard Berger and me today to discuss Radnets third quarter 2020 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 and 1995, specifically statements concerning anticipated future financial and operating performance and liquidity our response to.
The expected future impact of Tobin 19, our ability to stabilize and continue to grow the business by generating patient referrals and contracts with radiology practices.
Recruiting and retaining technologists consummating acquisitions, and joint ventures, 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.
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 include those risks set forth in Radnets reports filed with the FTC from time to time, including Radnets Annual report on form 10-K for the year ended December 31st 2019, and our quarterly report on form 10-Q should 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 date. It is made.
Radnet undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances. After the date they were made or to reflect the occurrence of unanticipated events.
And with that I'd like to turn the call over to Dr. Berger [noise].
[noise], Thank you Mark [noise].
Good morning, everyone. Thank you for joining us today.
Today's call Mark and I plan to provide you with highlights from our third quarter 2020 results.
The more insight into factors, which affected this performance.
Discuss in some detail the progress we made during this call that 19 period and get the jails.
Strategist.
Good prepared remarks, we will open the call to your questions.
Thank all of you for your interest in the company for dedicating a portion of your day to participate in our conference call. This morning.
Before we start.
I would like to say on behalf of myself and the entire team at Radnet.
I hope all of your and your loved ones are helping that same saves.
I'm extremely grateful for all of our stakeholders, including employees business partners lenders and shareholders.
Let's begin.
I'm really pleased with the performance of our business in the third quarter, a significantly improved revenue and profitability relative to the second quarter is the result of recovery procedural volumes and the multitude of cost savings and cash conversion.
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Conservation.
Measures, we instituted throughout the cold <unk> <unk> period.
<unk> revenue increased 53.1% sequentially from the second quarter was a procedural volume increase of 66.2% driving this top line performance.
This was an increase of $101.2 million in government is still the second quarter's yourselves.
Perhaps even more notable is our improvement in adjusted EBITDA and earnings our adjusted EBITDA more than doubled from the second quarter, increasing from 22.6 million to 45.8 million.
This difference would have been even greater and were not recognized 25.5 million.
Heres funds in the second quarter last.
By comparison, we recorded only $221000 of scares EPS funds in the third quarter.
As compared to the third quarter of last year despite revenue.
Being essentially flat our adjusted EBITDA increased from.
41.0 million to 45.8 million or 11.7%.
This resulted in adjusted EBITDA margins increasing.
By 14% since last years.
Third quarter.
[music].
16.7%.
As many of the Golden Monkey and cost reduction initiatives, which drove the improvement in margins are ongoing not one time.
Yeah, the opportunity for sustained margin improvement in future quarters.
Adjusted net income per share was 15 cents. This year's third quarter as compared to adjusted net loss per share of 61 cents in the second quarter of this year.
Net income per share of six cents in last years third quarter.
This is a sequential increase of 31 cents per share from the second quarter of 21.
Eight cents per share for last year's third quarter.
As a result of the increased not procedural volumes throughout the third quarter.
And strong liquidity position and cautiously optimistic believes that procedures items will continue to recover I'm pleased to report that as of August 1st we began bringing back substantially all of our employees some furloughs and restored the wages of those team members, who took they reductions as a result of coal.
19, we completed this process and I told it was first I want to thank all of our team members for their patients and commitment. During this difficult period outsourced line imaging center employees continued to be the true heroes, ensuring access to care and a safe environment for the benefit of our referring physician.
And patient communities.
Currently we have three open to all that 19 imaging centers. The majority of which are routine imaging satellite locations designed to alleviate the traffic in our larger more advanced multi modality facilities.
As procedural volumes continue to recover.
We hope will you move beyond the cold at night and <unk>.
And moved beyond the call. It 90, Threerd we knew.
We evaluate.
Opening facilities.
The loans I have spent a lot of us a unique opportunity to focus on all aspects of our business, including center level back office administrators operations to create efficiencies and reduce costs prior to cope with <unk> Jude and spent several years significantly increasing the scope and breadth of our business through.
Gas growth and acquisitions, while this extension expansion has been beneficial to our business in virtually every market in which we operate globally 19 that allowed us to focus on ways to most effectively reduce expenses and conserve cash at a time when growth was not a priority.
This optimization process over the last six months has brought great value that you read that.
Not only was demonstrated in the third quarter, but that will continue to pay dividends into the future.
The cost of liquidity saving measures, along with increasing procedural volumes cares funds and Medicare advances resulted in 89.7 million dollar cash balances.
At quarter end and are being undrawn on our $195 million revolving credit facilities.
This is the strongest liquidity position in the Companys history.
I'd like to also recognize the support received from our relationship banks at the end of August we completed a 57.5 million upsize of our revolving credit facility.
Our cash balance continues to be strong the additional capacity provides us further diminish the flexibility to grow our business and execute our strategic plan long.
Along with our increased liquidity and then poof financial results leverage declined by over a quarter of the churn in the quarter to under 4.25 times net debt to EBITDA.
We expect that our leverage will return to under four times net debt to EBITDA in the coming quarters.
Throughout the call the period, a capitation business has remained an important feature of Radnet.
Reputation revenue increased 13.8% from the third quarter of last year.
Because we get paid exits kept budgeted amount per enrollee managed by the medical groups with whom we contract a capitation revenue and associated cash flow is dependent upon in a moment these health plans throughout.
Throughout COVID-19 enrollments are these HTML patients with our contracted medical groups has remained intact as patients and their employees.
For those who have been flow has continued to pay health care premiums.
Subsequent to the end of the third quarter, we announced a new partnership with this health one of the largest health systems on the West Coast and Hawaii to grid outpatient imaging joint venture in Simi Valley, California under the new joint venture Radnet will contribute two of its imaging.
Two of its Simi Valley imaging centers Alamo advanced imaging in Simi Valley advanced imaging and the dentists EPS will contribute its Aston imaging center that will also assume the operational management of that is helps Nancy Reagan less center.
That's helps assets. It seems valley include the ownership of the leading hospital, an urgent care Center, a clinical laboratory home care services at various family and specialty physician.
Physician practices. The partnership is scheduled to begin operations in January.
Two weeks ago, we announced the creation of a new operating platform in Phoenix, Arizona through a partnership with dignity health common speared health.
Well this is our third venture with dignity health. This is redness first entrance into a new geography since 2013, when we entered New York City in conjunction with establishing the partnership we completed the acquisition of Asian check and MRI and radiology and eight location Multimodality radiology practices.
Phoenix, we are extremely excited about the strategic expansion into Arizona.
It's in particular is a rapidly growing market and is home to almost 5 million people wonder.
On the venture Radnet and beginning to develop a network of Multimodality outpatient centers expanding the geographic coverage of the acquired locations through a combination of new site development and acquisition of existing radiology practices.
Dignity health is a leading health system in Phoenix owns and operates multiple hospitals medical groups special to specialty care locations in this marketplace from which we can leverage our operations our focus will be to aggressively expand our footprint in order to both effectively service the good new young and affiliated physician groups.
And capture other pitches items drugs competitive outpatient operators.
We are committed to developing significant management focus and financial resources to drive density and geographic concentration in Phoenix that has made us successful in our other core markets.
At this time I would like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2020 performance. When he's finished I will make some closing remarks [noise].
[noise]. Thank you Howard.
I'm now going to briefly review, our third 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 as provide some insights into some of the metrics that drove our third quarter 2020 performance.
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.
Debt extinguishments and non cash equity compensation.
Adjusted EBITDA includes equity earnings in unconsolidated operations, and and subtracts allocations of earnings to non controlling interest in subsidiaries and is adjusted for noncash or extraordinary and one time 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 and our current report on form 8-K filed with the SEC.
With that said.
I'd now like to review, our third quarter results.
For the third quarter of 2000, sweating, Radnet reported revenue of $291.8 million and adjusted EBITDA of $45.8 million.
As Dr. Berger discussed in his remarks.
This performance with a significant improvement from these metrics in the second quarter and is reflected as a major recovery of our business from the impacts of code that 19.
Compared to the second quarter of this year revenue increased $101.2 billion or 53.1%.
Adjusted EBITDA increased $23.2 million or 102.8%.
[noise] relative to last year's third quarter, a quarter that was not impacted by COVID-19 revenue decreased only by $916000 or <unk>, 0.3% and adjusted EBITDA increased $4.8 million for 11.7%.
Our adjusted EBITDA margin increased 385 basis points or 3.9% from the second quarter of 2020.
And exceeded last year's third quarter 569 basis points or 1.7%.
The increase in adjusted EBITDA, and adjusted EBITDA margin relative to last year's third quarter as primary primarily the result.
The cost savings measures, we took during COVID-19, many of which should aid our business into the future.
For the third quarter of 2020, EPS compared to the prior year's third quarter Amreit volume decreased 6.1% C.T. volume was flat and pet CP volume increased 44%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and all other exams decreased 5.7% from the prior years third quarter.
On a same center basis, including only those centers, which were part at Radnet for both the third quarters of 2020, and 2019 and MRI volume decreased 5.8% C.T. volume decreased 8.9% and pet Cts volume increased 2.3%.
Overall same center volume taking into account all routine imaging exams decreased 5.6% compared to the prior year same quarter.
Relative to the second quarter of this year aggregate procedural volumes inclusive of all modalities increased 66.2%.
In the third quarter of 2020, we performed 1 million 890156 total procedures.
The procedures were consistent with our Multimodality approach whereby 76.5% of all the work we did by volume was from routine imaging.
Our procedures in the third quarter 2028, whereas follows. Please note that the C.T. volumes for last year have been restated to account for a change we made as of January onest of this year and how we account for one of our CP CPT codes.
The comparative numbers that fall or on an apples to apples basis.
266049, M. riots as compared with 283221 M. rise in the third quarter 2019.
167005, Cts as compared with 167078 Cts in the third quarter of 2019.
10886, pet Cts as compared with 10847 pets E. cheese in third quarter 2019.
And 1 million 446216 routine imaging exams, which include nuclear medicine, ultrasound mammography X Ray and all other exams as compared with 1 million 544026 of all these exams in the third quarter of 2019.
For the third quarter Radnet reported net income attributable to Radnet inc. common shareholders of $6.2 million, an increase of approximately $3 million from the third quarter of 2019.
[laughter] sequentially relative to the second quarter of this year net income increased $16.8 million.
Net income per share for the third quarter of 2020 was 12 cents compared to net income per share in the third quarter of 2019 of six cents based upon weighted average number of diluted shares outstanding of $52 million in 2000, excuse me 52 million.
And shares in 2020, and 50.4 million shares in 2018.
Adjusting for the non cash impact of the company's interest rate hedges in this year's third quarter. Adjusted net income was 15 cents per share.
This compares to adjusted net loss per share of six negative 16 cents in the second quarter of 2020.
Affecting net income in the third quarter of 2020 were certain noncash expenses or non recurring items, including the following.
$2.1 million of noncash employee stock compensation expense, resulting from the vesting certain options and restricted stock.
$571000 of severance paid in connection with headcount reductions related to cost savings initiatives.
$342000 loss on the sale or disposal of certain capital equipment.
$2 million of non cash impact from interest rate hedges.
And $1.1 million of amortization of deferred financing costs.
And noncash interest and then on loan discounts related to our credit facilities.
Overall GAAP interest expense for the third quarter of 2020 was $11.1 million. This compares with GAAP interest expense in the third quarter of 2019 of $11.9 million.
Cash paid for interest during the period, which excludes noncash deferred financing expense and accrued interest [noise] eight point nearly $8.4 million as compared with 12 $812.8 million in third quarter of last year.
With regards to our balance sheet as of September Thirtyth 2020, unadjusted for bond and term loan discounts, we had $591.7 million of net debt, which is our total debt at par value less our cash balance.
Note that this debt balance includes new Jersey imaging network staff have a problem with approximately $54.5 million for which Radnet is neither a borrower and more guarantor.
This compares with $687.3 million of net debt at September Thirtyth 2019.
As of September Thirtyth 2020, we were undrawn on our $195 million revolving line of credit and had a cash balance of $89.7 million.
As Dr. Berger mentioned in his prepared remarks, we upsized, our revolver commitment with our relationship banks by $57.5 million in August of this year.
While we have not needed to access this liquidity the larger revolver provides us additional operating flexibility and funds available for future growth should we require it.
At September.
Member Thirtyth 2020, our accounts receivable balance was $137.4 million a decrease of $17.4 million from year end 2019.
The decrease in accounts receivable is mainly the result of the decline in our procedural volumes and revenue during the Cove at 19 period, and our significant cash collections on previously existing accounts receivable.
Our days sales outstanding or Dsos was 39.2 days at September Thirtyth 2020, lower by approximately 5.4 days as of year end 2019.
The lower EPS that was primarily a function of a return to more normalized revenue during the last two months of the third quarter as revenue and accounts receivable normalized post COVID-19, we expect dsos to return to the low to mid Fortys level.
Through September Thirtyth 2020, we had total capital expenditures net of asset dispositions of $71.8 million. This excludes $5.5 million of capital expenditures of New Jersey imaging network, our joint venture with our WJ Barnabas.
I'll now take a few minutes to give you an update on 2021 reimbursed.
And discuss what we know with regards to 2021 anticipated Medicare rates.
As some of you may have recalled may recall from our second quarter financial results call with respect to Medicare reimbursement, we received a matrix for proposed rates by CPT code in August which is typically part of the physician fee schedule proposal that are and that is released about that time every year.
We completed an initial analysis and compared those rates to 2020 rates, we volume weighted our analysis using expected 2021 procedure volumes.
CMS move forward with an increased reimbursement for evaluation in management, CPT codes, which favor certain physician specialties that regularly build for these services, particularly primary care doctors.
CMS proposed doing so with budget neutrality, meaning that a proposed to reallocate reimbursement from physicians, who rarely bill for E and M codes, such as a radiologist to physicians who regularly bill for these codes such as primary care physicians.
In the proposed rule CMS initiated a 10.6% decrease in the conversion factor used to calculate Medicare reimbursement for all specialties in 2021.
Radiology CMS made a material upward adjustment to the technical RV use in the reimbursement formula.
These RV user multiplied by this now lower conversion factor to determine how is reimbursement.
Our analysis of these opposing forces showed that Radnet will suffer approximately 11 million dollar revenue hit in 2021 from our Medicare book of business.
There are many lobbying groups from the various medical specialties aggressively opposing the budget neutrality aspect of the email E. N M code reimbursement changes, including radiology two main lobbying forces the association for quality imaging, where achy lie and the American College of radiology.
Where HCR.
Late last month, U.S. Representatives Berra, a Democrat from California, and boost shine the Republican from Indiana introduced bipartisan legislation to provide relief to physicians responding to the Cove at 19 pandemic, who are scheduled to receive these Medicare payment.
What's next year.
The Bill would provide a temporarily that temporary additional payments in the amount of the difference between 2020 and 2021 Medicare reimbursement for two years for the specialties like radiology better facing the Medicare cuts.
We should know more in December when the final rule was released and went in to determine if the variables Sean Bill will be attached to federal funding bills expected to be put in place in mid December.
I'd now like to turn the call back to Dr., Berger, who will make some closing remarks.
[noise]. Thank you Mark.
The Corona bloodlust spend damage has allowed us to take a pause from the rapid growth path. We have followed over the last several years and evaluate all aspects of our business.
Especially since we created during this period position our operations for a strong performance in 2021.
Furthermore, we ended 2021 with the strongest liquidity position in the company's history.
Besides continues to drive growth and efficiency in our core imaging center business, we will further pursue ancillary opportunities to drive revenue increased margins and reduce costs.
For example, this year, we installed our first installation of the toll so pro system when incision free thermal ultrasound system designed to treat prostate disease, we have begun to see patients at one of our Los Angeles area locations and are eager to expand this business.
It is adopted as this new procedures adopted and continues to drive demand.
Another ancillary opportunity with an aggressive pursuing is a commitment.
Actual intelligence in the second quarter of this year, we completed the acquisition of health, which has become the cornerstone of our artificial intelligence strategy. We are on track to submit for a first approval to the federal drug administration Deep House first and then I'll go to product by end of year.
We hope to be utilizing details first product in our work flow in the second half of next year, which we believe will enable a radiologist to be more accurate and disposition.
As we move into 2021 health system joint ventures will be another ancillary opportunities for growth.
Currently over 25% of our facilities, our jointly owned with community hospitals, and large health systems and with the Disney partnership and fielded smear demonstrated our willingness to enter new geographic.
Margins in conjunction with entrenched partners. These partnerships on average drives higher margins are wholly owned centers and assist us in securing fear long term pricing.
Regional Payors.
In the third quarter, we announced a multi faceted collaboration agreement with Palogic focused on truly women's health <unk>.
The logic will contribute capabilities and insights behind its market, leading hardware and software and that drives and we will share data with a larger produced by our fleet of high resolution than licensing systems the largest in the nation.
The data will be used to train and refine current and future products based on artificial intelligence. Both companies will work together to enable new joint market opportunities and further leverage to do clinician confidence and develop and integrate new artificial intelligence technologies.
In conclusion, even in this challenging time, we continue to be very optimistic about the future.
Right and that we expect to emerge from cold it as the best position company in our industry and we are excited to keep you apprised of our progress.
In the coming quarters.
Operator, we are now ready for the question and answer portion of the call.
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Thank you Sam if I could ask a question <unk> star one on your telephone keypad.
Using a speaker phone. Please make sure that your mute function is turned off to layer signal to reach our equipment once.
Once again that star one if youd like to ask a question or a pause for just a moment hello, everyone an opportunity to signal.
I think if that is star one well take our first question from Brian <unk> with Jefferies. Please go ahead.
Hey, good morning, guys. Congrats another follow corridor I guess Mark My first question just to follow up on your comments on the Medicare rules.
Just.
Reminding us how you're thinking about the impact.
On your P. and now if the proposed rule goes through it.
And then I think you talked about timing, how do they think or how do you guys think they're going to implement a one one cut if we haven't had any rules set out yet and we're already deep into November.
Sure. Thank you Brian.
So.
You know the conversion factor is declining from $36 to nine cents to $32.26, which is a 10% 10.6% decrease so to the extent that the RV use words that state has stayed the same you know for CPT code in radiology.
All radiology providers would be facing a 10.6% decline in their reimbursement, but that's not what Medicare did essentially what Medicare did is.
They did the RV you calculation as you're aware it is consists of.
The technical portion of the RV, you and I had a professional portion of the our view for the professional portion of the RV you they either depending upon the modality of the CPT code they either kept it the same where they actually on average decreased the professional RV use.
To the tune of 1.2%. So most of the professional only models such as hospital base Radiologists next year. If the proposal type goes into place are facing really an 11% to 12% hit on on the various CPT codes.
But for the technical RV use they actually increased the technical RV use across the board I'll get I'll give you a couple of examples for instance are our two on X Ray is our largest procedure by volume and our two most.
Most common x. Ray procedures are to you you no chest X Ray and then the X. Ray of the spine mumble sake role, which is a forward view X ray and the technical RV use are going up for each of those by 8.7% and 10.3% respective.
So the increase in the tactical RF reuse, it's partially mitigating the decrease in the in the conversion factor and that's happened across the board for instance in seat cheat on our our most common CPT codes as the C.T. of the abdomen and pelvis and the team.
Technical are at the global RV use of that is going up by 7.3%.
So you can see you know what what they've tried to do for imaging centers after eight years and you're aware of this.
Decreasing the technical RV use from you know from 2007 to 2014.
They and not changing the professional RV use what they're doing now is is it essentially adjusting the professional component, where we are seeing that type and and our quiet you know across the board as it comes out to about 5%, which you know, which equals that $11 million or so number that that I.
Knocked about where we are going to be seeing a cut if the if the.
If the proposal goes into into into place as proposed would be in and now we are the global RV use and the technical side of the RV use really is not changing so we're going to see a full 10% type there. So it really depends upon your CPT code name.
Yes.
And when we did our analysis for 2021, we weighted it by our actual CPT code mix or expected CPT code next for 2021 on with respect to this bear appears Sean Bell that's out there wise it is proposing to do.
Do it's essentially make up the difference between 2020 in 2021 with an additional payment to providers and the proposal I think because of coal that 19 to the final rule isn't now supposed to come out till December 1st and then Bearably Sean Bell.
If it goes into place would be part of a overall government spending bill that that I think needs to be passed I think by December 11.
Remember correctly, so we'll find out more lets say mid December about whether this proposed cut will will go into place and as I said, there's a lot of industry lobbying groups and then not and not just from radiology, but all of the specialties that don't Bill E and M codes, whose.
Seeing we're facing a significant reimbursement tied on there's a lot of cooperation between the various industry groups to try to push back on and on these cuts going into place so yeah from our standpoint.
We are prepared for the Capex to go into place we have a number of mitigants that we think will.
Fully.
Counteract you know the $11 million or so of cuts and we'll just kind of have to wait you know over the next 30 days and see where the government is coming out.
Okay. So just to summarize that the between versus what you thought the cuts would impact here how that would affect you from.
Well your comments Keith you nothing has changed like and you've done more or the same exact number 11 million different thing.
Correct Okay.
Okay Cool Awesome, and then I guess, if you don't mind, giving us some comments on the Arizona strategy. So this is obviously the first time, we're seeing you go into a new market in a while then it's not contiguous to an existing operation. So I'm feeling like just describing as you know the way you're when you saw in the Arizona market that made you decide to go.
And then is this something that you think we would see more of as you replicate that entry strategy or Arizona is close to your California operations or is that a factor or are you willing to go to new Jersey completely new geographies.
Thank you, Brian I'll take that.
The.
Entrants into the Phoenix market was really a combination of factors.
First and foremost it's an extension of an existing relationships that we have with the dignity health system, which has now as you are aware become a part of the common spirit. After a a merger with that's health care initiatives. So.
We were introduced very favorably to the leadership in Phoenix, and they asked us to really help them with a outpatient imaging strategy in that marketplace.
Given that we also had an opportunity.
To by eight centers in that market or through an existing relationship with the like rather company that we do.
This with we found a good combination of circumstances that made it attractive to us as I had.
Said on previous.
Close calls why we would be interested in going into new markets.
Moving really two factors to be a part of that decision, making and it really has nothing to do with the geographic closeness of existing markets, but more what the dynamics in the marketplace. One is.
Find a good partner to enter a new market.
That like dignity was looking for assistance with developing and outpatient strategy.
And was there a path for us like we have in all of our other markets to have considerable growth and be a very substantial player in that market. We fluctuate some adults as those in the Phoenix market, which also.
As a rapidly growing market, perhaps one of the fastest in the country I knew the Phoenix market, where most of this.
Initial centers are that's over 5 million people become similar to other markets that we have entered so.
But they were already currently and so I think the mix of those opportunities there.
Created a very nice pathway florist also is it shouldn't go unnoticed that a few weeks ago Cigna health has announced that they were no longer going to be reimbursing patient imaging performed in hospitals.
Sept soy.
For certain circumstances, and I think the daddy's. Additionally.
Forcing some of these.
Hospitals, and health systems to reevaluate the inevitable transition out of hospitals of ancillary [noise] outpatient services, such as outpatient imaging. So while this may be the first a new market that we've entered into since two.
Turning 13, I think that there will be other.
Conversations that will continue to have.
Health systems are that look to the leader in outpatient imaging, namely radnet to assist them in that process.
In taking it easy unique partner in that particular market they have tremendous brass.
Of operations there in in addition, Brian to owning eight hospitals either own or we are affiliated with eight hospitals. They are also a big player in in the medical groups there in Phoenix They own a one medical group that has a 100000 lives.
Dignity medical group, they have a 50% ownership into either significant medical groups, there one called Arizona care network.
Another one called Diversey care on each one of those has 300000 lives that we're talking about three to 600000 lives there and they are aligned with another medical group called integrated medical services. There that has 100000 lives. So between that they're eight hospitals and urgent care center network that they own and affiliate.
With Barrow Neuroscience Institute as well as the Phoenix Children's hospital, and others, there they control a tremendous or they have influence over a tremendous amount of.
Imaging.
Which currently is going to competitive imaging center. So we think as we devote folk.
Focus on resources as we build centers along with in conjunction with dignity as we purchase other centers in that marketplace and significantly broadened our scale and our on the access and in Phoenix, We believe that we have a strong.
Long opportunity to capture a lot of those those lives and patient volume.
Awesome and then Mark.
Just from a recovery trend for perspective would you be able to share with us how volumes trended over the course of the quarter and any comments you can share on how.
Things are trending through October you know, considering obviously the resurgence of colder than a lot of new market. There's a lot of market and also the wildfires in California.
Brian I'll I'll take that one further tower.
So that what we saw in the.
Third quarter was a steady increase beginning.
Primarily in the middle of August and extending through.
Through the end of the quarter September.
And.
By the end of September we were approaching on a companywide basis about 95% of our original 2020 budget estimates in volume that trend has continued and has increased slightly.
Slightly in October and the early part of November here. So are are forecasting of the procedural volume increases that started in early.
Early August.
It was very instrumental in allowing us to bring back as I mentioned in our.
Opening remarks, a substantially all of our staff.
Staffed yet or imaging centers.
By October 1st bring everybody back to their.
Full compensation, so Fortunately I believe that the benefits that we saw in the third quarter some of which will.
As a result of lower salaries.
And other accommodations made with some of our vendors.
Have now been has not allowed us to anticipate the increase class from.
Going back to normal staffing and what we're expecting to be a nice increase in revenue a.
For the whole of the fourth quarter as opposed to the somewhat average in lower volumes for the whole of a full quarter.
That's often hard and then I guess just last question for me to fall off of that Mark or Howard I mean, how are you thinking about the durability of the cost savings initiatives that you put through I know how you just said that you reinstated a lot of the compensation. So how should we be thinking about the cost structure as we look at Q4 going forward. Thank you.
Okay Brian.
Well I think.
The pauses I refer to it during.
The second and third quarters has allowed us to look at many sectors of the company's operations, which I think uniquely.
Was created by the <unk>.
Markedly reduced volumes that we saw in April and they predominantly because the company had grown so rapidly.
Merely through acquisitions, we found that we did have a number of centers relatively.
Close to each other they add patients given the circumstances were willing to travel to more than my the flood in the past so I think coming out of this year.
We have created a lot of operational efficiencies both on the from the staffing standpoint, and the number of facilities that we need to operate.
And I believe the combination of those will create some.
Some proven in our performance, which we mentioned and I think perhaps the best way to look at this plan would be that.
On margin expansion that we saw in the third quarter quarter is what we're going to focus on to try to replicate and.
In forward going quarters so.
Of course, that's subject to perhaps some of the cuts in the Medicare reimbursement should they go through which would hurt those margins a little bit, but I think the HM additional cost savings said has has not been fully implemented a that we anticipate in two.
On the 21 will help mitigate that along with sustained what I think is a better workflows and efficiencies and staff and so I I think perhaps looking at our margins going forward.
It would be the best way to estimate what the sustainability of the cost savings are.
Awesome. Thanks Howard.
Thank you Ryan take care.
Thank you, we'll now take our next question from Mitch Rome, coupled with Sidoti.
Yes, hi, good morning, Thanks for taking the questions first just trying to get a sense in terms of the volume rebound a you saw clearly environment this much better what.
Even with the lock those restrictions et cetera, but I was curious also if you're seeing any benefit.
As a result of maybe some of your competitors I'm not being able to survive the pandemic.
Well I think the good morning, I should say metric.
I think that there's there's two facets the to answer your question.
As far as competitors are concerned.
I think that.
The.
Impact with both.
Oh good.
Will be something that we'll see more of a in 2021 as some of our competitors who have not had the financial resources that we have as well as potentially looming cuts in.
Medicare wants them to consider the.
The ability of their own businesses so [noise].
I think the liquidity position that we're in has put us in a good position to essentially take benefits from that as far as volumes are concerned I think there's a myriad of factors that played.
Play both ways on that first of all I think it should be understood that.
Volumes have come down substantially to the.
Being told it leveled.
I believe that there will be a.
Number of people, who still remain reluctant to.
On the bottom it's like.
That's not just there but.
Our.
Neat.
And I believe that will stay that way.
Or probably well into 2021, when hopefully as was announced this morning by size or.
Closer to.
They have seen.
That means not only affect us, but will be a sought after by the majority of people.
You do have some anecdotal evidence that that isn't due the case because the one.
Largest.
Portion of our.
Business meeting actually this <unk>.
Is the one that has not as yet turn to the.
Dude.
Close at levels and I believe that is explained by the fact that there is still.
Number of people, who aren't access and go to routine elsewhere physicals or other minor problems one number to.
Elective surgeries are still down yeah.
Most people who traditionally get.
Just X rays or other procedures, but setting.
Surgery is also down so I think those will trail and though.
Rebound more in the second half the EPS year, Fortunately, that's raise or not a major driver again are.
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Birds.
Besides we.
Part of the.
Turning to normal volumes business that people were not.
Sure.
They.
Hey, Jim.
We're not accessing.
They are.
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Allison.
Rebound.
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Well I think those two kind of Conrad each other.
Somewhere in the mix there I think you.
Well the into the <unk>.
Jurors.
People like Cigna and other health insurers are.
And then the major rides.
Directing people away from hospitals.
And people themselves.
Let's now look at.
Outpatient ancillary services, particularly imaging.
A little bit more irrational, but given the fact that they were not.
As to building environment.
Hospital.
All of those factors have weighed again.
And we'll continue to look for us which is.
We go to <unk>.
Better.
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Okay, No that's great. Thanks for the color on that.
And then I was just curious on the margin obviously, we saw really nice EBITDA margin expansion.
And you're certainly rationalize the business deals with.
Cove its impact.
She was going forward now you know how quickly we should expect album those savings to continue to fill it. So far says maybe balancing the need to or somebody got opportunities you have talked about what it is and demography and elsewhere.
Well I think mammography I'm glad you mentioned that metro will be.
He has been and will continue to be a major.
Major focus of the companies.
Sort of.
In the collaboration agreement, we announced a logic.
Part of that is to take almost three all of our 300.
Mammography systems to the new whole logic, a high definition platform and make those unique stating the opportunity that will do the first of its kind really in the United States.
And then putting on top of your head the artificial intelligence that we hope to have beginning.
From the FDA [noise].
In the early part of the year.
Will allow us I think too.
Have a competitive advantage as well as expanding.
The offerings that we have in a way that's unlike any other operator out there whether its hospital based outpatient.
I'll finish imaging.
Putting those together prudently.
Doing about 4% of all the mammography and the United States and we believe.
Getting our centers with new technology.
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Our own artificial intelligence will allow us to expand and increase that.
Percentage.
Even more than it is right now so I think you can.
Look to them out of a portion of our business.
To to grow disproportionately.
For the rest of the business and it in of itself I think is a potential harbinger of where we are as a company want to go with other screening procedures, particularly.
For prostate.
Colin just to.
To make these similar to my Magow through something that can be ordered by.
Individual themselves.
And supported by the.
Sure it's companies as part of a wellness product.
Hope to advance in 2021.
I expect that you'll be hearing more from us also.
Okay. Thanks, and then finally as you mentioned, you're probably going to be the best place to operate a coming out of the pandemic in the industry. I was just curious if we should expect it to be even more aggressive in.
In terms of expansion pounds, you, obviously, just lots and your JV at an expanded relationship the skin I'm wondering what the pipeline looks like and also the appetite for M&A.
Well the pipeline has a has always been good here generally speaking it we don't go knocking on doors looking for acquisitions, we want motivated.
Dollars, if you will or opportunities that come our way and we expect that those will increase in 2021, particularly to the Medicare reimbursement cuts are implemented I think it's just going to make it that much more difficult for the.
Additional mom and pop or and smaller operator to.
To be viable so.
We will remain disciplined part of our growth strategy since weve achieved.
Leverage ratios that were very pleased with it and hope to even lower we need to continue to be disciplined about how we do our acquisitions to certain that the company does not leverage itself.
Higher than what we believe are comfortable levels and said.
Looking to build upon.
Money, though.
So does.
We've had a disciplined growth strategy, a it may very well be particularly on the east coast, where we have.
Demand in some markets, particularly in the New York marketplace that we may need to build more centers.
If we don't spot.
The opportunities for.
As for acquisitions that we do.
Okay. Thanks, again for taking the questions.
Okay. We'll now take our next question from John Ransom with Raymond James.
Hi, good morning.
The 11 million that you cited.
All the commercial contracts also talk about just about.
That's just Medicare.
We have very few contracts that are tied to Medicare we'd spend you know way when we were living through the deficit reduction act in the seven eight years that that followed were Medicare was hitting reimbursement, we did a pretty good job of and bundling.
Most of our commercial contracts from Medicare, we still have some John as you know for instance on the Medicare advantage plans.
For the most part are still tied to Medicare reimbursement. So those will just but it's not going to be a material amount. Another maybe another couple to to few million Bucks.
Okay.
Second question lots of Okay, let's just assume that's working $40 million bad Guy.
What's the good guy in terms of fully realized so 21 versus a partial year of water.
I'd say that again it was a little tough to hear you, but the good guy as it relates to what.
Just the timing of having your cuts and place for the full year versus a partial year. So in other words, we got back.
Pick up another $10 million in oil I got 6 million and 20 go we'll get the full 10 million or 20 ones on that one before.
We plan on having most of all of the the cost savings initiatives.
That we're working on right now in place for the beginning of 2021 I'm talking about January so as we finalize our budgets for 2021.
We will have the vast majority of our cost savings initiatives in our 2021 budgets.
Just I may quantitatively.
Whereas I picked out because you have a full year of the savings versus a partial year. This year and you really didn't go into overdrive until may be what March April. So is there is there an offsetting effect are much like it was up.
I mean.
Yes, I mean.
If you.
If you were to look at the third quarter results and its margins and what we produced in the fourth quarter that will probably give you a good indication of kind of our run rate going into next year. Obviously, there's some seasonality in this business as you're aware John you know first quarter tends to be our.
Our most difficult quarter because of the reset of deductibles.
As well as weather conditions on the east coast, which tends to make our first quarter volatiles, you know year over year, but aside from that if you were to take our second and third quarter excuse me, our third and fourth quarter, which is obviously yet to be announced into next year that'll give you a kind of a.
I think a pretty good indication of the type of it you know expenses.
Savings that you can annualize into next year.
Okay, and then lastly, somebody what strikes me or.
Possibly even a little odd.
And yet you operate in a couple of the toughest locked out states in the U.S., California, and New York.
And if and if you talk to say other providers, they're still seeing volumes down.
Call It high single low double digits in those markets, but sure what kinda back to flat.
Yeah.
Is there some maybe some catch up.
The timing yeah that people are just rescheduling procedures or there might be another little bit of an air pocket or do you have any reason why your market your volumes would be.
Higher than same physician office visits and some of those markets are you I wasn't sure that sort of thing that I'm. Just yeah. You guys are doing much better than I thought you were just given your location.
Yeah, Hi, John Yes.
Yes, I think what's happened is.
Radiology and imaging, while it's an elective procedure is really an essential procedure and I think as more and more of the articles come out about the reduction in health care. What people are recognizing this delayed health care is that help.
Care and it's more closely to the system. So I think in the case of outpatient imaging. Two factors are involved number one people have to determine that the they'd rather be in an outpatient setting where the.
The practice of safety.
Safety measures can be a bit.
More enhance it can be a in hospitals number one and number two.
Taking them. Obviously for example, you can you can delay that but it's something that people estimate every month of delay is costly in terms of the.
Potential morbidity and mortality related to breast cancer. So delaying some of these procedures has been something that I think is now being recognized.
Is in an advisable number one number two I think just in general we recovered very nicely.
In New York, which was the most locked down market back in April.
April in early May.
And although.
We saw those reductions we saw a very quick return in those markets.
Disproportionate to the way other businesses are being handled so I think it's a matter of doctors going back into their offices and more business being directed into the outpatient centers than it is necessarily people not wanting to access appropriate health care.
Great. Thanks, so much.
Thank you and that does conclude todays question and answer session I'd like to turn the conference back over to management for any additional or closing remarks.
Again, I would like to take the opportunity to thank all of our shareholders for their continued support and particularly in places radnet for their dedication and hard work.
Management will continue its endeavor to be the 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 I wish all of you and your families. Good health and safety during this unprecedented time.
Thank you that does conclude today's conference. Thank you all for your participation you may now disconnect.
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