Q4 2020 RadNet Inc Earnings Call
Currently on hold for this Radnet, Inc, Q4, and full year 2020 financial results call. At this time, we are assembling today's audience and plan to be underway. Shortly we appreciate your patience and please remain on the line.
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Your line.
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Good day and welcome to the Radnet, Inc, Q4, and full year 2020 financial results call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Mark Stolper.
Executive Vice President and Chief Financial Officer of Radnet, Inc. Please go ahead Sir.
Thank you.
Good morning, ladies and gentlemen, and thank you for joining Doctor Howard Berger and me today to discuss Radnet fourth quarter and full year 2020 financial results.
Before we begin today, we'd like to remind everyone of the safe Harbor statement and to 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 and 1995.
And typically statements concerning anticipated future financial and operating performance Radnet has the ability to continue to grow the business by generating patient referrals and contracts with radiology practices recruiting and retaining technologists, receiving third party reimbursement for diagnostic.
And imaging services.
Absolutely integrating acquired operations generating revenue and adjusted EBITDA for the acquired operations as estimated among others are forward looking statements within the meaning of the safe Harbor.
Forward looking statements are based on management's current and preliminary expectations and are subject to risks and uncertainties, which may cause radnet and actual results could differ materially from the statements contained herein.
These risks and uncertainties, including those risks set forth and Radnet reports filed with the SEC from time to time, including Radnet and annual report on form 10-K for the year ended December 31, 2020 to be filed shortly.
Undue reliance should not be placed on forward looking statements, especially guidance on future financial performance, which speaks only as of the day that 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 get back for Brexit.
Thank you Mark good morning, everyone and thank you for joining us today and.
Today's call Mark and I plan to provide you with highlights from our fourth quarter and full year 2020 results give you more insight into factors, which affected this performance and discuss our future strategy.
My prepared remarks, we will open the call to your questions.
Like to thank all of you for your interest and our company and for dedicating a portion of your day to participate and other conference calls this morning.
Before we start I would like to say I think for myself and the entire.
Radnet, we hope all of you and your loved ones are healthy and staying safe. We are extremely grateful for all of our stakeholders, including our employees business partners lenders and shareholders and wish you all well during this challenging time.
Let's begin.
And I'm very pleased with our performance and the fourth quarter, continuing with the recovery of our procedural volumes and began the third quarter. We recorded the highest quarterly revenue and adjusted EBITDA and the company's history. This fourth quarter.
The turnaround of our business has been quite remarkable from its low point and April one and procedural volumes dropped by 72% from pre COVID-19 levels.
And the fourth quarter, our revenue grew by two and exact percent, which was the result of several factors first during 2020, we significantly expanded our three D. Mammography program on both coasts as a result.
<unk> volume increased by 11, 7% during the fourth quarter relative to the same quarter in 2019.
Much of the increase and them, obviously volumes brought him in and associated reimbursement premium for us, it's almost synthesis <unk> technology.
Second the increased revenue was the result of reimbursement increases from private and cafeteria to payers as well as improved collections, particularly around patient co payments.
In addition to the record revenue performance, our adjusted EBITDA in the fourth quarter of 'twenty, and 'twenty was $57 million as compared with $46 million and the fourth quarter of 2019 and increase of eight 1%.
While the increase in revenue attributed to contributed to the growth and <unk>.
Adjusted EBITDA and you.
Improved adjusted EBITDA performance was also the result of cost saving measures, we instituted during the COVID-19 period.
Since the onset of COVID-19, we aggressively focused on reducing expenses.
Consolidated and underperforming sites and change and key operational metrics, both at the same level and within our corporate support departments and the operational improvements, we made and will continue to benefit the business into the future and I reflected and the 2021 guidance range as we and.
And so earlier today and our.
Our financial results press release for.
From a margin perspective, our adjusted EBITDA margin was 16, 4% in the fourth quarter, 2020 as compared with 16, 6% and the fourth quarter of 2019 and improvement of 0.8 per cent or 80 basis points.
Our adjusted earnings were also very strong adjusted for onetime and extraordinary events during the quarter. Our adjusted net income was $10 $2 million or 20 cents per diluted share as compared with $9 9 million or 19 cents per diluted share and the fourth quarter of 2019.
Throughout the COVID-19 period, we are focused on strengthening our balance sheet and managing our liquidity and financial leverage at year end 2020, we had a cash balance of $102 million and our net debt leverage ratio was reduced to under four times adjusted EBITDA.
A level similar to that of year end 2019 prior to the onset of COVID-19, we.
We believe that our strong balance sheet positions us to be aggressive in 2020, one with respect to growth initiatives and will include tuck in acquisitions de Novo centers and continued capital spending to drive same center performance.
Well it is noteworthy to highlight the strong financial performance of our last two quarters as our business began to recover from the worst of COVID-19 impact throughout 2020, we made some significant progress and furthering our long term operating plan.
Here are some of the highlights.
In March of 'twenty, and 'twenty, we completed our acquisition of details and leading artificial intelligence and machine learning company. Initially focused on solutions for the medical interpretation of mammography exams.
Deep helps development has focused on screening mammography, specifically three day breast imaging, where the large volume of cases and the difficult nature of their interpretation placed significant demand and radiologists were more certain today than ever before that artificial intelligence will transform the diagnostic.
And.
Imaging and radiology industry and.
Sure and machine learning Big data applications.
And automation algorithms will allow us to deliver our services more cost effectively and efficiently and accurately.
We spend almost 20% of our globally zero net revenue to the radiologists interpretation of.
And the images, we believe AI will create workflow efficiencies and to improve the accuracy of image interpretation and mammography and and other modalities will perform which can materially benefit all of the radnet stakeholders and the fourth quarter of 2020 and submitted for FDA approval of our first.
And the magazine product, which is screening triage product for radiologists.
We hope to receive approval, sometimes towards the middle of the year.
By the end of the year, we anticipate submitting for FDA approval and <unk>.
And had product for more advanced demography diagnostics and look forward to keeping you informed of our progress on these fronts.
Related to our deep health acquisition in August of.
2020.
We announced a collaboration with whole logic.
To advance the development of artificial intelligence tools in breast health for.
For collaboration will enable new joint market opportunities and for their efforts to build couldnt clinician confidence and develop and integrate new AI technologies as part of the collaboration redness upgrading and has been upgrading its entire fleet of Hologic mammography systems. Two features of logic clarity H.
<unk> and <unk> imaging technologies, and we'll share with the logic certain data produced by Radnet suite of high resolution that legacy systems.
And 2020, we further the expansion of our health system joint venture businesses and at <unk>.
And we established a partners partnership with Adventist health to create and outpatient imaging joint venture and Simi Valley, California to initially and include three outpatient facilities. In addition, we assumed operational and management of advantages.
And then as helps Nancy Reagan dress Center also in October Radnet and announced its third joint venture with dignity health common spirit and Phoenix, Arizona initiatives established with eight acquired facilities, we plan to significantly expand our offerings and the greatest Phoenix area and the coming years to occur.
Combination of new site development and the acquisition of existing radiology providers.
Our process of expansion has begun and we anticipate allocating significant focus and financial and management resources on this new market over the coming years.
In August of 'twenty, and 'twenty, we completed an amendment to our credit agreement to increase the amount of the revolving commitments there under by $57 $5 million to a total of $195 million.
Well this was done out of an abundance of caution and concern for our liquidity position during the global pandemic and expansion of our available credit positions allows us to flow.
Funds and I'll just.
Poses to grow the company and more aggressively in the coming years and are available for accretive acquisitions.
At this time I'd like to turn the call back over to Mark to discuss some of the highlights of our fourth quarter and for 2020 performance.
Finished I will make some closing remarks.
Thank you Howard.
And now going to briefly review, our fourth quarter and full year 2020 performance and attempt to highlight what I believe to be some material items.
I will also give some further explanation of certain items and our financial statements as well as provide some insights and to some of the metrics that drove our fourth quarter and full year 2020 performance.
I will also provide 2021 financial guidance levels, which were released in this morning's financial results press release.
And 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 and I'll, let disposal of equipment other income or loss and loss.
And debt extinguishment and non cash equity compensation.
Adjusted EBITDA includes equity and earnings and unconsolidated operations and subtract allocations of earnings to Noncontrolling interests and subsidiaries and is adjusted for noncash or extraordinary and one time events taken place during the period.
A full quantitative reconciliation of adjusted EBITDA and net income or loss attributable to Radnet, Inc. Common shareholders is included in our earnings release.
With that said I'd now like to review, our fourth quarter and full year 2020 results.
Is the three months ended December 31, 2020, Radnet reported revenue of $308 $5 million and adjusted EBITDA of $57 million.
Both were the highest quarterly levels and our company's history.
Revenue increased $7 $7 million or two 5% over the prior year same quarter, and adjusted EBITDA increased $3 $8 million or eight 1% over the prior year same quarter.
The increase in revenue and adjusted EBITDA was the result of a combination of better reimbursement from the expansion of our three D mammography offerings and <unk>.
Proved reimbursement from private and capitation, payors and enhanced cash collections and significant cost reductions as detailed by Dr. Berger and his earlier remarks.
For the fourth quarter of 2020 as compared with the prior year's fourth quarter aggregate MRI volume decreased one 8% C. T volume increased two 4% and pet Cte volume decreased two 8%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and other exams decreased <unk>, 5% over the prior year's quarter.
And the fourth quarter of 2020, we performed 1 million 977086 total procedures.
The procedures were consistent with our multi modality approach whereby 76, 7% of all the work we did by volume was from routine imaging.
Our procedures and the fourth quarter of 2020 were as follows.
And the CPE volume for 2019 had been restated two accounts for a change we made as of January one 2020, and how we account for one of our CP CPT codes.
The comparative numbers that follow are on an apples to apples basis.
276000, and 482, mris as compared with 281646, Mris and the fourth quarter of 2019.
172007 hundred 28, Cts as compared with 168706, Cts and the fourth quarter of 2019.
11063, pet Cts as compared with 11381, pet Cts and the fourth quarter of 2019.
And 1 million and 516813 routine imaging exams, compared with 1 billion and 524608 of all these exams and the fourth quarter of 2019.
Adjusted net income, which is net income adjusted and each period for one time or extraordinary items was $10 2 million for the fourth quarter of 2020, or 20 cents per diluted share as compared with $9 $9 million or <unk> 19 per diluted share for the same.
And period and 2019.
These per share values are based upon weighted average number of diluted shares outstanding of $52 $2 million excuse me $52 2 million shares and the fourth quarter of 2020 and 56 million shares.
Outstanding and the fourth quarter of 2019.
Affecting net income and the fourth quarter of 2020 were certain noncash expenses and nonrecurring items, including the following.
$2 3 million.
$3 million of non cash employee stock compensation expense.
And $2 $7 million of severance paid in connection with headcount reductions related to cost savings initiatives.
$657000 loss on the disposal of certain capital equipment.
$750000 of non cash gain from interest rate hedges.
For $2 million loss on the impairment of intangible assets associated with trade names the company has discontinued.
$4 million gain on the extinguishment of certain GAAP.
And $1 $1 million and amortization of deferred financing costs and loan discounts related to our existing credit facilities.
With regards to some specific income statement accounts overall GAAP interest expense for the fourth quarter of 2020 was $12 $4 million.
This compares with GAAP interest expense and the fourth quarter of 2019 of $11 $5 million.
Cash paid for interest during the period, which excludes noncash deferred financing expense and accrued interest was $8 3 million as compared with $10 $2 million and the fourth quarter of last year.
For the full year of 2020, the company reported $1.098 billion $104000 of revenue.
And at which is inclusive of $26 $2 million of provider relief funding, we received under the cares Act.
Adjusted EBITDA was $139 $5 million and net loss was $14 8 million.
Due to the impact of Covid, 19 revenue decreased $56 $1 million or for 9% and adjusted EBITDA decreased $24 $7 million or 15% as compared with 2019.
For the year ended December 31, 2020, as compared with 2019 MRI volume decreased 11, 9%.
Volume decreased six 8% and pet Cte volume decreased $4 one per cent.
Overall volume and taking into account all routine imaging decreased 12, 9% for the 12 months of 2020 as compared with 2019.
In 2020, we performed 6 million and 867021 total procedures.
The procedures were consistent with our multi modality approach whereby 76, 1% of all the work we did by volume was from routine imaging.
Our procedures and 2020 were as follows again like the assumption.
The comparison of the fourth quarter procedure volume and the C. T volume for 2019 and had been restated to accounted for a change we made as of January one 2020, and how we account for one of our C. T CPT codes.
The comparative numbers that follow are also had an apples to apples basis.
976633, mris as compared with 1.108 million and 496 Mris in 2019.
620547, Cts as compared with 665000 and 539 Cts in 2019.
41567, pet Cts as compared with 43341 pet Cts in 2019.
And 5.228 million 270 for routine imaging exams as compared with 6.068 million 928 of all these exams in 2019.
Net loss for 2020 was $14 $8 million or negative <unk> 29 per diluted share. This compares to net income of $14 $8 million or 29 cents per diluted share in 2019.
These per share volumes are based on weighted average number of diluted shares outstanding of $50 9 million shares in 2020 at $50 2 million shares in 2019.
Affecting net income in 2020 were certain non cash expenses and nonrecurring items, including the following.
$12 $4 million of non cash employee stock compensation expense.
For $4 million of severance paid in connection with headcount reductions related to cost savings initiatives.
And $1 2 billion dollar loss from the disposal of certain capital equipment.
$6 billion of noncash loss from interest rate hedges.
For $2 billion loss on the impairment of intangible assets associated with trade names the company has discontinued.
$4 million and gain on the extinguishment of certain debt.
And for $4 million of amortization of deferred financing costs and loan discounts related to our existing credit facilities.
With regards to some specific income statement accounts overall GAAP interest expense and 2020 was $45 $9 million.
Adjusting for the noncash impacts from items, such as amortization of financing fees and accrued interest cash interest expense was $39 $5 million and 2020.
This compares with GAAP interest expense and 2019 at $48 million and cash paid for interest of $46 $3 million and 2019.
With regards to our balance sheet as of December 31, 2020, unadjusted for bond and term loan discounts, we had $563 $7 million of net debt, which is total debt at par value and thats our cash balance.
Note that this debt balance includes new Jersey imaging network's debt of approximately $53 million for which Radnet is neither a borrower and a borrower nor a guarantor.
This compares with $672 $4 million of net debt at December 31, 2019.
As of year end 2020, we were undrawn on our $195 million revolving line of credit and had a cash balance of $102 million, which was which was substantially up from $40 $2 million cash balance at year end 2019.
At December 31, 2012, excuse me 2020, our accounts receivable balance was $129 $6 million a decrease of $25 2 million from year end 2019.
The decrease in accounts receivable is mainly from improved cash collections, including additional efforts and resources dedicated to patient collections at the time of service.
Our DSO was 36 two days at December 31, 2020, lower by eight and a half days when compared with $44 seven days as of that day, one year earlier.
Throughout 2020, we had total capital expenditures net of asset dispositions and the sale of imaging center assets and joint venture interests of $86 million.
This amount excludes $7 $4 million of capital expenditures of New Jersey imaging network.
Approximately all of our capital expenditures were paid for and cash and we recognized $828000 and proceeds from the sale of equipment.
Capital expenditures in 2020 were higher than we originally budgeted as a result of additional investments, we made and three D. Mammography capacity in conjunction with a white rabbit AI rollout and some opportunities that we saw to take market share away from some of our competitors and selected markets during the COVID-19.
Period.
At this time I'd like to review, our 2021 fiscal year guidance levels, which we released this morning, and our financial results press release.
For total net revenue our guidance range is 125 billion to $1 $3 billion.
For adjusted EBITDA, our guidance range is $180 million for $190 million.
For capital expenditures, our guidance range of 70 million for $75 million.
For cash paid for interest our guidance range is $39 million to $44 million.
And for free cash flow generation, which we define as our adjusted EBITDA less capital expenditures less cash paid for interest our guidance range of $60 million to $70 million.
These guidance levels are built on a number of assumptions first we entered 2021 on the strength of a strong recovery from COVID-19, as indicative of our performance levels during the second half of 2020.
For the second half of 2020, we exceeded $600 million of revenue and $96 million of adjusted EBITDA.
Our guidance ranges for 2021 are built with this run rate in mind and the assumption that our business will continue to strengthen as COVID-19 restrictions are lifted in the states and which we operate.
We believe there is upside to our guidance ranges, which could result from accretive tuck in acquisitions, we expect to complete during the year.
Further benefit from the cost reduction measures implemented in 2020.
Increases and reimbursement from private and capitation Payors and the expansion of our joint venture initiatives.
A dish Additionally, achieving growth and and the Arizona marketplace through our dignity health joint venture will be a major focus throughout 2021, which could include both de novo centers as well as acquisitions.
In 2021, we will also complete our upgrade to three D mammography and continued development of our AI solutions.
Sometime around the middle of 2021, we hope to receive FDA approval for our initial mammography AI product submitted and the fourth quarter of 2021, and we anticipate filing with the FDA for rich per view, a second mammography AI offering by year end.
I'd now and now I'd like to turn the call back over to Dr. Berger, who will make some closing remarks.
Thank you Mark and.
In conclusion, the challenges encountered during the COVID-19 pandemic created a seminal event for Radnet.
COVID-19 required us to reevaluate every aspect of our business a business that has grown primarily and the pass through acquisitions.
COVID-19, and allowed us to pause and analyze all of our procedures and processes in order to achieve more optimal performance.
The pandemic also gave us the opportunity to make decisions.
Good.
Otherwise you have proven more difficult in more normal times.
And we were able to consolidate some of our centers that were in close proximity to other centers and <unk>.
Ways to preserve patient access and convenience and a procedural volume.
The regional centralization of our schedule and departments and Preauthorization teams afforded us the ability to more effectively manage our capacity without losing business and negatively impacting our customer service and.
In addition, we were able to exit non core businesses and activities that were distressed and non management teams for more for more core functions.
As we now approach the end of the first quarter of 2020, we are optimistic for the remainder of the year and particular, we look to make substantial progress in deploying artificial intelligence and our business, especially with regards to screening mammography.
These are tools should improve our diagnostic accuracy and result in earlier disease detection and better compliance amongst patients.
We are also working diligently to expand a number of our health system joint ventures and seek to establish new ones.
Our strong cash position at the end of 2020, leading into this year, along with the availability of a $195 million revolving credit facility will provide us the financial capabilities to preserve pursue accretive strategic acquisitions and.
Execute and all other facets of our operating plan.
Operator, we are now ready for the question and answer portion of the call.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Yeah.
Well take our first question from.
Brian <unk> with Jefferies.
Hey, good morning, guys, Scott congratulations for a good quarter and obviously a tough year. So congrats on navigating all of that.
I guess my first question for both of you guys Howard and Mark you know as I look at the numbers and you posted in the quarter, obviously, it looks like you've seen a good bit of recovery already in and market. I. Appreciate you mentioning the conservative guidance, but how are you thinking about the recovery, that's remaining or the opportunity remaining.
See volumes pick up from the pent up demand and what kind of cadence over the course of the year are you embedding in your guidance for their pay for that.
<unk>.
Good morning, Brian and thank you.
I think there were a number of issues that occurred in 2020 net.
And we'll continue to help drive volumes into our centers along with the normal efforts that we make from a marketing and contracting standpoint, and just what has traditionally been a 2% to 3% annual.
Organic growth and volumes.
Notably the pandemic has created and additional effort on the part of PE ores to further encourage and help direct business away from hospitals, a number of the major payers who have.
And either reiterated or.
Announced there.
Reimbursement and preferences for outpatient imaging centers.
For the point, where they may not pay for some of the routine imaging and that are done and hospital systems.
Growth and not only a higher cost, but now with the pandemic.
Still upon us.
And less comfortable place for patients to go so we believe both of those issues will create.
Additional volume directed to outpatient facilities and general and ours in particular.
In addition to that.
It's clear that some of our recovery to more normal volumes and in fact for having a.
Exceeded that so far and the early part of this year.
The weighted.
Treatment and Doctor visits.
And were put upon everybody.
In 2020 are notably during the.
And last nine months of 2020.
Many.
Health systems went to to the extent of non performing elective procedures, which is one of the reasons why our.
Our MRI volume and others were affected so much we expect those to be lifted most of the health systems have already done that but we expect that additional.
Need for these essential services will be resurrected and 2020.
And along side of that we believe that the <unk>.
Additional volume that.
We'll come to us and will be a result of free.
People, preferring to go to the outpatient and ambulatory centers, along with the fact that.
There are more articles appearing in the literature that day.
Weighted healthcare leads to.
Greater cost and a more morbidity and the system. So I think all of those factors will help drive our revenues.
And our somewhat factored into.
Our guidance for 2021.
And I appreciate that and then I guess Howard Weil and have you. Obviously mammography is an area that you've been focused on and you've talked about AI and a little bit in that space.
Can you respond us through what the strategy is there and.
And what sort of investment and expansion.
Should be watching out for going forward.
Okay.
Well I think the primary reason why we're focused on mammography is that depending upon.
Whose articles you read or which statistics.
And the marketplace does not do a particularly good job at this time and the compliance for our patients to get their annual or biannual mammogram. So we've begun both through our white rabbit relationship as well as some of our own and.
And the journal.
Measurement and analytics to reach out to patients and improve their compliance.
In addition, there's and estimate that anywhere from.
Perhaps as much as a 30% to maybe even 50 or 60% of all women, who should be getting mammography or not and therefore since there's about 40 million mammograms done annually. There's a good argument to believe that perhaps.
20 to 30 million more mammograms should be done on an annual basis. So we believe that given the scale that we have and the analytics that we're capable of using to drive better complying and scan reach out too.
And first time women are getting and Mamograms. After the age of 40 will help drive that business.
For that and as I mentioned in my remarks.
We have gone through a significant and upgrading of our NAV.
Mammography systems through a relationship with the whole logic to not only get to the three D. Tomo synthesis throughout our entire fleet to elevate to their newest technology with high resolution detectors and faster and better.
Other management for for reading for scans we.
We hope to couple that with the continued effort and our artificial intelligence through the detailed division, which in an article that we published back in November.
<unk> demonstrated that our artificial intelligence is able to detect breast cancer one to two years earlier.
And even some of the most qualified.
Mammography are capable of doing so I think all of those gives us a good reason to think that our mammography, which was up as we reported even.
And <unk>.
And the fourth quarter up almost 12%.
Has that opportunity to continue in 'twenty.
'twenty one.
I also want to mention that in most households.
The mother or women are very much the determinant of where health care is accessed by the rest of their family. So encourage you more and more of that mammography business. We believe will also help us with other downstream.
Imaging and procedures that we can do and our centers.
Okay that makes that makes a lot of pets and then.
I guess shifting gears Howard you, obviously enter the Arizona market through the JV with dignity.
Howard are we thinking about or how should we be thinking about your expansion plans there.
You expanded the credit facility, so should we be thinking that you'd be acquiring more and that and that market specifically or are you open to further expansion from a geographic footprint perspective.
I think we'll be doing both Brian.
We already have designs on at least two new imaging facilities that will be on campuses of two of the largest dignity health systems, we are and conversation with other medical groups and are closely aligned with day.
And any about helping to manage their imaging and a more.
Wei and.
Driving business into the joint venture and we.
Believe that there are acquisition opportunities.
And that.
And are available to us to expand our footprint and have similar kind of opportunities and results like we've experienced and other markets that we've entered.
For example that being moving entered the New York Metropolitan marketplace, and I believe it or not it's inc.
Eight years ago at this point, we have become the largest operator of independent freestanding imaging facilities and a lot of our growth opportunities and improved performance.
Based on those kind of metrics so.
Phoenix, which is I think a population of well over 5 million people.
He has some very attractive.
And and unique situations for us and items.
As mentioned in prior.
Our earnings calls and.
Conferences.
And the opportunity for us to enter new markets will follow the pattern.
And we've demonstrated over the last.
Couple of years of expanding it with joint venture partners with large health systems, and I think free.
And.
Adjustments and involvement in Phoenix very much fits that profile.
Got it great Mark quick last question for me how are you thinking about the sustainability of the margins because they're obviously very strong and the quarter I know you've laid out your cost initiatives, but just your quick thoughts from that thank you.
Sure.
With the initiatives that we completed in 2020 and evaluating really every aspect of how we do business both at the regional levels, the Saturn levels as well as in all of the corporate support functions. We did for significant amounts of cost out of our out of our call.
Cost structure that will.
And certainly impact margins positively here in 2021.
We are having over 16% margin and in the fourth quarter.
And with was a significant improvement not only over the prior year, but over prior quarters.
We expect.
If you look at our guidance and and look at the implied margin there and we expect to have somewhere around 15% blended margins for 2021, and why that's a little bit lower than and cheaper than the fourth quarter here and there is some seasonality as youre well aware Brian.
Our business with respect to.
First quarter and Theres always.
And some seasonality related to weather conditions, and the northeast as well as.
And as well as.
The issue with that.
Deductibles, and having said that where we've had a robust start.
Other than some of these weather conditions here in the first quarter of.
2021, so we do expect for margin enhancement here in 2021 versus I would even say versus 2019, because 2020 is not a.
A good year to compare for compared to because of Covid.
And our margin with incredibly depressed so I think there's some real good opportunity for margin enhancement also as we adopt.
AI technology, particularly around mammography, and then and <unk>.
Out of or license other AI technologies for other modalities into the future we have the ability to make our radiologists more productive.
And potentially use fewer radiologists.
And lowered the cost significantly up delivering the professional interpretation of our scans.
And that could be a real game changer.
And the future with respect to R. R.
Our margins.
Awesome. Thanks, guys.
Thanks, Brian.
Go to our next question from me.
And with Sidoti.
Yes, good morning, and thanks for taking the questions just wanted to follow up on the comments.
Comments earlier.
And obviously.
It seems like you're getting some nice traction on and mammography mammography side and with the FDA approval likely and the upgrade for three D. I was just wondering if.
I and <unk>.
From could be expanded.
Beyond mammography for Ya.
Hi, good morning Mitra.
Yes.
And there's four core areas that we think as an outpatient provider.
Primarily as we see a shift to population health would be beneficial not just for the company, but hopefully for the popular the populace.
If you look at the various cancers.
Net.
Our most significant and volume are you deal with breast cancer prostate cancer lung cancer and colon cancer.
And those are counted for about 80% of all the cancers and each of those have screening tools that.
And that exist right now that I believe can be demonstrably improve.
Through the application of artificial intelligence, we've already demonstrated some of that and has indeed.
Put our capital to work.
And as regards to mammography so.
Once we get some good traction on that.
We plan and are already looking at some initiatives for at least prostate.
With.
Colon and lung cancers down the road.
We think it's anything that concerns as a great tool for putting some definition behind with population health needs and we believe that diagnostic imaging will be at the forefront of that and the tools and these areas and has a very.
Prominent effect on both diagnosing earlier as well as and obviously leading to lower lowered costs and.
And reduced mortality so.
We think it's incumbent upon us as the leader in this industry as well as.
Just generally what's good for them.
Population to focus our attention on these tools and provide programs for you.
And insurers health insurers as well as employers.
To give some real and.
And definition to population health.
Okay. Thanks, that's very helpful and Howard I know you talked earlier about and increasing preference for Paris.
Shipped some of these procedures for the outpatient setting I was just wondering if that's also leading now to increase Conor.
Conversations or opportunities as it relates to.
J P S.
I think it is and.
And we.
These are slow to develop and take a long time.
For the health systems are large and to get their attention as well as deal with other.
Local and geographic issues.
Take a lot of work, but we think that the marketplace is ready for this and I think and jewelry.
Specific way.
And it has helped focus people's attention and given that we.
And the general consumer health care consumer is more reluctant to go into a hospital or health system. Today, if they have the availability of a comparable or even better access to outpatient imaging. So I think more and more of the hospital system.
And <unk>.
Recognizing the need to make this shift and in addition to issues related to reimbursement, we can focus on a more strategic relationship and their approach to.
Our population health.
I think we're getting a lot of good conversation surrounding these opportunities. So again I think.
And that is unique in terms of the number of centers that has an orange joint ventures, as we've mentioned before over 25% of our standard.
<unk> now are in joint ventures, and we.
Look easily to expand and that number.
As we go forward given that I think the joint venture arrangement affords a lot of opportunity for both long term stability and growth initiatives with our health care systems.
Yes.
I'd be and load and so I didn't.
And you hear that during the Covid period, one of the additional benefits from our joint ventures was that all of our health system and has reached out to us and afforded radnet employed and use the opportunities to get there ex.
And the nation's for.
Covid as part of the front line.
Essential health care workers, and so while that is not necessarily a easily monetize Dennis it was a significant benefit to radnet employees.
And the comfort and.
Confidence.
So continue to provide these services, which.
Clearly it has not been identified as an essential service so I.
And I think these initiatives and the benefits that we provide a reward demonstrated during the COVID-19 period, and perhaps at any other time and our history.
Okay. Thanks for the additional color and then quickly and.
Capitation business, if you can help us in terms of how.
Are you thinking about that obviously.
Might depend on Mac, you saw really nice growth there.
And I'm just wondering if we should continue to expect double digit top line and that piece of the business going forward and near term.
Yes, I believe that will be the case and that she has the.
And particularly out here in California, where we.
One of the greatest penetration and capitation.
I think more and more of our medical groups and related.
And.
Insurers are.
Looking at not just reputation for potentially new risk sharing models.
And given our geographic.
Access and breadth of services, we offer our.
And our exciting proposition so hopefully you'll be hearing more about that later this year with initiatives.
May not.
Conventional in terms of what we have traditionally been doing and the way of capitation, but expanding.
And potential.
Reimbursement models.
That may move a little bit further away from the traditional fee for service so.
Again, I think a readiness and a unique position to do that was sort of a lot of other reasons and we've always talked about yeah I'll add that during 2020, our capitation business was really a shining star.
And unlike the other books of business that we had that were significantly impacted.
From from COVID-19, I E. The fee for service business, you know our catheter created.
Contract or <unk> revenue was up over $14 million for.
2019, and that was really because the enrollments in these HMO patients and these HMO programs.
Stable and even again slightly increased in 2020, even despite COVID-19.
COVID-19, many of the.
And many of the workforce that lost their jobs. During 2020, many of them were put on furloughs and still had their health benefits and so that the enrollments and within Hmos and as Youre aware in California, and most of these HMO H H and locations are then managed by medical.
Group students capitate and contracts that we sub capitate from these medical groups and our and art.
And revenue dollars are associated with the number of enrollees and these programs and because of the number of enrollees for stable to slightly growth growing in 2020. Our revenue was was up not only because of the enrollees, but also because some price increases that we have built into many of these contracts.
On an annual basis, so and then Furthermore.
And the.
The incidence of imaging, meaning the.
And the use of imaging under these contracts for utilization with significantly lower in 2000, Twenty's and so that the profitability of our capitation contracts in 2021.
And was drastically up relative to prior years so.
It's really a great book of business, one that we're looking to expand we continually have.
Actions with new medical groups and I'm here in California, as well as taking on and assuming the responsibility of financial responsibility for more lives that might be part of other medical groups that we do contract with here in California that has other geographies that we could potentially capitate for so.
It's a business we like we have no.
Cost of billing and collecting.
Very little patient bad debt.
And we get paid and the month that we rendered the services. So that we have no cost of carrying receivables. So it's a.
It's really a unique.
Part of our business.
Okay, No that's great and then quickly.
Quickly walk out and know if could help it what's a good tax rate to use.
For 2021.
Yeah, 2020 was jumping all over there were lots of ins and outs from now.
Related to transactions. So it's really hard to tell from 2020, what our effective tax rate is.
And you assume for your modeling purposes, and a federal tax rate of about 21% and a blended.
State tax rate of about 5%.
So you're getting for the 26%, 27% and Thats a good.
A good proxy for our tax provision as you're probably aware, we're still burning off a pretty substantial net operating losses carried forward. So.
And the federal part of that tax provision.
Is it paid in cash, but it still hits our income statement with respect to our earnings per share.
Okay. Thanks, again for taking the questions.
Off effects for Jeremy.
Go to our next question from John Ransom with Raymond James.
And I congratulate you got from that and the shortest prepared remarks, whether they kept me I've covered you get them to think for work.
So and say that again, John we're having a little trouble hearing you.
Oh.
Sorry, I'll pick up is that better.
Yes, yes.
Yeah, sorry, yeah. Okay. So I just wanted to give you guys. The award for being the most and St management team and I cover in terms of your prepared remarks. So congratulations.
[laughter] exactly.
Put you to sleep no no it's actually a compliment the deserts and said.
And since there are a couple of.
And so just a few things.
It.
If we remember right so davita medical group sold for United and that's a big.
As you know IPO group and California has.
And having those practices and our hands and the United which is probably more aggressive with RAF scores and the life for Rep does that and then part of the better pricing and that you've seen and California.
On the ICA contracts or is that just a coincidence.
Okay.
I don't think at this point John.
Has translated into any additional benefit or opportunities for us.
The marketplace here in California is not so much control by United and.
Corporate but really hear the local management and.
And officers here in California that we've known for quite some sometime so even without United and entering the picture I think we've had ongoing discussions.
And with the various groups that have now been aggregated under United into opportunities to further expand our cash.
Capitation.
And maybe at some point or there might be more of a.
National opportunity that we would look at with United and it could be not only for capitation, but other fee for service businesses.
And particularly in terms of mammography.
Be exciting for us.
Okay.
You guys, obviously came through the all from us with flying colors.
And this is kind of I'm trying to find the glass half full question or glass half empty ask questions adult tickets and the wrong way, but.
Being so exposed to California, and New York that were kind of extreme examples of Lockdown states.
Does that cause you to maybe rethink some of your geographic concentration or does it or do you think and like gosh, it couldn't get worse, and that's and look how well we did.
And I get often asked the question John about why we're only and five or six states now actually our seventh with with.
Arizona.
And right and there's.
And I make the analogy for those of you who are old enough or who have read wildly about history is that when they cut the famous bank robber Willie Sutton.
I asked him why he and lot of banks and he said because that's where the money is to some extent and I think our strategy follows along with the added Wow.
And we can suffer through situations like we did here.
Through the pandemic and the Lockdowns Seth as a matter as a combined.
Population of the United States.
That is in New York and New Jersey.
And in California.
We talked and here I'm going to say about a third of the population or somewhere in that area.
So.
I think we have to take the good with the bad there's seasonal issues that we'd get confronted with like we were in February with some inclement.
Inclement weather, but it's where it's where the people live it's where the lives are very much of a volume driven business.
And.
And my preference would be to stay in those markets, where we can become the major outpatient player and benefit from large volumes and.
And access to the other centers, which gives us some very unique contract and capabilities.
Right, Okay fair enough.
And then lastly.
Can you give an update if any and we do.
Don't see.
A lot of portfolios trade and this business but.
Where do you think the.
Private equity slash competitive strategic.
Bitt is for let's say.
A substantial play for plateful of assets versus where radnet would be as the market and get up a two to three years or four times higher than you're willing to pay per se, but some other can't deal with a nice market and its something like 20 million of EBITDA or are you going to be consistently outbid and those situations just given your history.
And we're aware of all the transactions that go on.
And the imaging space and we see the.
And the size of these transactions not so much in terms of the dollar amount, but in terms of the multiples that people are paying and I think we look at each one of these and you had a very specific way and.
I think if a set of assets were to come up that are very strategic for us.
And it would be worth taking a close look at a dose and even if the.
<unk> tended to be at higher multiples and we may.
And have paid in the past for so I think while that.
And the aggressive huh.
<unk> approach for requiring some of these imaging assets.
And again it.
A bit of a head scratcher for us.
Nonetheless I see.
It helps define how valuable the radnet strategy years that should have some of that benefit and in order to us in terms of our attractiveness.
Attractiveness to you know for the stock market and shareholders, but I would say that we're more opt.
Optimistic.
And how we can continue to leverage our facilities and.
And that the.
Consolidation and I know him.
Rambling here, a little bits and I apologize and but consolidation is a a major for us inside of health care and I think there's no better poster child for it adds and the imaging, particularly the outpatient imaging space and I like the.
The leverage that we have with or without a platform. It gives us enormous opportunities many of which we're working on this year to further create efficiencies and streamline our business so scaling up and.
And right circumstances, and certainly something that we would be very serious about.
Okay.
Oh, and I'm, sorry, one more.
And.
And Youre Hospital JV.
Other legacy was gosh our other.
Unaffiliated free standing centers are one third so one half the price of what it would cost to get you there.
Net about at a hospital and of course.
Quoted right with all the players that are non steering people away from hospital settings for roots and stance, but when you do a joint venture with <unk>.
Hospital I'm, assuming there are some contracting looked so there's the.
And let's say the rate is just makeup a number for 200 Bucks for and MRI for hospital, and that's 400 Bucks for Radnet as the hospital affiliation and price.
Or is it a little better a lot better.
Or how does that work out.
Considering obviously they have more leverage with the payers and say Radnet was and I'll go to the market.
And it varies from market to market and some markets are the relationship with the.
The health system has in fact allowed us to get.
Get better rates than we would have on us.
Our own Standalone basis, but I think the primary benefit of the.
Relationship with the health systems.
And is not so much for rate lift.
It's more having a seat at the table with me.
In.
Relationship for the health system, and a shoulder to shoulder basis and where.
And the health system can actually drive volume into the outpatient.
Centres and that happens in two ways number one when the health system, assuming that we are joint ventured with.
Excuse me and the health.
Insurers see that were joint ventured with a health system. They know that there is less of a necessity.
For them.
And the health insurers on the pricing side of this and that the health systems are shoulder to shoulder with us and helping drive the business away from the hospitals into the outpatient centers and other things is that all of our health systems.
Bar none.
In the business of the acquisition of.
Practices.
And physician practices and once they are under the health system, it's easier for them, particularly with the access that they get afforded with the radnet locations.
To direct that business into the outpatient marketplace.
So.
Both of those benefits have been I think a very important part of our strategy with a health system joint ventures and.
And we have created the benefits that we would not have enjoyed without them.
That's it for me thanks, so much.
Thanks, John and stay safe.
Yes.
Yeah.
And there are no further questions at this time.
Yeah.
Again, I would like to take this opportunity and thank all of our shareholders for their continued support and the employees of Radnet for their dedication and hard work and management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders.
You for your time today, and I look forward to our next call.
Stay safe and healthy.
Today's call. Thank you for your participation you may now disconnect.
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Okay.
Okay.