Q3 2021 RadNet Inc Earnings Call
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Good day and welcome to the Radnet third quarter 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.
Please go ahead.
Thank you.
Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss <unk> third quarter 2021 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 of 1995 <unk>.
Specifically statements concerning anticipated future financial and operating performance <unk> ability to continue to grow the business by generating patient referrals and contracts with radiology practices recruiting and retaining technologists, receiving third party reimbursement for diagnostic imaging services.
Successfully integrating acquired operations generating revenue and adjusted EBITDA for the acquired operations as estimated among others are forward looking statements within the meaning of the safe Harbor.
Forward looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties, which may cause radnet actual results to differ materially from the statements contained herein.
These risks and uncertainties include those risks set forth in rod in its reports filed with the SEC from time to time, including <unk> Annual report on Form 10-K for the year ended December 31 2020.
Undue reliance should not be placed on forward looking statements, especially guidance on future financial performance, which speaks only as of the date. It is made.
Radnet undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances. After the date they were made or to reflect the occurrence of unanticipated events.
And with that I'd like to turn the call over to Dr. Berger.
Thank you Mark and good morning, everyone.
And thank you for joining us today.
On today's call Mark and I plan to provide you with highlights from our third quarter 2021 results give you more insight into factors, which affected this performance and discuss our future strategy after our.
Their remarks, we will open the call to your questions I'd like to thank all of you for your interest in our company and for dedicating a portion of your day to participate in our conference call. This morning.
Before we start I would like to say on behalf of myself and the entire team at 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.
<unk> pleased with our performance this quarter.
Our financial and operating metrics in the third quarter demonstrated continuing strengthening and improvement in our business that began in the third quarter of last year.
A number of factors are driving our improving performance first the cost of safety measures.
Yes, we implemented during the COVID-19 period in 2020 and further cost containment actions this year.
We have lowered operating expenses and creating efficiencies within our regionally clustered centers.
Second our preferred procedural volumes have substantially recovered as many of the municipalities and states in which we operate have loosened COVID-19 restrictions and lastly investments we made last year and during the first three quarters of this year, both with respect to capital expenditures and tuck in.
Acquisitions are beginning to contribute to our financial results.
We discussed previously the extraordinary investments we made in upgrading our mammography systems during 2020 to <unk> digital mammography.
Otherwise known as tomo synthesis.
On accuracy volumes have not fully recovered from the COVID-19 impact we are experiencing enhance reimbursement from the volumes. We are nonperforming on these newly upgraded <unk> systems. Additionally, during the first three quarters of this year, we acquired 15 facilities within the New York Metropolitan market New G.
<unk>.
In California.
The newly acquired facilities have unique cost savings and consolidation opportunities with existing radnet facilities, we expect significant improvement from their results in the coming quarters. When we have completed their integration processes.
As a result of all these factors our results during the third quarter were the best of any third quarter in our company's history as compared with last year's third quarter, which was more heavily impacted by COVID-19 revenues increased 14.0% and EBITDA more than 19 point.
2%, even after deducting a 7.7 million dollar benefit we had from payroll tax forgiveness. During this quarter's there.
Third quarter.
I am, particularly proud of the margin improvement, we were able to demonstrate achieving an EBITDA margin of 16, 4% higher by 0.7% from the third quarter of 2020.
The margin improvement is the result of both the return of our pursuit of new volumes to more normalized levels as well as many of the cost saving measures we have put in place.
Which has included consolidating underperforming sites in changing key operational processes, both at the center level and within our corporate support departments.
Adjusted earnings were also very strong in the quarter, we recognized adjusted net income per share during the quarter of 21 cents, which favorably compares to the adjusted net income per share in last year's third quarter of 15 cents.
As a result of the strong performance in this year's first three quarters and the confidence we are feeling for the remainder of the year. We have elected to again increase certain of our key financial guidance levels for 2021.
Mark in his prepared remarks, when he reviews the increases we made to our EBITDA and free cash flow guidance levels, which were outlined in our earnings.
A press release this morning.
We are particularly proud of our performance this quarter in light of the ongoing challenges from COVID-19, and its variance on our business and the entire health care delivery system, while we have experienced steady quarterly improvement in our procedural volumes since the height of the COVID-19.
COVID-19 last year, certain modalities and geographies remain impacted for example, our memory geography business, which is the decision. We reform that has the most elective in nature continues to lag behind our projections for the year. Additionally, our New York Metropolitan region, though.
Showing improvement continues to be more heavily affected from than other geographies and was further impacted in the quarter from hurricanes Henry and either.
We are optimistic that as COVID-19 continues to diminish patients' will more frequently visit referring physicians and feel more comfortable addressing health issues that necessitates the use of diagnostic imaging.
Furthermore, challenges in the workforce and staffing in this difficult labor markets continue to be.
Factors in our performance.
We discussed on our last financial results conference call. Some of the difficulties we are experiencing in hiring and retaining staff at the center level and within administrative functions. We continue to experience a tight labor market where demand for talent is outpacing supply.
Additionally, many potential workers, who are furloughed or laid off have chosen to continue remain unemployed.
The federal subsidization of unemployment benefits has ended.
We continue to experience difficulties in staffing this has restricted our ability to expand hours in certain locations to work through patient backlogs and has increased the cost of recruiting and retaining staff. We are looking to address labor issues in various creative ways.
This includes establishing stronger relationships with technological schools offering special workforce incentives to acquire new talent and implementing technologies automation and protocols that use labor more efficiently.
Lastly, before I hand, the call over to Mark.
I'd like to provide an update on our efforts in artificial intelligence.
In April we announced that our artificial intelligence subsidiary details received FDA clearance for its artificial intelligence mammography triage software.
Page Q.
Sage <unk> is a screening work less prioritization tool that enables radiologist to more efficiently manage their mammography cases with the use of artificial intelligence.
With over $1 5 million mammograms performed annually in our markets. We are in the process of deploying this technology to our breast imagers nationwide.
Additionally, we are also working towards the submission of more advanced AI diagnostic mammography tool.
Sage Dx, which we remain hopeful about submitting to the FDA for his review prior to you read this too has the promise of assisting a radiologist and detecting cancer up to two years earlier than the radiologist might be able to diagnose and the absence of this AI.
Additionally, we believe this advanced tool will make our radiologists more productive productive and accurate.
Outside of mammography for breast cancer, we continue to evaluate further areas of AI that can both decrease our costs and drive new revenue streams through providing innovative cross screening programs to large insurance companies, who are interested in population health models too.
Improved patient care as we have communicated in our past our interest beyond breast cancer lies.
With AI tools that can screens for the other most prevalent cancers, such as prostate lung and colon.
And could branch out into the diagnosis of other chronic diseases.
We believe that AI will make the screening tests more accurate and cost effective and thus making them attractive to health plans seeking to create large scale screening programs for their membership akin to what exists today with mammography and breast cancer.
At this time I'd like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2021 performance. When he is finished I will make some closing remarks.
Okay.
Thank you Howard.
I'm now going to briefly review, our third quarter 2021 performance and attempt to highlight what I believe to be some material items.
He 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 performance.
I will also provide an update to 2021 financial guidance levels, which were released in conjunction with our 2020 year end results in March and which we amended in both May and August upon releasing our first our second quarter financial results.
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 distal disposal of equipment other income or loss loss.
On debt extinguishment and noncash equity compensation.
Adjusted EBITDA includes equity and earnings in unconsolidated operations and subtract allocations of earnings to Noncontrolling interests in subsidiaries and is adjusted for noncash or extraordinary and onetime events taking place during the period.
A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to Radnet, Inc. Common shareholders is included in our earnings release.
With that said I'd now like to review, our third quarter 2021 results.
For the third quarter of 2021, Radnet reported revenue of $332 $7 million and adjusted EBITDA of $62 $3 million.
Revenue increased $49 million or 14% and adjusted EBITDA increased $16 $5 million or 36% from the third quarter of 2020.
Adjusted to remove a one time $7 $7 million benefit from the forgiveness of deferred federal payroll taxes, adjusted EBITDA was $54 $6 million, an increase of 19, 2% from the third quarter of 2020.
The significantly improved results from last year's third quarter is a result of increased procedure volumes cost reductions instituted during the COVID-19 period additional revenue from our migration to <unk> digital mammography and the contribution from tuck in acquisitions.
We completed during the past few quarters.
Adjusted earnings which are adjusted for one time events during the periods for the third quarter of 2021 was $11 $2 million or 21 cents per diluted share as compared with adjusted earnings of $8 million or 15 cents per diluted share for the same period in 2020.
Hey.
Unadjusted for one time items net income for the third quarter of 2021 was $16 $2 million or <unk> 30 per diluted share. This.
This compares to net income of $6 $2 million or 12 cents per diluted share in the third quarter of 2020.
These per share values are based upon weighted average number of diluted shares outstanding of $53 8 million shares in the third quarter of 2021 at 52.0 million shares.
Diluted shares outstanding in the third quarter of 2020.
Affecting net income in the third quarter of 2021 were certain noncash expenses and nonrecurring items, including the following.
$4 $4 million of non cash employee stock compensation expense.
$163000 of severance paid in connection with head count reductions related to cost savings initiatives.
$2 $6 million loss on the disposal of certain capital equipment.
One $6 billion of noncash gain from the interest rate swaps.
$7 $7 million gain on the forgiveness of fed of deferred federal payroll taxes.
$649000 of amortization expense of deferred financing costs and loan discount related to our existing credit facilities.
For the third quarter of 2021 as compared with the prior years third quarter MRI volume increased eight 4% to 18, 4% C. T volume increased 13, 4% and pet Cte volume increased six 6%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and all other exams increased 15, 6% over the prior year's third quarter.
On a same center basis, including only those centers, which were part of Radnet for both the third quarters of 2021 and 2020 MRO.
MRI volume increased 11, 2% C T volume increased 7% and Pepsi tea volume increased four 8%.
Overall same center volume taking into account all routine imaging exams increased 10% from the prior year same quarter.
In the third quarter of 2021, we performed 2.185 million 956 total procedures.
The procedures were consistent with our multi modality approach whereby 76, 4% of all the work we did by volume was from routine imaging.
Our procedures in the third quarter of 2021 were as follows.
314870, mris as compared with 266049 mris in the third quarter of 2020.
189444, Cts as compared with 167005 Cts in the third quarter of 2020.
11600, pet Cts as compared with 10886 pet Cts in the third quarter of 2020.
And $1 million 670042 routine imaging exams, compared with $1 million 446216 of these exams in the third quarter of 2020.
Overall GAAP interest expense for the third quarter of 2021 was $12 million. This compares with GAAP interest expense in the third quarter of 2020 of $11 $1 million.
Cash paid for interest during the period, which excludes noncash deferred financing expense and accrued interest was $7 $6 million in the third quarter of 2021 as compared with $8 4 million in the third quarter of last year.
The lower cash paid for interest in this year's third quarter was the result of the timing of interest payments and our lower cost of capital mainly due to the refinancing transaction in April.
With regards to our balance sheet as of September 30th 2021, unadjusted for bond and term loan discounts, we had $619 $9 million of net debt, which is our total debt at par value less our cash balance.
This compares with $633 $3 million of net debt at September 32020.
Note that this debt balance includes new Jersey imaging network debt of $48 million, which radnet is neither a borrower nor a guarantor.
As of September 32021, we were undrawn on our $195 million revolving line of credit and had a cash balance of $151 $3 million.
At September 32021, our accounts receivable build balance was $152 $4 million, an increase of $49 $2 million from year end 2020.
The increase in accounts receivable is the result of the significant increase in our procedural volumes and revenue relative to 2020 revenue, which was impacted heavily by COVID-19.
Our days sales outstanding or DSO remains near the lowest levels of the in the Companys history. Despite the increase in aggregate accounts receivable. Our DSO was just 38 six days at September 32021.
Through September 2021, we had total capital expenditures net of asset dispositions and sale of imaging center assets and joint venture interests of $77 $9 million. This excludes capital expenditures at our New Jersey imaging network JV of $10 $8 million.
At this time I'd like to update and revise our 2021 financial year, our fiscal year guidance levels, which we released in conjunction with our fourth quarter and year end 2020 results originally and amended twice after reporting our first and second quarter 2021 results.
For total net revenue.
Our original guidance was $1.250 billion to $1 $300 million.
We increased that to $1 3 billion to $1 $350 million.
For adjusted EBITDA, our original guidance levels were $180 million to $190 million, our newly revised guidance levels, our $210 million to $220 million.
For capital expenditures.
Our original guidance was $70 million to $75 million, our new guidance is $85 million to $90 million.
For cash interest expense.
Our original guidance level was 39% to $44 million.
Our revised guidance level is $35 million to $40 million.
And for free cash flow, our original guidance levels was $60 million to $70 million or our revised guidance range is $80 million to $90 million.
As noted we have increased this quarter our guidance ranges for both adjusted EBITDA and free cash flow. Additionally.
Additionally, this quarter, we raised our capital expenditures level to reflect additional investments in growth opportunities, we have identified and several of our core regional markets.
I'll now take a few minutes to give you an update on 2022 reimbursement and discuss what we know with regards to 2022 anticipated Medicare rates.
As a reminder, Medicare represents about 22% of our business mix.
With respect to Medicare reimbursement in July we received a matrix for proposed rates by CPT code, which is typical of typically part of the physician fee schedule proposal that is released about that time every year.
As discussed on our second quarter earnings call. We completed an initial analysis and compared those rates to 2021 rates.
We volume weighted our analysis using expected 2020 to procedure volumes.
Our analysis of the proposal in July implied that on roughly $1 $3 billion of revenue, we would face approximately a $13 million revenue hit in 2022.
Upon receiving the final rule from CMS last week, we updated this analysis the analysis shows that the cut in the final rule.
Will be smaller than originally proposed our updated analysis shows that we will face an approximately $10 million negative impact on our revenues from this cut in 2022.
While this news is better than we reported in July we remain hopeful like last year that Congress in December will partially or fully mitigate this kite, particularly in light of the continuing.
COVID-19, and Delta Varian situation.
We remain opportunistic.
Were optimistic I should say for this possibility as a significant portion of the cut is the result in CMS decreasing the conversion factor in the Medicare reimbursement formula, which impacts all medical specialties not just radiology.
As a result, there are many lobbying groups from the various medical specialties aggressively opposing the cut in concert with the lobbying forces of the radiology industry. We.
We hope to have more to update you about this matter.
In mid to late December when Congress needs now.
Now like to turn the call back to Dr. Berger, who will make some closing remarks.
Thank you Mark.
The health care landscape is changing rapidly health.
Health care is consolidating new payment models are taking shape to include risk, taking and the financial alignment between payers and providers.
Vertical integration is accelerating among health plans and providers and large retailers and drugstore chains are testing new models and physical locations for patient care.
As the health care landscape changes redness business payment models and service offerings must also adapt we continue to be on the attractive side of the cost curve.
And assist the payers and driving patients outside of the more expensive hospital environments. While it is important to create solutions to address the cost of health care. We are also endeavoring to impact the health and wellbeing of our population.
For example, our interest in pursuit of artificial intelligence solutions is as much about offering widespread screening programs for the most prevalent cancers in chronic diseases than it is about increasing our own efficiency and cost savings are a big part of the future of value based care will be tied to the ability of providers.
To keep large patient populations more healthy and disease free dish.
This can occur through the design of screening programs are models of care that we're both prevent disease or detect disease earlier, so that patient outcomes are materially improve and the cost to the health care system are effectively lowered.
While mammography for breast cancer is an excellent example of a successful program, though it still can be improved with better compliance and technology.
We ran similar programs for many of the other most common occurring cancers.
This is an example of where Radnet has had had it I'm certain that creating these cost effective diagnostic solutions.
We will dynamically change the way large patient volumes are managed.
While driving significant new patient volumes and revenue streams into the red in it operations.
In the coming quarters, we will continue a number of initiatives to drive our growth and efficiency.
Activities will include moving the <unk> platform onto a cloud based architecture that will benefit our workflow and create enhanced operations operating efficiency of our staff and contracted radiologists.
We will continue to pursue health system joint venture opportunities, both newly created ones as well as expansion of existing relationships, we will be consolidating call centers and scheduling functions for the convenience of our patients and referral sources and to create regional cost savings and efficiencies.
<unk> be investing in technologies that will shorten scanning times improve the patient experience and automate processes that are today manual, thereby allowing us to more efficiently utilize our labor force.
Our strong free cash flow significant cash balance and low leverage and cost of capital in our company's history affords us the ability to be continuing.
Continuing our growth path.
Strategic tuck in acquisitions acquisitions will continue to be an important aspect of our growth.
Today, the arbitrage between Red Hat's enterprise value and the multiples for which we can purchase targets is more attractive than ever.
A larger targets might cause us to stretch beyond these evaluated these valuation levels. They usually afford us more operating and cost synergies that once achieved served to lower the acquisition multiples into this range over time.
In conclusion, we are excited enthusiastic about the opportunities that lie ahead for Radnet and we look forward to updating you further in the coming quarters regarding our process progress.
Operator, we are now ready for the question and answer portion of the call.
Of course, thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Your final question has been answered you may remove yourself from the queue by pressing star two.
Then it is star one if you would like to ask a question.
And we will go ahead and take our first question from Brian <unk> from Jefferies. Please go ahead.
Hey, good morning, guys and congrats on the good quarter.
I guess, let me start with guidance. So just looking at the guidance and what's implied for Q4.
We see a sequential uptick in earnings from Q3 to Q4 seasonality pattern. So just curious is this just conservatism or is there anything we should be thinking about in terms of like the sequential trend.
No I don't think theres anything implied in there that.
That gives us pause about our fourth quarter results I think the business has obviously been strong and getting stronger throughout the year end.
We anticipate.
Assuming no changes in the delta variance or Covid stay at home restrictions we.
I would expect a strong fourth quarter. So I think it's maybe has embedded conservatism in it.
Okay I appreciate that and then I guess as I think about 2022 and beyond right through.
Any color you can share with us in terms of how youre thinking about 2022 at this point without thinking about guidance, yet, but just qualitatively how.
How are you thinking about your ability to grow EBITDA, and then maybe kind of longer term margins, where obviously you throw in 2021 do you think you can grow margins off of the current base.
Sure I mean, we obviously havent.
Formulated our guidance levels for 2022, yes, we are finishing our internal budget process at this point, which we do both from a bottoms up a center by center basis, and then also from a top down in terms of bridging from from 2021.
<unk> that occur in the business.
You know look where we're growing same store sales fairly aggressively we've always historically said hey, we think we can grow same center performance, 2% to 4%.
On an annual basis over the long term, we've obviously been exceeding that this year.
Even if you compare it to 2019, which was the last year that was on an impacted by Covid. So we feel we feel good about the businesses as we said in our prepared remarks, there is some areas. It despite how well we're doing at this point theres still some areas that have a continue to be.
Impacted.
By Covid in particular are mammals volumes have not come back.
There are levels that are expected, we're probably if we had to estimate 10% to 15% below where we thought we would be this year.
As we said memo tends to be all of the modalities that most elective by nature because it is a screening program then and we've just seen.
Women not come in regularly for their annual screening exams, perhaps because of concerns of COVID-19 or not generally going to there.
They are family practitioners are obgyns, who generally remind women about their agile screening exam. So that still is a laggard and we hope that that would recover next year and then we're also seeing.
A particular region, the New York Metropolitan area.
Not at.
Of all of our regions. That's the one region that isn't meeting its its budget that we originally proposed for 2020 or our internal budget that we have for 2021. So we think that there's some significant upside in the New York Metropolitan area coming back so as we formulate that will have.
<unk> and I think same center performance next year should have good same center performance next year some of the acquisitions that we did in the first two quarters of this year in particular in New York and summit here in California, We will have the full year.
Contribution of those acquisitions.
Next year.
Then obviously, we will be facing some sort of Medicare hit that we will be overcoming through this growth.
We have we estimate it now to be about $10 million. We're hopeful as I said in my prepared remarks that Congress steps in like it did last December and mitigates that type in particular because of the fact that.
The majority of the cuts stems from lowering the.
Conversion factor and the Medicare fee schedule by $3, seven 1%, which is a cut that's now going to be faced by every.
Medical specialty who built under the Medicare fee schedule, So theres a lot of support and a lot of lobbying.
In concert with each other to try to get this cut.
So.
These are just thoughts off the top of my head as to what next year looks like obviously, we're not going to have the benefit of that $7 $7 million.
Payroll tax deferral next year, so there's going to be a bunch of ins and outs and end in March when we release, our 2022 guidance I think we'll carefully work.
The analysts community and all of our stakeholders through kind of a bridge from 2021.
Got you and then Mark just since you touched on volume.
Just curious are you starting to see Kelly increasing efforts again by the payers I think some of the payers pause their efforts to shift volumes out of the hospitals during the height of the pandemic. So are they resuming some of those efforts at this point or any anything incremental that you can share with us what you see.
Alright.
Hi, Brian it's Dr. Berger I'll I'll take that one.
I think we're seeing considerable a renewed interest from the PE or is to.
Shifts the volumes away from more expensive hospitals, and it's occurring in ways that might be somewhat subtle, but nonetheless have been ramped up I can look at many of the PE ores for example, United through their Optum Division and just.
At the end of last week.
Cvs Aetna announced that theyre going to be ramping up the hiring of primary care physicians and.
Increasing their in store and pharmacy operations, all of which are designed to better control the patients are.
Yes.
Cost not only at the diagnostic level, but at the specialty level.
Then you have efforts from people like Walmart.
Taking a big leap into the health care delivery system, both by already having.
Contract or bought a primary physician groups and looking to expand nationally here. So I think when you look at the overall efforts here.
They are ramped up.
Most of these payors not only want to drive costs away from the hospitals, but moved towards a vertical.
Integrated healthcare delivery systems.
Along with I think the adoption of <unk>.
Some of the screening tools that we.
<unk> talked about.
Not only in this close call, but in prior close calls.
I think lead to opportunities with population health management.
That I believe will have a profound effect on managing health care costs, and driving more and more patients away.
From hospitals into the.
The outpatient or ambulatory care.
We shouldnt just disregard also that.
The patients themselves.
As well as the <unk>.
<unk> presence of Covid are driving more and more patients themselves.
Two freestanding facilities were.
Arguably the ability to provide.
Effective safety measures.
Is much easier. So I think all of these factors while none of them will be I think overnight success are leading to significant changes.
Outpatient referral patterns.
Awesome I appreciate it thank you guys.
Thanks, Brian.
And we'll go ahead and move on to our next question from Sarah James with Barclays. Please go ahead.
Thank you.
I wanted to dig a little bit more into the staffing challenges.
So have we gotten to a point, where they've affected volumes or you guys have had to change your acceptance of appointments and then if you could break out how you look at the cost between enhanced hourly pay bonuses or temp staff pressure that would be really helpful.
Okay. Thank you Sir.
The Burger yeah.
Yes, there have been challenges.
Have caused us to have to.
Either reduce or not be able to expand our.
Our operational hours to accommodate the demand and backlogs that we have I believe theres a number of ways that we will be approaching.
That issue because this is not just I think.
A temporary issue that we face much like virtually everybody else business today staffing has become a limitation on your ability to generate revenue, but as opposed to perhaps other businesses I think we have more effective ways of.
Healthy.
Create some long term solutions for this one of them that I've mentioned will be through technology, whether it's the move that we're going to make to a cloud based architecture and computing or whether it's newer tools at all of the equipment manufacturers.
Now there reduce the Ah patient scan times and improve the experience and allow us to get better throughput on our existing equipment without having to expand our hours.
Additionally, I think there are other tools that we'll be able to use in terms of scheduling patients.
More efficiently by getting into more efficient.
Contact centers and scheduling patients remotely.
Wine and <unk>.
Lastly, we will be looking very.
Strongly into either buying or potentially aligning with vocational schools that turn out not only a greater numbers of.
Technologies, but also what we call our patient service Representatives.
On the front lines in the imaging centers.
All of the people that we need to staff our centers are.
In short supply and we believe this is a long term trend.
All of these efforts on our part we will need to be.
Effective in addressing but in the long term I think will help not only improve our revenue, but certainly improve our margins, but this is a long term commitment.
The company is going to make in which.
Both east Coast and West Coast centers are fully committed to.
Can you quantify the impact that it had either in the third quarter or this year either on revenue or cost side.
Well, it's hard to.
To quantify when there's also an impact from Covid and other.
Issues that we face in the third quarter in particular like the Hurricanes.
New York, and Northern New Jersey, marketplace, which yet, but my guess the impact in the third quarter could easily have been as much as about 2% of our overall revenue.
We believe that notwithstanding.
Climate issues.
Yes.
Improving volumes that we are seeing and.
Some improvement in our ability to hire people I believe we can see that trend.
Already turning here.
In the fourth quarter, which we expect to.
To wrap up into the.
The 'twenty to 'twenty two.
Calendar year and will be reflected in our budgets.
Okay.
Just a clarification. So you guys have talked about in the past.
Improved efficiency.
Efficiency that Youre AI ads for your radiologist.
Very impressive.
Do you have any stats like that about the other technology that you just mentioned the cloud computing. This joiners scan cycles have that Mike.
Affect efficiency or the.
On the staffing that you need.
It's a little bit early we still are waiting for the FDA.
FDA approval on what we believe will be.
The more important impact on our efficiency.
Efficiency tools and that would be the.
Mammography CAD Dx product that we hope to submit for FDA approval before the end of the year in which we hope to get approval sometime in the first half of 2022.
That along with the cloud.
Cloud computing and.
Move move to that kind of architecture, which will probably take about.
Another year or so.
Could have a dramatic impact on our radiology efficiency and will allow a radiologist, perhaps 20% to 25% improve.
Improved efficiency and throughput and that just means that they'll be able to handle more volume part of that.
Will come from the cloud computing, because we will be able to get our prior exams almost on demand as opposed to the need to create.
Create special systems for pre fetching, those exams or calling them on demand themselves, which sometimes right now with the.
The current infrastructure or it can be very slow and.
What lessons are radiologists productivity so.
These will be tools that I believe not only radnet, but.
Imaging industry as a whole is going to be a.
Necessity in order to be able to meet the other challenges that we have which from a staffing standpoint, not only include our technologists.
And.
Ah patient service Representatives, but also the hiring of radiologists so.
Place that we find ourselves in.
The ability to ingest into all of these tools, which I think can be very transformative.
In the entire imaging industry, but particularly for Radnet here hopefully within the next year to 18 months.
That's very impressive thank you.
Thank you Sir.
We will go ahead and move.
On to our next question from John Ransom with Raymond James. Please go ahead.
Hey, good morning.
Kind of a small niche cleanup question.
Would you.
Was there some offsetting relief and do you anticipate any on your capitation contracts with respect to the softer utilization.
As the utilization issue because its new York, you don't really get an offset in California.
When you when you say offset job are you, saying.
Because of lower utilization more profitability and so that helps mitigate.
Exactly.
I mean.
In New York, which is the area that I talked about being geographically impacted.
We have between 150 and 200000 lives with the subsidies.
The subsidiary of emblem health called advantage care physicians.
I did not note any material change in that that particular contract in this year in terms of utilization.
Last year, we saw a big impact on the positive side from our capitation.
Our customers both in California, and in New York, because the utilization in general of Health care services was so low that we were getting paid essentially the same amount for performing fewer services. This year.
We're seeing much more normalized utilization and given that $1.7 million of our roughly $1 9 million.
<unk> lives are here in California.
Which seems to be recovering as a market faster than particularly the northeast and and and the New York Metropolitan market. We didn't have a significant benefit from our capitation utilization this quarter in New York It just isn't big enough to make a difference.
Great and just a quick question on labor.
What percent of your Workforces vaccinated.
Much.
Assuming the CMS vaccine mandate holds.
That can be something.
Hopefully not but new to worry about next year.
We estimate because it's not always easy for us to be certain.
What questions and who respond to vaccination information, but we.
We anticipate that at this point are somewhere around 75% to 80% of our workforce is vaccinated.
As far as the mandate is concerned.
That's something that we'll approach towards the year end I'm not sure that the final word on that has really.
Been written as yet and I think particularly in regards to health care workers.
Even more complicated issue given.
The difficulty in staffing and workforce right now but.
I believe that we'll be able to address the need for that which we already have with safety measures and other systems that we had in place for quite some time.
As we get further and further into the year, but we're seeing much like the rest of the country improve or increasing compliance with vaccination.
We're ramping up our efforts to get as many people fully vaccinated as possible.
Thank you that's all for me.
Yeah.
And as another reminder, is star one if you would like to ask a question and we'll go ahead and move on to our next question from Mitra.
Gopal from Sidoti. Please go ahead.
Yes, hi, good morning, and thanks for taking the questions first just curious on seats Q approximately how many locations yourself, where it's being deployed into and on the Sage Dx Yeah. How meaningful you think that could be for your mammography business, assuming eventual FDA approval.
Uh huh.
The present time, we have it.
Implemented in probably about two thirds of all of our centers are.
And we expect if not by the end of the year by the first quarter to have all of our mammography systems onto the new platform.
Meaning the sage.
Q.
Our triage tool.
The value proposition there is that once we get the cat ex tool or the Sage Dx tool.
Prove that will be a rather.
It's a much easier process for guests to add completely ramped up and we are attempting to prepare for that at this time.
Hopefully the benefit that will come.
From that improve productivity as well as improved diagnostic capabilities.
Will allow us to rein in some of our backlogs that we have for screening mammography as well as it being a.
A very substantial competitive advantage in.
All of our markets so.
We will I think you have more to report on that probably by the second quarter of next year.
Okay. Thanks, and then.
If you could just give us an update on Arizona, it's been about a year since you went the downmarket.
Curious if it's in line with your expectations or doing even better and if better are you more inclined now to maybe evaluate some new geographies.
Arizona has been challenging for us, particularly because the centers that we bought in their needed a substantial amount of capital investment, which we anticipated when we went in there.
And the additional need that we've had to staff our facilities and build new facilities is taking us a little longer than we anticipated we're still extremely bullish on that market. We are.
Working very well with our partner dignity health part of the common spirit system and.
And everybody is very optimistic about the.
The 'twenty to 'twenty, two time period, but I.
I'd say, we're a little bit behind but not significantly so in a ramp up we knew that going into this new market would take time.
But I think all of the elements are in place so that by perhaps the.
Second quarter or third quarter of next year, we expect it to be performing at the levels that we originally anticipated.
Okay. Thanks, and then finally, maybe on JV or M&A opportunities, if you're seeing more as a result of a still challenging environment as it relates to Covid Andy.
Labor pressures.
Yes, I think we are starting to feel more inbound calls.
And there is a greater recognition within the health care community and the health systems that there are major efforts on the part of payers and others to move business away from the traditional bricks and mortars of hospitals.
So.
A number of our existing.
Partners that have other regions that they would like us.
To work with them as well as potentially new systems are all part of our.
2022.
Efforts to continue to move more and more of our centers into joint ventures as I've said on prior.
Clothes clause.
We would hope that within the next couple of years or so maybe as many as half of our.
Imaging centers will be part of joint ventures with hospital systems as.
Oppose the roughly 25% or 30%.
<unk> are right now so this is as.
As important to us.
Part of our strategy is or any other aspect that we work on.
Okay. Thanks, again for taking the questions.
Thanks, Patrick Thanks Misha.
And it appears we have no further questions at this time.
Okay again, I would like to take this opportunity to thank all of our shareholders.
For their continued support and the employees of Radnet for their dedication and hard work management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you for your time today and I look forward to our next call.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
Okay.
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