Q1 2022 RadNet Inc Earnings Call
You are currently on hold for today's Radnet, Inc. First quarter 2022 financial results conference call. At this time, we are still many additional participants and plan to be underway. Shortly we appreciate your patience and please remain on the line.
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Good day and welcome to the Radnet, Inc. First quarter 2022 financial results Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Mark Stolper Executive Vice President and Chief Financial Officer of Radnet, Inc. Please go ahead.
Thank you.
Good morning, ladies and gentlemen, and thank you for joining Doctor Howard Berger and me today to discuss <unk> first quarter 2022 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.
Pacifically 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, including those.
Those risks set forth in rod in its reports filed with the SEC from time to time.
Include ride in its annual report on Form 10-K for the year ended December 31 2021.
Due 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 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 first quarter 2022 results give you more insight into factors, which affected this performance and discuss our future strategy.
After our prepared remarks, we will open the call to your questions I'd like to thank all of you 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 all.
Well all you well during this challenging time.
Let's begin.
I'm very pleased with our performance in the first quarter, especially in light of the impact we felt from the old crime variant of COVID-19 during much of January.
The search from old ground, not only disrupted normal patient pool in January but it severely impacted our employee base, resulting in lower availability and higher cost of labor.
First week of January was the height of Ground's impact on our employee base were eight 2% of our employee base was out with Covid.
I'm happy to report that this impact was temporary and that our procedural volume and Labor force returned to more normal levels in February and March as of last week, we had less than 1% of our employees out sick recover COVID-19 and have experienced continuing strong procedural demand for our services subsequent to the end of the first quarter.
<unk>.
Despite this impact from COVID-19, we produced the highest first quarter revenue and adjusted EBITDA from imaging Center operations in our company's history.
Revenue increased eight 2% and adjusted EBITDA increased four 1% from last year's first quarter. After excluding the AI reporting segment, which I'll discuss in a few minutes and removing cares act provider relief funds received in last year's first quarter.
The improvement from last year's first quarter was the result of ongoing strong demand for our services and the continuing migration of patient procedures from hospitals to freestanding ambulatory outpatient imaging centers.
As a result of the strong performance initiatives first quarter and the confidence we are feeling for the remainder of the year, we have elected to increase key financial guidance levels for 2022.
So we remain diligent about the economic environment labor shortages and supply chain disruptions inflation and COVID-19, we are executing on opportunities to expand operations in all of our markets, both organically and through new acquisitions and joint ventures, resulting in what we believe.
It will be strong results for the year than originally projected.
Mark in his prepared remarks, we will review the increases we made to our revenue and EBITDA guidance levels upon releasing our financial results. This morning.
As many of you are aware on January <unk>, we completed the acquisitions of <unk> Agency holdings, BV and quantitative BV to address opportunities in lung and prostate cancer diagnosis and screening with artificial intelligence when combined with redness existing deep health Mama.
<unk> artificial intelligence.
These AI businesses provide ran it with the basis for future offerings for widespread cancer screening programs for three of the most prevalent cancers breast prostate and lung.
<unk> AI for chest and lung CTC hearing is currently used by customers in seven European countries and its leading product is pending FDA approval for use in the United States with customers in 20 countries worldwide quantitative solutions for prostate and brain MRI.
Ready have ft, 510 clearance in the United States and CE Mark in Europe .
We are making progress with all three of our AI.
Currently we have three algorithms submitted to the FDA pending.
Review and approval.
First deep helps sage Dx advanced diagnostic breast cancer algorithm was submitted in January .
<unk>. They are one natural detection solution was submitted to the FDA in December of last year and last month Quantum's prostate 2.0 solution was submitted to the FDA. Our goal is to get these products approved through the FDA and have breast lung and prostate.
With its rolled out to the Radnet contracted radiology groups between now and early next year.
We continue to believe that our investments in AI will ultimately result in the improved productivity of our contracted radiologist and more importantly provides significant new revenue streams from large scale screening programs for some of the most prevalent chronic diseases and cancers.
As we hit it on our fourth quarter and full year 2020 earnings call. During the first quarter, we instituted segment reporting and divided our operations into the imaging center and artificial intelligence reporting units.
The objectives in doing this is to provide transparency for our stakeholders. So that they can track our progress in both core imaging center businesses.
And AI operations independently.
We discussed.
On our last financial results call, we anticipate that our AI reporting segment, consisting of details agents and planted will experience losses through 2023.
Our estimates for these losses.
Excuse me.
Our estimates for these losses during 2022 is between 12 and $17 million.
During the first quarter of 2022, the AI segment recorded.
$599000 of revenue.
And a loss of $3 $6 million of adjusted EBITDA results were which were in line with our projections.
Subsequent to the end of the first quarter on April 1st we established a new joint venture in Frederick County, Maryland, with Frederick Health, a long standing established community health system in that market.
Establishing this venture Radnet contributed one multi modality and three satellite routine imaging facilities and Frederick health contributed to multi modality imaging facilities.
In establishing this joint venture Radnet now as approximately.
29% of its facilities 102 imaging centers within health system partnerships.
As we have publicly stated we believe that within the next three years, we would like to achieve over 50% of our facilities held within joint ventures with hospitals and health system partners.
We continue to enjoy the benefits from these partnerships, which include increased patient volumes expanded breadth of services improved patient access and closer relationship with regional insurance companies and health plans.
Consistent with our efforts throughout the pandemic during the first quarter, we continued to carefully manage our liquidity and financial leverage we accomplished this despite having frontloaded capital expenditures expenditures in the first quarter as we typically do and despite facing the longer accounts receivable collection cycle in the first.
Quarter as a result of the resetting of patient deductibles on January one.
At first quarters in unadjusted for the losses in our reporting segment, our leverage ratio was 3.3 times net debt to trailing 12 month EBITDA.
Our liquidity also remains strong we ended the quarter with $70 7 million of cash and we were undrawn upon our $195 million.
Solving credit facility.
Our days sales outstanding Dsos at March 2022 was 35 days, which we believe to be one of the best in the industry.
The improvement in revenue cycle operations and collections has significantly contributed to our ability to manage the challenges presented by COVID-19 and to make important investments for our future.
While we are committed to growing and expanding our business. We will also continue to follow a methodical and disciplined approach to managing our financial leverage.
At this time I would like to turn the call back over to Mark to discuss some of the highlights of our first quarter 2022 performance. When he is finished I will make some closing remarks.
Thank you Howard.
I'm now going to briefly review, our first quarter 2022 performance and attempt to highlight what I believe to be some material items I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our first quarter performance.
I'll also provide an update to 2022 financial guidance levels, which were released in conjunction with our 202000.
So any one year end results in March.
In my discussion I will use the term adjusted EBITDA, which is a non-GAAP financial measure the company defines adjusted EBITDA as earnings before interest taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment other income or loss loss on debt extinguished.
Mens and noncash equity compensation.
Adjusted EBITDA includes equity and earnings of 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 first quarter 2022 results.
For the first quarter of 2022, Radnet reported revenue from its imaging center operations of $341 $2 million and adjusted EBITDA, excluding losses from AI reporting segment of $41 $7 million.
Revenue increased $25 $8 million or eight 2% and adjusted EBITDA, excluding losses from the AI reporting segment and provide a relief funding increased $1 $7 million or four 1%.
Including our AI reporting segment revenue of $599000 revenue was $341 8 million in the first quarter of 2022, an increase of eight 4% from $315 $3 million in last year's <unk>.
First quarter.
Unadjusted for AI reporting segment adjusted EBITDA losses.
Up $3 $6 million in the first quarter of 2022 and $811000 in the first quarter of 2021 and $6 $2 million of provider relief funding received in the first quarter of 2021 adjusted EBITDA for the first quarter of 2022.
With $38 1 million as compared to $45 $5 million in the first quarter of 2021.
Net income for the first quarter of 2022 was $3 million as compared with $9 $5 million for the first quarter of 2021.
Diluted net income per share for the first quarter was <unk> <unk> per share compared with a diluted net income per share of 18 cents in the first quarter of 2021 based upon weighted average number of diluted shares outstanding of $56 4 million shares in 2022.
At $52 8 million shares in 2021.
There were a number of unusual or one time items impacting the first quarter, including $28 million of noncash gain from interest rate swaps to.
$2 2 million dollar expense for legal settlements.
$938000 expense related to leases for our de novo facilities under construction that have yet to open their operations and $4 $3 million of expenses related to our AI Division.
Adjusting for the above items adjusted loss from the imaging Center reporting segment was $8 3 million and diluted adjusted loss per share was negative 15 <unk>.
During the first quarter of 2022.
Also affecting net income in the first quarter of 2022 were certain noncash expenses and unusual items, including the following.
$11 $1 million of noncash employee stock compensation expense relating from the vesting of certain options and restricted stock.
$201000 of severance paid in connection with headcount reductions related to cost savings initiatives.
And $648000 of noncash amortization of deferred financing costs and loan discounts related to financing fees as part of our existing credit facilities.
For the first quarter of 2022 as compared with the prior year's first quarter MRI volume increased 12, 7% <unk> volume increased 10, 1% and pet CP volume increased six 7%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and other exams increased eight 8% over the prior year's first quarter.
On a same center basis, including only those centers, which were part of Radnet for both the first quarters of 2022 and 2021 and.
<unk> volume increased nine 8%.
<unk> volume increased seven 3%.
And <unk> volume increased five 7%.
Overall same center volume taking into account all routine imaging exams increased six 6% over the prior year same quarter.
In the first quarter of 2022, we performed 2 million 197185 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 in the first quarter of 2022, whereas follows.
316784, mris as compared with 281096 mris in the first quarter of 2021.
196461, Cts as compared with 178510 Cts in the first quarter of 2021.
11683, pet Cts as compared with 10950 <unk> in the first quarter of 2021.
And $1 million 672257 routine imaging exams.
Compared with $1 548293 of all these exams in the first quarter of 2021.
Overall GAAP interest expense for the first quarter of 2022 was $11 $6 million. This compares with GAAP interest expense in the first quarter of 2021 of $12 8 million.
Cash paid for interest during the period, which excludes noncash deferred financing expense accrued interest and payments made to swap counterparties was seven $4 million as compared with $8 $3 million in the first quarter of last year.
With regards to our balance sheet as of March 31, 2022, unadjusted for bond and term loan discounts, we had $693 8 million of net debt, which is our total debt at par value less our cash balance.
This compares with $623 million of net debt at March 31, 2021.
Note that this debt balance includes new Jersey imaging network's debt of 45 million for which Radnet is neither a borrower nor a guarantor.
As of March 31, 2022, we were undrawn on our $195 million of reviled revolving line of credit and had a cash balance of $70 $7 million.
At March 31, 2022, our accounts receivable balance was $159 $7 million, an increase of $24 7 million from year end 2021.
The increase in accounts receivable is mainly the result of the significant increase in our procedural volumes and revenue, particularly during the second half of March as well as the normal first quarter effect on cash collections from the resetting of patient deductibles each year in January .
Our days sales outstanding or DSO remains near the lowest levels of our company's history. Despite the increasing aggregate accounts receivable. Our DSO was $35 seven days at March 31 2022.
Through March 31, 2022, we had total capital expenditures net of proceeds from the sale of imaging equipment of $36 $4 million.
Note that each year, we front load the majority of our capital decisions into the first part of the year. So capex is disproportionately higher in the first half of the year.
At this time I'd like to update and revise our 2022 fiscal year guidance levels, which we released in conjunction with our fourth fourth quarter and full year 2021 results.
For revenue from edge imaging Center operations, we're increasing both the low end and the top end of our guidance range by $10 million to $1 $360 million to $1 billion and $410 million.
For adjusted EBITDA, excluding losses from <unk>, the artificial intelligence segment, we're increasing both the low end and high end of our guidance ranges by $3 million to 208 million to $218 million.
For capital expenditures, we're increasing both the low end and the high end of our guidance ranges to $88 million to $93 million for the year.
And for cash paid for interest in free cash flow.
Our guidance levels remain unchanged.
As noted to reflect the first quarters strong financial results as compared with our original budget, we've increased guidance levels for revenue and adjusted EBITDA.
Though we remain vigilant about the economic environment supply chain disruptions inflation and the possibility of COVID-19, increasing we have opportunities to expand our operations in all of our markets, both organically and through new acquisitions and joint ventures.
With respect to Medicare reimbursement for 2023, there is nothing to report at this time.
As is typical each year, we are expecting CMS to release, a preliminary rate schedule sometime in June or July at which time, we will analyze cms's proposal and our industry's lobbying group the association for quality imaging will provide CMS our industry's feedback.
At the time at this time.
Of our second quarter financial results, we will be in a position to comment on Cms's proposal and its impact if any upon <unk> future results.
I would now like to turn the call back to Dr. Berger, who will make some closing remarks.
Thank you Marc as.
As we move towards the half year point of 2022, we have a lot to be excited about for the remainder of the year the demand for diagnostic imaging is greater than ever.
Technology embedded in state of the art imaging equipment continues to improve.
There have been advances in new contrast materials and radioactive pharmaceuticals.
Significant progress has been made in post processing software.
All of these factors are driving the increased clinical indications for ordering diagnostic tests.
As a result, our centers are extremely busy and we are pursuing expansion opportunities in all of our core markets through a focus on same center performance de Novo centers health system partnerships and tuck in acquisitions.
As we mentioned on our last financial results call. We have 15 de Novo centers and development with almost half of these growth initiatives within existing health system partnerships. So we are spending capital and absorbing operating certain expenses to construct these facilities they will be <unk>.
<unk> growth drivers in late 2022 and beyond.
Our acquisition pipeline remains active for tuck in acquisitions in our core markets and we are various stages with new potential health system partnerships as well with expanding existing joint ventures.
In addition, we are advancing our AI strategy and now have algorithms to address three of the top four most prevalent cancers.
With these algorithms pending FDA approval, we expect to have tools that lower the cost and increase the accuracy of cancer diagnostics in a form that can be package to create widespread population health initiatives that today don't exist. While this AI can serve to lower our cost of delivering our services more import.
The AI could create substantial.
New revenue streams for our company and the rest of the health care industry.
In conclusion, we are excited enthusiastic about the opportunities that lie ahead for <unk> and we look forward to updating you further in coming quarters regarding our progress.
Operator, we are now ready for the question and answer portion of the call.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Our next speaker phone. Please make sure your mute function is turned off so buyers have military charter equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we will go first to Brian <unk> with Jefferies.
Hey, guys good morning.
I guess my first question for you Howard we've talked a lot about AI today. So just curious what you can share with us in terms of number one how you think once we get FDA approval for all of the pending applications. You have how do you think these will all integrate into your business and what can it do to radnet.
Whether it's a differentiating factor of competitive advantage and then I guess related to that for Mark how long do you think we will need to incur losses associated with these business lines.
Good morning, Brian .
Sure.
Well firstly in terms of how it will impact our business it will be a lengthy process because even beyond the approval of the various algorithms that we're now in front of the FDA for there are two other factors Ed.
Take time and will I think eventually be beneficial for radnet as well as the other health care providers in the industry as a whole.
Firstly, there is an implementation process and that should not go unnoticed.
This is not just a matter of getting the approval and turning on the various algorithms they have to be integrated into the existing.
<unk> platforms, both for radiology as well as well.
Oh for the EMR records of our Joy.
Joint venture Hospital partners, and referring physicians and all of that takes time.
Secondly in terms of rolling this out.
There is issue about reimbursement.
Right now in in the instance of <unk>.
Breast.
AI or breast imaging.
Right now there is reimbursement.
Self referral.
That I believe will continue to play a dominant role and if anything I think artificial intelligence and greater consumer awareness will help improve compliance, it's estimated that perhaps 25% to 50% more screening for.
Breast cancer should be done and we currently are experiencing that problem was made worse during COVID-19, whether it was an estimated nine to 10 million people, who did not go there undergo their normal routine screening.
So.
The case for breast.
Cancer screening is a little bit more straightforward.
<unk> straightforward is how do we take other opportunities, particularly for lung screening and make them more of the standard by which patients who had been determined who have high risk.
Our brought in for lung screening.
That effort, which is currently ongoing in Europe at a greater pace than it is here in the U S.
<unk> is one that we're going to have to work on diligently not only with CMS and the federal government, but also with <unk>.
<unk> here in the United States, while there is current reimbursement by Medicare and for the most part with a number of the pay ores. The compliance is disappointing in terms of how many people actually wind up getting this valuable tool.
As a result of some changes in the <unk>.
United States.
Preventative.
Task Force recommendations public service Task Force recommendations there is an estimate that 15 million Americans are.
Subject to high risk and should have lung screening currently only about 6% of those patients actually are those candidates actually get lung screening we are seeing an increase in our centers.
Happy to see that but part of the process is that getting approval for lung screening is not as easy as it is for the self.
<unk> that we see for breast scanning patients have to go through.
Consultation then get a prescription for a lung scan then get an authorization from the pay or and that process is one that I think is handicapping, a better and more aggressive adoption here.
I think.
Part of what we're going to benefit from is the experience that we're seeing in Europe , particularly in the United Kingdom.
Where the National Health service has.
<unk> instituted an aggressive program.
For patients with high risk for lung cancer, and making access for these patients more valuable.
That process is something that we are actively involved with both local and federal levels and we would hope that we will see benefits from our efforts here. Perhaps later this year.
So wow artificial intelligence I think is a.
Great opportunity not only for breast and lung for prostate and eventually for colorectal cancers.
There is an education process, both on the part of PE ores.
Referring physicians and ultimately compliance and adoption by the public but there is little doubt in my mind that these tools will be an important part of screening and population health strategies in the future for which we strongly believe that.
Imaging is the gateway for population health initiatives, not only for cancers, but for.
Other chronic diseases.
So I think you can expect to hear a lot more from us, but I think the next.
12 to 15 months, we're going to work primarily on implementing these tools.
In Europe , where we've as I mentioned have had better adoption, particularly by the governments that.
National Health service programs and here locally for the.
Numerous patients that already come into our facilities and for which the artificial intelligence initiatives here can strongly benefit the renin patient base and radiologists.
Okay.
With respect to the second part of your question Brian .
We do expect and we have said this publicly that we will absorb losses in these in this AI reporting segment and as you can see for the first time in our company's history. We have segment. We have moved towards segment reporting. So we have now and Youll see it as when our 10-Q comes out and notes.
Five two different operating segments, the traditional imaging center.
<unk>, which has all of our operations, but for the AI division as well as the AI segment and if you look at the segment reporting.
We had about $599000 worth of revenue this quarter from AI.
And absorbed about $3 $6 million of.
Adjusted EBITDA losses, and a little over $4 billion of net income losses from the AI segment this quarter.
We expect our revenue to grow.
In future quarters. This year based upon the bookings of contracts that we're seeing with <unk> and.
And clients have particularly in Europe .
And as we get FDA approval.
Hopefully in the next quarter or two from.
The three algorithms that we have submitted with the FDA, meaning the prostate to point out from quanta the agents lung nodules.
Low docetae scanning algorithm as well as the more advanced deep health diagnostic algorithm, we will gear up.
Some expenses towards the latter part of the year to one infield implement these solutions at the Radnet.
Facilities with our.
Contracted radiology groups as well as build the commercial and sales teams to start more aggressively marketing these solutions to other operators.
Brian one other thanks a lot.
Okay got it Brian .
Alright, Thanks, Brian .
I take this opportunity to.
Alert the.
Our investors and analysts here.
I want to point out that the White house has reinvigorated a opportunity or an initiative I should say for cancer screening through cancer, Moonshot, which president Biden.
Try it began to.
Try to develop while he was vice president and the Obama administration and announced earlier this year that they were reinvigorated in this.
The mandate for cancer Moon shot is to reduce cancer deaths by 50%.
Through 20 by 2050.
The indications are that the white house strong we will recommend.
And try to implement new cancer screening tools, which we believe will be a huge opportunity for imaging providers to present themselves to provide that kind of access and capabilities and which will be substantially enhanced by.
Artificial intelligence.
So I think you can expect that Radnet will attempt to play a prominent role in helping shape.
The white house's efforts too.
Increase cancer screening, primarily breast cancer and lung cancer initiatives that we will be recommending and actively working to help promote so if that is successful I think there will be a rather sooner rather than later.
<unk> adoption of the tools that will help identify patients at high risk and get them into the outpatient ambulatory centers for screening cancers, hopefully we will be able to report more on our efforts and the efforts of the White House.
In these very important initiatives.
Awesome and then Mark.
Looking at our history.
Wall Street Journal article today about how hospitals are looking for raises on reimbursement and reaction to obviously increased cost.
Wondering what youre seeing in your business related to that and are you, having similar conversations that could see rate growth going forward.
Sure.
I believe hospitals are starting to feel the same.
<unk> that all companies are feeling whether whether youre in healthcare or any other industry, which is the.
The impact of the tight labor market shortage of labor in the inflationary aspects associated with hiring and retaining employees. If you recall when we produced our our original guidance levels.
In conjunction with our fourth quarter and full year 2021 results.
We put about $15 million of additional costs or we built that into our guidance levels. Because we saw that the labor market was quite challenging to attract and retain employees and.
And our employee base has always been.
Always been in competition with hospitals for technology and other.
Front end health care workers and I think what's happening is the hospitals are now seeing this impact like we're seeing it and the result is that Theyre seeing theyre expenses go up and they're going to their pay or is to try to get.
Higher reimbursement.
We've had some of those similar discussions with some of the larger regional and national on payers and we think we will be successful in some regards to try to get better pricing for our services.
These are ongoing discussions there are there one off in nature and I think we will be successful, but it's you know it's a battle because they're seeing the payers themselves. The health plans are seeing their costs.
Going up as well for their own.
As for their own labor. So I think this is something that we're all trying to work through.
Both from a revenue side, but as well as on the cost side and we're looking at all sorts of.
Interesting ways to try to lower our labor costs or at least keep them in check I think we mentioned towards the end of last year that we're implementing a project on the hour.
Some of more our advanced MRI systems, which will allow.
Certain MRI tax to become what we call Super tax, which will allow them to control multiple machines in different facilities from one location, which will obviously allow us to utilize labor more efficiently. It will also allow us to cover.
When employees are out sick or on maternity leave.
And that's one way that we're.
Trying to reduce.
Staffing issues.
We've got a number of initiatives on the hiring front on the retention front to also try to better recruit and retain existing employees. So this is a challenge I think that every company's feeling.
Some ways.
That the fact that the hospitals are acknowledging this and trying to get higher pricing for there.
For their services.
Just highlights and it's going to I think amplify the issue where hospital based pricing is is so much higher than ambulatory services.
Like the.
The independent imaging centers that we operate where that's something that I think is going to aggressively get the get the payers even more aggressive in trying to.
Direct their business outside of the hospital into freestanding facilities like the ones we operate.
That makes sense and then last question for me you. Obviously raised guidance today. Just curious is that are you seeing better volumes.
Are you just increased.
The increased optimism in the recovery are you gaining market share just curious like what the impetus for raising guidance right now.
I think it's primarily volumes that are being driven.
Then, perhaps our initial conservative estimates were.
As a result I think of.
People still recovering from Covid and getting exams that they deferred I O.
Also think it's a function of us deploying more equipment and upgrading some of our equipment to allow for better throughput as Mark mentioned some of the state of the yard equipment that we're now able to put in either brand new or upgrade existing scanners have significantly particularly in the.
In case of MRI scanners reduced scan times significantly, allowing for greater throughput and as you might have seen in our volume numbers here. There was a disproportionate growth in MRI scanning relative to the rest of the procedure volume we're doing so.
I think some of the capital investments that we've made.
And and mostly I think the sophistication that we're bringing to the use of our capital to drive more volume because of high demand are starting to take root.
We hope to see that continue through the rest of the year, but as I mentioned in some of my remarks, there's reasons why we're still cautious.
In our estimates given issues with labor markets given issues with the supply chain.
Related to equipment and other supplies.
And related to the.
The uncertainty of what the impact from Covid.
We will continue to be as.
The anticipation of additional surges are upon us so.
I think driving more revenue some slight pricing increases are part of what we're seeing here early in 2022.
Awesome. Thank you guys.
Thanks, Brian .
We'll go next to Micha Ram Gopal with Sidoti.
Yes, hi, good morning, and thanks for taking the questions Mark I just wanted to follow up.
Talked about yeah.
Labor challenge as an inflationary environment on wages et cetera, and I know.
You had guided to about maybe $15 million of additional salary and wage expense.
You might be incurring this year I was wondering.
If that number is changing in light of day still.
Difficult environment.
Hi, Mitch.
Yes, I mean, we still feel comfortable with that 15 million dollar estimate for our increased salaries benefits and wages.
We haven't seen it get worst per se than when we put this guidance together towards the end of last year and early.
In the first quarter. So as of now I think we're going to stick with that $15 million number I mean, obviously theres a lots of lots of ins and outs.
Both on the revenue side as well as the expense side that.
And levers that can be pulled.
If we see those costs rising.
And.
We continue to look at new ways to automate some of our processes to rely less on human capital and more on technology.
We did as Dr. Berger mentioned license some technology for our MRI scanning.
That shorten that debt that that improves the post production software.
Software processing of our images that allows us to scan faster.
Using these romo technologists, we've implemented and a lot of our facilities virtual waiting rooms.
That are more efficient to get patients in and out of our facilities.
So we're doing everything we can to increase capacity shorten scan times and and rely less on human capital I mean in the end of the day, we're a technology business, we utilize high tech.
Scans scanners to take the digital images were really an information processing business all of that information is not only on the scanner side, but at the patient demographics side, the billing side, it's all bits and bytes and ultimately.
We've got to find ways as a company to try to.
Capitalize on the fact that we're.
Really in the information management business and not so much in the human capital business.
Okay, No that's great.
And as we emerge.
Tons of a post pandemic environment.
You touch on the pipeline.
As it relates to M&A and JV and the valuations you're seeing is there additional interests now.
Losses, maybe a year or two ago.
Sure I mean, we have an active pipeline of tuck tuck in transactions.
We did.
Some a couple of small tuck ins at the end of last year and early in the first quarter.
And that will continue to be the strategy of the company we're finding.
For these transactions there are a lot less competitive in the markets in which we currently operate.
Outside of the markets.
Our core seven markets.
When larger transactions.
Come available.
They seem to be guarding garnering a lot of attention from private equity firms, who are looking at those businesses as platform businesses and theyre going for a significantly higher multiples than we've typically paid for tuck in transactions in our existing market. So we haven't other than entering the Arizona.
In a market place through our relationship and our third joint venture with dignity health, we haven't really seen opportunities that were actionable.
In other areas of the country, so our M&A pipeline.
<unk> is focused on existing.
Markets further penetration of the geographic clusters that we're currently in and we believe that and that we can continue to buy those transactions in the 4% to six times.
Range.
And with our presence in those markets. They are usually are.
Extraordinary synergies that we can get with those acquired operations that come both on the revenue side as well as the cost structure side. So M&A will continue to be a big part of what we do if you look at our growth rate over the last 12 or 13 years, we've grown the topline on a compound annual growth.
<unk> north of 8% and some portion of that I'd say half to a little less than half of that has been an average organic growth through same center performance. The other half has been through.
Inorganic means such as.
M&A with these tuck in transactions as well as hospital joint Ventures and hospital Joint Ventures will continue also to be a growth engine for US today, we have about 22 of these relationships.
Dr. Berger mentioned in his prepared remarks with the new joint venture that we established in.
And Fredrik in Maryland.
This quarter, 29% of all of our facilities, which represent 102 facilities of our 350 facilities are currently held within joint ventures.
We've.
Enjoyed those relationships there.
The relationships with the hospitals have been.
Very advantageous with respect to our volumes.
They have also helped us establish.
Better relationships with the regional and national payers.
And they have provided significant patient access and quality.
For those those patient community so.
All three of these.
Initiatives, meaning the same store sales.
Focus as well as the M&A transactions and JV as well will continue to be big parts of our strategy going forward.
Okay. Thanks, and then finally, just I know, it's still early days for the agents and quantum of acquisitions.
Just curious in terms of holiday integration is coming along and are there any potential cost synergies you think you can realize there.
Yeah.
Okay.
Hi, Mitra I think it's a little too early for us to comment on those we're looking at the opportunities too.
Create synergies and some of the back office functions.
There is also an opportunity perhaps to shift some of our development work to Europe , where there are where the cost structure is a little less.
Less expensive and where there appears to be a more robust labor pool. So.
We've only really had the.
Two new joint ventures are under toe here for about 90 days. So we're still working our way through that and integrating them more into the red in their family. Then we are looking at a.
Deeper into the individual initiatives, but.
Certainly we are talking about some of those and hopefully we'll have more comments.
About those maybe by the third quarter.
Okay. Thanks, again for taking the questions.
Thanks Mitra.
And at this time there are no further questions.
Great. Thank.
Thank you all 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.
This does conclude today's conference we thank you for your participation.
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