RadNet Inc. Q1 2023 Earnings Call
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Good morning, and welcome to Radnet, Inc. First quarter 2023 important financial results call.
All participants will be in a listen only mode shouldn't need assistance. Please find out a conference specialist by pressing star Q followed by email.
After todays presentation, there will be an opportunity to ask question to ask a question you May press the star one on your telephone questions on the telephone keypad.
Police jewelry a question. Please press the Star then two please note. This event is being recorded I would now like to turn the conference over to Mark Stolper, Executive Vice President and Chief Financial Officer.
Radnet Inc. Please go ahead.
Thank you.
Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss Radnet first quarter 2023 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, specifically statements concerning anticipated future financial and operating performance right and its 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.
<unk> 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 Radnet reports filed with the SEC from time to time, including Radnet <unk> annual report on Form 10-K for the year ended December 31 2022.
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.
Rents 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.
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 2023 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.
Let's begin.
I am very pleased with our performance in the fourth quarter.
It was the strongest first quarter in our company's history with record revenue and EBITDA.
Relative to last year's first quarter, our core imaging Center segment revenue increased 13, 9% and imaging Center EBITDA increased 26, 2% from last year's first quarter. This strong performance resulted in improved EBITDA margins increasing from 12.
2% in the first quarter of 2022 to 13, 6% in the first quarter of 2023, and an improvement of 140 basis points.
This improvement was the combination of strong volumes careful management of expenses and an improving labor market.
With respect to volumes, we are experiencing heavy demand in virtually all of our markets.
<unk> procedural volumes increased 14.0% and same center procedural volumes increased nine 3% compared with the first quarter of 2022.
This performance is the result of a combination of several factors.
First the aging and growing population in our markets is driving increasing utilization for diagnostic imaging services.
As people age we rely on diagnostic imaging with greater frequency on average for example, senior in Medicare patients utilize imaging two to three times more frequently than patients.
Under the age of 65.
As baby Boomers continue to age and life expectancy continues to increase we expect this utilization trend to continue.
Second technology in our industry continues to evolve and improve creating additional medical indications for ordering diagnostic imaging procedures.
Advances in MRI technology, and post processing software have shortened scanning times and improved image quality.
In contrast materials and radioactive.
Pharmaceutical are driving novel applications, such as P. M S a or prostate specific membrane antigen.
Pet scans and Alzheimer's imaging.
Lastly, and perhaps most significant we are benefiting from a shift in site of care.
More and more outpatient volumes are being shifted from hospital based facilities towards freestanding outpatient facilities, where the cost to patients and the insurance companies are substantially less not only is the cross slower, but we strongly believe the quality and the patient experience is improved and well run outpatient.
These like the ones we operate.
We do not see an end in sight to these industry trends that are driving procedural volumes and believe that these trends will continue to help drive our consistent same store performance for years to come.
On the labor front, we are experiencing some stability and improvement we have been more successful in filling open positions and have been reducing our reliance on expensive temporary staffing services and overtime hours of our existing team members.
While attracting new talent and retaining our existing employee base remains challenging we are no longer being played by service interruptions from staffing issues like those we face for most of last year, we have seen a 12% reduction in open open positions since the end of <unk>.
Fourth quarter of last year, while hiring and retaining technologists remains our biggest challenge.
We have been refining and increasing our visibility in the marketplace by repositioning our brand utilizing our scale in the industry leadership to better leverage partnerships with local trade schools.
Schools and colleges and have been adjusting compensation practices to meet the demands of the marketplace.
We are engaging in direct mailing campaigns partnering with accrediting bodies to identify qualified candidates hosting open houses and hiring events and instituting incentives such as referral payments inside an AMT bonuses.
There has been no magic formula for success. However, these grassroot efforts are slowly pay dividends.
As a result of the strong performance in this year's first quarter and the confidence we are feeling for the remainder of the year. We have elected to increase key financial guidance levels for 2023. So we remain vigilant 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 will be strong results for the year than originally projected.
Mark in his prepared remarks, we will review the increases we have made to our revenue and EBITDA guidance levels upon releasing our financial results. This morning.
2022 will also be a year of reinvestment in our business to accelerate future growth.
We currently have 13 de novo facilities in various stages of development, which will open for operations in the second half of 2023 and throughout 2024.
These facilities are located in markets, where we have patient backlogs require additional capacity or in locations, where we currently lack access points to serve as identified patient populations.
Six of these de Novo facilities are scheduled to open in the second half of 2023 in early 2024, and another seven facilities should be producing revenue in the second half of next year. While these projects are requiring us to make capital investments above our normal spending we are confident that these centers will.
Be material contributors to our long term performance and growth.
We continue to grow our hospital and health system joint venture business. Currently 121 of our 363 centers or 33% are held within health system partnerships.
Our partners are some of the strongest and most successful systems in our geographies partners include our WJ Barnabas Memorial care dignity Health Life Bridge University of Maryland Medical system Adventist, Cedars Sinai and others.
These and other health systems are seeking solutions for long terms strategies around outpatient imaging and have recognized that cost effective and efficient freestanding centers will continue to capture market share from hospitals as payors and patients migrate their site of care towards lower cost high quad.
All of these solutions.
We are in the process of expanding our joint venture business with both existing as well as new health systems.
We expect that by year end, our joint Venters joint Venters centers.
Could represent closer to 40% of our total center count and we believe that we could reach 50% in the next in the coming years.
Our hospital and health system partners have been instrumental in increasing our procedural volumes through influence on their physician partners to send patients into our jointly owned centers, which we otherwise might not have seen.
Additionally, our joint venture partners are helpful in providing support if needed and establishing long term equitable outpatient reimbursement rates for our services.
We continue to make progress with our artificial intelligence initiatives.
Our enhanced breast cancer.
Diagnostic program in mammography.
Offer offering continues its rollout within our east coast markets. We are refining the program as we learn from our early Rollouts. We are testing different levels of pricing various service offerings, new marketing collateral and look at local market sales and marketing strategies.
While there is much work to be done to optimize the program we are experiencing positive results.
We are identifying cancers that otherwise would not have been found until at later stages and more advanced stages.
Since the inception of the a B C. D program, we have diagnosed over 300 breast cancers that without the intervention of artificial intelligence would have gone undetected.
Testing cancers sooner allows for better patient outcomes through earlier treatment and innovation intervention and reduces cost to the health care delivery system.
Furthermore, we are reducing callback rates for patients through the use of artificial intelligence by being more definitive with the initial screening exam. This saves time and money for our patients and their insurance companies and enables our radiologists to be more efficient as well as reducing stress on our patients.
We are currently experiencing approximately 20% adoption rate from our mammography screening patients and believe we will see greater uptake as we get better at community communicating and marketing the benefits to our patients and their referring physicians.
The recognition our centers are receiving from offering. This unique program has benefited our local branding and distinguished our quality from our competitive centers, who do not offer similar capabilities. We expect to see an increase in this business throughout the remainder of 2023 and into 2024 and look forward to providing.
Updates each quarter with our progress.
Consistent with our efforts throughout the pandemic, we continued to carefully manage our liquidity and financial leverage.
Despite having frontloaded capital expenditures in the first quarter, which included Liberal spending to fund our de Novo centers in development and first quarters and excluding the losses in our a R and our artificial intelligence reporting segment. Our leverage was three four times net debt to trailing 12 months.
<unk> EBITDA.
Liquidity also remains strong.
We ended the first quarter with $90 8 million of cash and we were undrawn on our $195 million revolving credit facility.
Our days sales outstanding at March.
2023 was 35 six days, which we believe to be one of the best in the industry.
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 our low leverage and lower cost of capital and strong liquidity relative to many other industry operators position us to capitalize on.
Acquisition opportunities.
With the significant rise in interest rates over the past 12 months, along with the challenging labor market. There are many struggling operators in our industry. Some of these operators will on will be unable to compete for acquisitions that may arise, while others may be targets of consolidation themselves.
We remain patient and disciplined in our approach to acquisition focus first on our core markets, where we bring unique synergies and cost savings.
While we are interested in expanding our geographic reach with larger platform acquisitions in new geographies those acquisitions must come with scale have a path to organic growth and be actionable without causing our leverage to increase materially.
At this time I'd like to turn the call back over to Mark to discuss some of the highlights of our first quarter 2023 performance. When he is finished I will make some closing remarks.
Thank you Howard.
I'm now going to briefly review, our first quarter 2023 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 will also provide an update to our 2023 financial guidance levels, which were released in conjunction with our 2022 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.
Other income or loss loss on debt extinguishment and noncash equity compensation.
Adjusted EBITDA includes equity earnings in unconsolidated operations and subtract allocations of earnings to Noncontrolling interests in subsidiaries and is adjusted for noncash or extraordinary and onetime events taken place during the period.
A full quantitative reconciliation of adjusted EBITDA to net income or loss attributed to Radnet, Inc. Common shareholders is included in our earnings release.
With that said I'd now like to review, our first quarter 2023 results.
For the first quarter of 2023, Radnet reported revenue from its imaging center reporting segment of $388 $4 billion and adjusted EBITDA, excluding losses from the AI reporting segment of $52 $7 million.
Revenue increased $47 $3 million or 13, 9% and.
And adjusted EBITDA, excluding losses from the <unk> reporting segment increased $10 $9 million or 26, 2%.
Including our AI reporting segment revenue of $2 $1 million revenue was $396 million in the first quarter of 2023, an increase of 14, 3% from 340 point $341 $8 million in last year's first.
Quarter.
Yeah.
Unadjusted for AI reporting segment, adjusted EBITDA losses of $4 $5 million in the first quarter of 2023 and $3 $6 million in the first quarter of 2022.
Adjusted EBITDA for the first quarter of 2023 was $48 $2 million as compared with $38 $1 million in the first quarter of last year.
Net loss for the first quarter of 2023 was $21 million as compared with diluted net income of $3 million for the first quarter of 'twenty two.
Net loss per share for the first quarter of 2023 was negative 36 cents compared with diluted net income per share of <unk> in the first quarter of 2022 based upon a weighted average number of diluted shares outstanding of $57 7 million shares in 2023, and $56 4 million.
And shares in 2022.
There were a number of unusual or one time items impacting the first quarter, including the following.
$4 $1 million of noncash loss from interest rate swaps.
$959000 expense related to leases for our de novo facilities under construction that have yet to open their operations.
One $6 million of noncash increase to contingent consideration related to completed acquisitions.
$719000 expense related to the revaluation of hold backs related to completed completed acquisitions.
And $7 $6 million of net pre tax expenses related to our AI Division.
Adjusting for the above items adjusted loss from imaging Center reporting segment was $4 $7 million and diluted adjusted loss per share was negative eight cents during the first quarter of 'twenty three.
This compares with adjusted loss for imaging imaging Center operations reporting segment of $7 $6 million and diluted adjusted loss per share of negative <unk> 13 cents during the first quarter of 2022.
Also affecting net income in the first quarter of 2023 were certain noncash expenses and unusual items, including the following.
$12 $2 million of non cash employee stock compensation expense, resulting from the vesting of certain options and restricted stock.
$134000 of severance paid in connection with headcount reductions related to cost savings initiatives.
And $746000 of noncash amortization of deferred financing costs and loan discounts related to financing fees paid as part of our existing credit facilities.
For the first quarter of 2023 as compared with the prior year's first quarter MRI volume increased 16, 7%.
<unk> volume increased 16, 8% and pet C T volume increased 29%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and all other exams increased 14% 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 2023 and 2022.
<unk> volume increased 11, 9%.
C T volume increased 10, 6% and pet C T volume increased 25%.
Overall same center volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and other exams increased nine 3% over the prior year same quarter.
In the first quarter of 2023, we performed 2 million 504635 total procedures.
The procedures were consistent with our multi modality approach whereby 75, 5% of all the work we did by volume was from routine imaging.
Our procedures in the first quarter of 2023 were as follows.
369556, mris as compared with 316784 mris in the first quarter of 2022.
229379, Cts as compared with 196461 <unk> in the first quarter of 2022.
14126, pet Cts as compared with 11683 pet Cts in the first quarter of 'twenty two.
And 1 million 891574 of routine imaging exams.
Compared with $1 million 672257 of all these exams in the first quarter of 2022.
Overall GAAP interest expense for the first quarter of 2023 was $15 $7 million. This compares with GAAP interest expense in the first quarter of 2022 of $11 6 million.
The higher interest expense resulted from an almost 500 basis point increase on our unswathe to that exposure as well as the additional debt we have at our N J I N New Jersey imaging network joint venture from its refinancing transaction last year.
With regards to our balance sheet as of March 31, 2023, unadjusted for bond and term loan discounts, we had $789 $2 million of net debt, which is our total debt at par value less our cash balance.
This compares with $693 $8 million of net debt at March 31, 2022.
Note that this debt balance includes new Jersey imaging network's debt of $148 1 million for which Radnet is neither a borrower nor guarantor.
As of March 31, 2023, we were undrawn on our $195 million revolving line of credit and had a cash balance of $90 $8 million.
At March 31, 2023, our accounts receivable balance was $176 $4 million, an increase of $10 million from year end 2022.
The increase in accounts receivable is mainly the result of the 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 at 35 six days at March 31 2023.
Through March 31, 2023, we had capital expenditures net of proceeds of the sale of imaging equipment of $75 $7 million.
This total includes $19 8 million dollar spent under capital leases and the remainder spent in cash.
Additionally, the total includes approximately $38 million spent to purchase imaging equipment already in service, which we were renting on operating leases.
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 2023 financial guidance levels, which we released in conjunction with our fourth fourth quarter and year end 2022 results.
We amended our previously announced guidance levels as follows for revenue we increased both the low end and the top end of our guidance level by $25 million to $1.550 billion to $1.600 billion.
For adjusted EBITDA, we increase the bottom and the top ends of our guidance, our previously announced guidance ranges by $5 million to 225 million to $235 million.
For capital expenditures, we're increasing our low end and high end ranges by $5 million to $110 million to $120 million for the year.
For cash paid for interest, we're increasing the low and high ends of our range by $10 million to $45 million to $50 million.
And for free cash flow generation, we're decreasing our guidance range is at the low end and the high end by $5 million to $65 million to $70 million.
For our artificial intelligence segment, our guidance levels remain unchanged.
We've increased our guidance ranges for revenue and adjusted EBITDA to reflect the first quarters strong financial results as compared with our original budget.
Though we remain vigilant about the economic environment supply chain disruptions inflation and the possibility of further variance of COVID-19.
We have opportunities to expand our operations in all of our markets, both organically and through new acquisitions and joint ventures.
We are also increasing our guidance levels for cash interest expense and capital expenditures to account for both the rising cost of interest on that portion of our debt, which is not subject to our interest rate swaps and to fund the completion of certain of our de novo facilities scheduled to open during the remainder of 2023 and the <unk>.
First half of 2024.
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 of our second quarter financial results call, we will be in a position to comment on Cms's proposal and its impact if any upon <unk> future results.
I'd now like to turn the call back to Dr. Berger, who will make some closing remarks.
Thank you Mark.
As we move towards the mid point of 2023, we are excited about the initiatives we have 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.
Contrast materials and radioactive pharmaceuticals for pet scanning are being advanced.
Significant progress has been made in post processing software. These factors and others are driving increased clinical indications for ordering diagnostic imaging procedures. As a result, our centers are extremely busy and we are pursuing expansion opportunities in all of our core markets through a <unk>.
Focus on same center performance de Novo centers health system partnerships and tuck in acquisitions.
To meet the heavy demand for our services, we are investing substantial capital to continue construction of de Novo.
Facilities in core markets our acquisition pipeline.
Remains active for tuck in acquisitions in our core markets and we are in various stages with new potential health system partnerships as well as 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, we expect to have tools that lower the cost and increase the accuracy and early detection of cancer diagnosis in a form that can.
Be created to influence widespread population health initiatives, while this artificial intelligence can serve to lower our cost of delivering our services more importantly, artificial intelligence could create substantial new revenue streams for our company.
We have already begun deploying our breast artificial intelligence and anticipate accelerating its growth for the remainder of 2023.
Furthermore, in addition to this clinically focused artificial intelligence, we believe artificial intelligence could have a material impact in almost every facet of our business processes in the areas such as patient scheduling clinical reporting medical coding sales Mark.
We're getting and work flow improvement with the adoption of generative AI through chat GPT algorithms.
In conclusion, we are excited and enthusiastic about the opportunities that lie ahead for Radnet and we look forward to updating you further in the coming quarters regarding our progress.
Operator, we are now ready for the question and answer.
<unk> of the call.
Yeah.
Thank you.
I'll begin the question and answer session.
I'll ask a question you May press star one on your telephone keypad nature.
Our next speaker Kopelman, please pickup your handset before pressing the star keys. So each suite draw. Your question. Please press Star then queue. At this time, we will pause momentarily to assemble our roster.
Our first question comes from Brian <unk> with Jefferies. Please go ahead.
Hey, good morning, guys, congrats on a really really solid quarter.
I guess, Mark I'll start and maybe for Howard to you know volumes are obviously, obviously strong at sea, but also specifically in advanced imaging.
That site of service is really accelerating now and I know Howard you said that this is something that you expect will continue so maybe without going into like a long term guidance situation.
Any color or any way you want it to be thinking about.
I like how we should be modeling organic growth maybe on a two to three year horizon.
Good morning, Brian Thank you.
Yeah, I think that part of the significant increase that we had in our first quarter volume.
It's due to many factors given the conversations that we're having with pay ores.
We see a definite and more active effort on the part of virtually every commercial pay or trying to shift business away from hospitals and I might add that I don't think this is just a issue about reimbursement differences I think it's all.
So the preference of patients who prefer the more.
Uh huh.
More stable and less.
Complicated environment of outpatient imaging centers to enhance the patient experience. So I think Ah patients are becoming more aware of the difference both in the quality of service as well as the cost.
As being made abundantly clear by the.
Commercial pay ores, so I think.
What portion of our increases.
Matt I don't know I think this is a slow process because it still requires.
Interaction with the referring physicians, who by and large control for the most part where patients.
Our directed for their outpatient imaging, but clearly these efforts.
On the part of commercial payers through planned design initiatives, which we're seeing more and more to encourage the patients into outpatient centers is being <unk>.
Accelerating so I expect this process to continue for quite some time, both because it'll be a slow process as one that is almost inexorable and I think the continued growth of our joint venture strategy with our hospital systems is indicative.
The fact that they recognize that this is an inevitable change and by partnering with with Radnet. They.
Provide themselves in outpatient strategy to at least benefit from that transition of those services as well as bringing them into an environment, which.
Has better cost controls on.
Managing these patients rather than in hospital settings.
And I would just add to that Brian that it's not only just the.
Payers at the differential in pricing.
Planned design that that the payers are instituting that might have different co pays for a hospital based imaging versus freestanding outpatient imaging, but theyre also doing it through preauthorization processes, where you know today most utilization is managed either internally with.
Asian processes at the pay ores or through third party services, such as radiology benefit managers and once the preauthorization occurs.
They are directing the patients to the lower cost sites of care, meaning the free standing centers and the patients also you know we've heard a lot of anecdotal.
Stories from patients about how appreciative they are in coming into the outpatient setting.
Settings, because many of them in more and more over the last five to 10 years. Many more patients have elected to go into higher deductible programs and when the patients themselves are shouldering more of the burden of their health care costs.
They.
Really experience the benefit of coming in into outpatient freestanding settings, where the costs could be anywhere between half the price in a quarter of the price. So the patients are over time and this is part of the slow process that Dr. Berger just mentioned the patients are getting educated over time as to the <unk>.
For rental in this.
And in the pricing discrepancy just as much as the payers.
Have been become educated on that.
Got it and then maybe shifting to AI, obviously I like key emerging part of your story, maybe Howard if you could give us a little color or updates on where things stand alone who had some announcements on some FDA approvals recently, but also in your prepared remarks, you touched on business processes.
That's kind of new to me.
Any color or any updates you can share would be great. Thank you.
Well good question, Brian and I think I'll touch on it somewhat in this close call our.
Earnings call.
We'll have more to say about it are in the very near future, but it's clear.
That artificial intelligence is on everybody's lips and minds. These days and I think despite the fact that maybe there are some aspects of it.
Artificial intelligence that people are concerned and leery about inside health care and particularly in the imaging space I I see it as.
A evolutionary development in the delivery of radiology and imaging services and really it falls into two different categories that were.
Broaching, one, which we've already made substantial progress in and that is clinical applications, particularly in the field of cancer screening with breast lung and prostate for which we believe much like mammography there will be.
Screening tools for these three cancers that will be used far more regularly in the future as we and others roll out.
Opportunities for both men and women to get these tests and diagnose cancer at an earlier stage, which ultimately leads to a better outcome for the patients as well as the health care system.
As we as we noted recently, we had a another F D. A approval in our prostate screening tool to their 3.0 level software and the significance of that is that.
It's now ready for <unk>.
<unk> adoption by our radiologists to improve their accuracy and workflow and we are working aggressively on that inside of Radnet, where we do more prostate MRI.
Scanning than any other organization in the country.
And which is we showed you in our results are.
MRI and pet C. T volume has increased dramatically primarily as a result of the increased prostate screening.
Screening and detection tools.
In addition to that this lays the framework for us to advance the prostate tool.
As we have with breast and which we are doing.
With long into a screening tool for men and women, who want who want to come in and.
And test for early high risk patients for both prostate and lung cancers. So.
I think you can and we will see a lot more from that both in terms of the development as well as the adoption of these tools as they rollout to to our patients and our regions, but the other side, which we now are getting equally excited about is really.
Generative artificial intelligence.
It appears to us that.
There isn't anything that we do on the operational side that couldnt be improve.
With the adoption of generative AI and AR, otherwise known as <unk> for this discussion at least as Chad GPT.
Whether it's scheduling of patients or reporting tools.
Coding.
Workflow.
Sales and.
Marketing.
Every every part of what we do could be improved by artificial intelligence and I think as we'll be talking about later.
The <unk>.
Later part of the second quarter here.
We will be positioning ourselves to take advantage of what we've been doing for the last 15 years in developing our own internal.
Information systems, and expanding those onto new platforms that not only are far more efficient in their use but then we will be adopting some of these new tools to improve our workflows and processes, which in and of itself will help us address some of the.
Workflow as well as labor shortages that we have so this is a big focus of the company, which as I mentioned, we hope to have more information about later in the quarter and one that is very exciting not only for us, but what it could represent for the entirety of.
The radiology and imaging community.
Yeah on that Friday.
Brian We just got some very good news this morning that the U S preventative services task force.
Which advises CMS.
And other payers are now recommending that mammography should start at the age of 40.
They had come out with a pretty controversial decision in 2009 to recommend that women over the age of 50 should should start getting mammography exams. So this.
This is a big deal because we think that's a.
Well, what they're saying is that this could lower their mortality from breast cancer by over 20% by half by recommending that women age 40 and over get get their annual screenings and I think it's going to obviously be very positive for our business and for the industry.
Awesome, Thanks, guys and congrats again.
Next question comes from John Ransom with Raymond James. Please go ahead.
Hey, good morning.
Wanted to probe a little bit on your guidance for the rest of the year it seems.
Like you didn't really raise your EBITDA outlook for the next three quarters should we think about that.
Conservatism or is there something factoring into the algorithm that we haven't thought about it or model.
I think it's conservative John Oh.
We are.
Pleased with our first quarter results part of those results were helped by less well.
Weather related issues in the northeast and mid Atlantic that we generally experience and I think before we become more aggressive we want to see what the second quarter looks like which is one that is generally not challenged by weather conditions. So we felt it.
To show upward direction, both on the revenue side and on the EBITDA side.
And feel that if we can continue the trends that we've seen here in the first quarter.
I believe we can look forward to continuing to.
Increase our.
Guidance.
<unk>.
At the end of this second quarter and I'll add we are.
Being the same strength in April that we experienced in the first quarter. So we were.
We're pretty optimistic and upbeat.
Great.
The second question I have is just the.
Trying to.
On the correlation maybe it does or doesn't exist I know most of what you do is diagnostic but it's hard not to notice that your jump in revenue starting in the fourth quarter and continuing also correlated with a big upsurge in first quarter across the board with surgeries, particularly orthopedic surgeries. So is there a lot and we can draw.
All the all deposits out with my volume do you think the uptick in people just getting screened for orthopedic and other surgeries is also helping our volume story.
Well I think if anything John that may be more of a reflection of post COVID-19 return to normal.
As Youre, probably aware elective surgeries were put off.
Throughout the past three years, and many people delayed getting elective surgeries, particularly orthopedic surgeries, which.
Generally.
Tend not to be as urgent as some others. So I think now that people are <unk>.
Turning back to more normal.
Physician visitation more active whether it's through sports or other activities that got somewhat curtailed I think we're seeing the after effects of that and we would expect that volume to continue to increase.
I might say that the there is more and more reliance on particularly for sports injuries in orthopedic issues more and more reliance on MRI scanning and as the quality of the MRI scans improve as.
As well as the scanning times shorten for better.
Patient experience, we're finding more and more people are willing to undergo these procedures, which have become very.
Small in the total cost of care for orthopedic conditions.
So just a ballpark I mean for every hundred scans.
Scans that you do across all your modalities what.
You know approximately what percent of those what would you say are kind of pre surgical scams versus just kind of routine our ongoing diagnostic scan like breast breast cancer.
Well, if youre talking about advanced imaging and in particular MRI scanning I would say that the preponderance of what we do or neurologic and musculoskeletal applications, probably I'm going to say about 80% of what we do falls into one.
Those two categories.
And.
The rest of the MRI scanning which comprises maybe perhaps 20% is for the rest of the body all of that 80% that is either neurological or musculoskeletal related I'm and I'm going to guess, it's probably two thirds muscular skeletal and one third neuro applications.
No.
It is a huge part of this.
Of the industry in terms of its overall value.
In the treatment of muscular skeletal problems.
Okay, I'm, probably looking for a problem that doesn't exist.
Uptick in utilization and pressured any of your competition economics in California.
No.
Capitation contracts.
Something we negotiate regularly and are a reflection of utilization capitation.
It's really as much as anything else Oh, a form of payment that makes it easier both for our contracted parties and ourselves to reduce billing costs and whatnot, but as utilization increases that cost eventually gets passed on to our.
Capitation.
Parties so.
It may lag, a little behind and I think theres more room.
More aggressive about it now than we used to be and we're having very good success in those conversations.
A couple more kind of model stuff.
Okay.
Exactly and so we think let's just take fourth quarter for example.
How should we think about the core labor inflation once you've sort of lapped here.
You know you catch up payments for lack of a better word what how are you thinking about your core labor inflation once once we get through the fall reset.
Well, we've built into our modeling John .
And increased cost of our labor expense.
As it relates to our employees.
Our employees, both physician and non physician.
That will allow us to fill open positions will and even if those come at higher costs, which we believe they will we will have some offset of that to the low lowering our cost and dependents on.
On overtime and temporary agency. So we've built that in and in our first quarter model.
We were.
Pretty accurate with our prediction of our employee expense costs.
Yes, we well I guess, what I'm getting at or should we think about like it may be a mid single digit kind of underlying core inflation rate absent all the puts and takes with temp staffing.
Or we're just looking for a number there.
I would.
As it relates to employees and salaries John is that what you mean, yeah. Yeah, yeah, Yeah, I think that's reasonable but again, we very much hope because we've built into our model continued use of temporary agencies.
We hope that is somewhat offset but I think that kind of increase is certainly.
Yes.
Reasonable.
And I know, there's probably not one answer here, but let's say, we again look same store.
If you were to do say, 5% to 7% growth in underlying volume.
What's the variable costs associated I know, it's probably a stair step and depends on the capacity that goes all center, but we're just trying to think about the operating leverage fixed versus variable because you really have an operated at this level of volume growth before so I don't know that we have a real roadmap.
Yeah.
It's a good question and one that we continue to wrestle with all the time because of increased cost that were experienced that we did in the past what I would point you towards which we are.
Very pleased with is the significant.
Improvement in our margin in the first quarter, where we went from 12 to 13.6.
And our EBITDA margin.
We do have significantly higher costs in our first quarter as most companies do related to employee expenses.
And you know from withholding and Oh and other benefits.
As well as most of our bonuses for the year are.
<unk> expense in our first quarter, so that that number will go down we're confident that we can continue to improve our margins, but I will tell you that I believe part of the improvement in margins were hoping can come from increasing.
And our reimbursement rates, which were actively pursuing in every market that we're in so I.
I think I think some of these increased costs are just.
Fact of life for every business.
Today, but I think we have tools to offset that and I'll harken back to the comments I made about artificial intelligence, which I think can have both improvement in our efficiencies.
With our radiologists and our.
Patient throughput as well as attacking and approaching virtually every aspect of our business.
Through algorithms related to generative the guy.
Alright, thanks, so much.
Thank you Jan Thanks, Sean.
Next question comes from Larry Solow.
Js Securities. Please go ahead.
Great. Thanks, good morning, and congrats on a good start to the year.
Just a few follow ups I guess on the on the margin question for starters, how much does mix and I realize this is probably a slow improvement, but obviously.
Obviously mix.
Turning to much.
Higher margin events imaging, including rapid growth.
Pepsi T. In the last couple of quarters, how much does that play into margin and maybe over time I know, it's been pretty slow improvement over the last few years, but it.
Could that potentially pick up as especially like this Pepsi T, which is growing really rapidly and continues to.
Drive more of your revenue contributions.
Hi, Larry and welcome to the family but.
I appreciate it.
I think we have to look at this.
And a couple of different ways.
When we talk about mix.
And I think youre talking about modality mix correct versus versus pay or mix right correct. Okay. Because payer mix has remained pretty stable.
A long time with us.
I think you're right that the modality mix is shifting but even if there is an increase in some of these exams like the pet C. T huge increase that we saw particularly related to prostate screening and scanning.
It still represents a relatively small percentage of our total volume.
I think or correct me if I'm wrong, it's maybe it's under one under 1% representing about 5% to 6% of our revenue yeah. So so.
That will also be a slow adoption the margins on that are higher to be sure, but we see opportunities there.
Not just from what we're doing today, but what we expect to do tomorrow.
We're hopeful that the Alzheimer's adoption.
We believe there is a great tool not necessarily for just diagnosing Alzheimer's but monitoring.
Treatment of the new drugs, which all seem to have a potential neurologic and primarily brain impact, but we see those as increasing and to that end, we have upgraded a substantial number and we will continue to upgrade is.
Number of our <unk> scanners, both to improve the quality, but more importantly, a much like we're seeing with it.
With a C T and MRI.
The new equipment and new software that can be adapted to these.
<unk> has had a substantial improvement in scanning time, so what we may wind up seeing is that the shift is not so much because we're getting a lot more demand, but we're able to access our backlogs by <unk>.
Proving our throughput on our equipment with the.
Investment the capital investment, we're making in hardware and software to shorten scan times and to improve.
The image quality both of those.
In and of itself.
It could have a significant impact on our margins.
Given the fact that the.
The relative cost of our overhead remains pretty flat as we can improve our patient throughput. So I think it's a very dynamic issue that we will continue to monitor.
And given some early results of how effective it has been to reduce the scan time, particularly with MRI.
We have accelerated some of the software, which are relatively nominal cost to us relative to the total cost of an MRI system for greater adoption in the second half of this year.
Got it appreciate all the color and then just a second question just a follow up on the enhanced breast cancer detection. You mentioned your refining that program a little bit some new pricing can you just give us a little update on where you stand there I think if I'm not mistaken I believe you guys are charging the 50 to $60 per patient there.
And can you also just you know I think you mentioned, 20% sort of penetration at the centers.
We're now offering this can you sort of just update where we stand there is it just on the east coast today and when do you expect to have it across two centers.
Thanks for the question Larry.
Sure.
We have intentionally delayed rollout to really get a sense of what we need to do to make this.
New technology and.
This clinical tool, if you will and I wanted to emphasize that it as a clinical tool and not just in artificial intelligence tool because it involves utilizing our radiologists to look at the results of artificial intelligence and compare it with their initial look.
Leading and make certain that everybody gets a sense of what the most accurate diagnosis at that moment in time should be.
And as a result.
Finding that.
By looking at focus groups looking at various comments back from the patients that we see that this is not something that everybody is just going to come in and adopt.
Given that there is an educational process to this that we have found both for the patients as well as the referring physician. So we've intentionally delayed the rollout we might be a little bit behind that we're currently have that we currently have it rolled out in about 80% of our market.
On the East coast.
Two of our biggest opportunities we have.
For the rollout on the East Coast, we have delayed based on some initial feedback here.
We think that the.
The price point on this is somewhere between 60 and $75.
Patients who enroll in it are very comfortable with and actually some are surprised that we're not charging more I think.
Part of what we're also doing is trying to provide other tools.
In this early breast cancer detection that will further enhance the risk assessment that.
Patients have for getting cancer, well before it may even be diagnosed by artificial intelligence. So.
We're excited about this the announcement today that the.
U S public.
Service Task Force has finally lowered the recommendation for when women begin getting their screening mammals from 50 to 40 and the importance of that is that that's what a lot of the commercial payers have adopted so they they are truly going to change and now put an emphasis on this.
And there's.
20, more 20 million women between that age group head now should be getting their mammography some of which already have so I don't want to say that it's been.
That black and white, but clearly now as it gets adopted into the health plans and preventative health for our patients we expect that our an increase a substantial increase in our mammography screening business and therefore greater adoption of artificial.
Intelligence and clinical tools for assessing early breast cancer detection and I can't emphasize enough how valuable and how important that is and I'll emphasize something that we've talked about.
When when breast cancer is diagnosed in the earliest stages. However, you want to finance stage zero or stage. One there is a 99% five year survival rate and effectively if everybody that should be getting a mammography screening was getting at.
Nobody would die from breast cancer, because it's not a fatal disease.
If it's caught early and it's one of those things add modern medicine with its diagnostic tools is whether it's treatment tools has had an enormous impact and should have an even greater one going into the future with the adoption of artificial intelligence. So we think we're on the cusp of something that not all.
We will be I think very.
Trends are transformative for breast cancer, but also for prostate and lung cancer and it's getting everybody on board with the value that these tools can provide that ultimately will lead to a better outcome for all the stakeholders in the health care system.
Got it great I appreciate that and then just lastly on just on de Novo.
Can you just clarify I think you had 15 did windup right to I think opened last late in 'twenty. Two and then you have so the six.
The remaining 13 six respect to open I guess more like back half of this year or next year and then the remaining 724 is that right.
Yes, yes, that's right there yes, okay.
Okay.
Like I said it was a little about that someone was supposed to open up a little bit earlier. This year, regardless I guess your guidance hasn't changed. So this is probably net net not a bad thing, but is it a little bit slower the ramp of these or maybe I was just missing.
Yes.
Everything has become more complicated.
Sure post Covid most of the building department in virtually every market that we're in have reduced staff or.
Are slower to turnaround permits.
Uh-huh.
Slower to get inspections. So unfortunately, some of the projects.
<unk> have been delayed.
But that won't deter us and we're actually looking.
Beyond 2024, and other de novo's that we're going to start talking about it and become actionable primarily because this is taking us longer than we anticipated and the need for greater capacity.
To scan that only the cases that are being asked of us today, but as we increase screening for various cancers and increase the amount of business there.
We don't want to let what should be a fundamental shift in the treatment and diagnosis and ultimately treatment of cancer be delayed because there isn't enough capacity of equipment and personnel. So these are things that were actively.
Actively looking at every day.
Got it great I appreciate all that thanks, so much thanks.
Thanks, Larry.
This concludes our question and answer session I would like to turn the conference back over to the Doctor Howard Berger for any closing remarks.
Again, I would like to take the 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. We eagerly look forward to our next call where we believe we will have more information about the continued success and growth of our company.
As it exists now as well as other opportunities to have a substantial impact not only in radiology, but in health care wishing you all a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yes.
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