Q2 2024 RadNet Inc Earnings Call

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Operator: Thank you for standing by. The conference will begin shortly. Thank you for your patience.

Speaker Change: Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Thank you for your patience.

unknown: Transcription by Trans-Expert at Fiverr.com, BF-WATCH TV 2021, https://www.youtube.com.au [inaudible] In the next episode, we'll see you in the next episode. Authored by William Laird,......

Speaker Change: [music]

unknown: Unknown Attendee, Wes Austin None of us are immune from most violent damage committed by social medicine. There doesn't really have to be compassion... BF-WATCH TV 2021, Kauffman Foundation, The Ultimate Parody Site! [music] The Bulletproof Executive 2013 Good morning and welcome to the RadNet Inc. second quarter 2024 financial results conference. All participants will be in listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Speaker Change: [music]

Speaker Change: good morning and welcome to the ratn inink second quarter two thousand and twentyfour financial results conference call

Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.

Operator: Please note this event is being recorded. I would now like to turn the call over to Mark Stolper, Executive Vice President and Chief Financial Officer. Please go ahead.

Speaker Change: so 's draw a question please let start two

Speaker Change: Please note this event is being recorded.

Mark Stolper: I would now like to turn the call over to Mark Stolper, Executive Vice President and Chief Financial Officer. Please go ahead.

Mark Stolper: Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's second quarter 2024 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.

Mark Stolper: Thank you.

Howard Berger: good morning ladies and gentlemen and thank you for joining dr howard burger and meet today to discuss radnet's second quarter two thousand and twenty- four financial results

Mark Stolper: Specifically, statements concerning anticipated future financial and operating performance, RadNet's 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's actual results to materially differ from the statements contained herein.

Speaker Change: Before we begin today we'd like to remind everyone of the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.

Mark Stolper: These risks and uncertainties include those risks set forth in RadNet's reports filed with the SEC from time to time, including RadNet's annual report on Form 10-K for the year ended December 31, 2023. 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.

Speaker Change: This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

Speaker Change: Specifically, statements concerning anticipated future financial and operating performance.

Speaker Change: RadNet's ability to continue to grow the business by generating patient referrals and contracts with radiology practices.

Speaker Change: Recruiting and retaining technologists.

Speaker Change: Receiving third-party reimbursement for diagnostic imaging services.

Speaker Change: 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

Speaker Change: Forward-looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties which may cause RadNet's actual results to materially differ from the statements contained herein.

Speaker Change: These risks and uncertainties include those risks set forth in RadNet's reports filed with the SEC from time to time, including RadNet's annual report on Form 10-K for the year ended December 31, 2023.

Speaker Change: 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.

Mark Stolper: 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.

Speaker Change: 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

dr berger: and with that i'd like to turn the call over to dr berger

Howard Berger: And thank you for joining us today. On today's call, Mark and I plan to provide you with highlights from our second quarter 2024 results, give you more insight into factors which affected 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.

Speaker Change: lo

Speaker Change: 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 second quarter 2024 results, give you more insight into factors which affected the performance, and discuss our future strategy.

Howard Berger: Our performance in the second quarter was highlighted by the strongest quarter in our company's history with record revenue and adjusted EBIT. Relative to last year's second quarter, total company revenue increased 13.9%, imaging center revenue increased 13.2%, and digital health revenue increased 36.4%. Imaging center revenue growth was driven by heavy demand in virtually all of our markets, benefiting from the increasing utilization of diagnostic imaging within healthcare, as well as the shift of procedural volumes away from the more expensive hospital alternatives to ambulatory freestanding imaging centers like the ones RadNet offers.

Speaker Change: 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

Howard Berger: Also contributing to the strong webinar performance was the positive impact of improved reimbursement from commercial and capitated payers who recognize the important role we play as a lower-priced alternative to hospital-based imaging. Lastly, our top line is benefiting from a continuing shift in modality mix toward advanced imaging, particularly MRI, CT, and PET-CT, where our revenue per scan is substantially higher than with routine. Relative to last year's second quarter, our advanced imaging increased by 149 basis points as a percentage of our procedural volume.

Howard Berger: This is both a function of an overall industry trend, as well as the significant capital investment we have made in the last two years in advanced imaging equipment for growth and replacement. Driving the revenue growth within digital health was the AI-powered businesses, including our EBCD breast cancer screening AI-powered initiative, which grew 136.6% quarter over last year's same quarter. Adjusted EBITDA was also a quarterly record, in conjunction with the strong revenue results, which I just discussed. Our focus on operational efficiency, improved management and utilization of labor, investments in information technology, and effective cost control contributed to a total company Adjusted EBITDA which increased nineteen point seven percent from last year's second quarter. Another contributing factor to adjusted EBITDA growth was the disproportionate growth in the higher profit margin digital health business. Cumulatively, these factors drove a 76 basis point increase in our adjusted EBITDA margin as compared with last year's second quarter.

Speaker Change: Let's begin.

Speaker Change: Our performance in the second quarter was highlighted by the strongest quarter in our company's history with record revenue and adjusted EBITDA.

Speaker Change: Relative to last year's second quarter, total company revenue increased 13.9 percent

Speaker Change: Imaging Center revenue increased 13.2% and digital health revenue increased 36.4%.

Speaker Change: Imaging Center revenue growth was driven by heavy demand in virtually all of our markets.

Speaker Change: Benefiting from the increasing utilization of diagnostic imaging within healthcare as well as the shift of procedural volumes away from the more expensive hospital alternatives to ambulatory freestanding imaging centers like the ones RadNet operates.

Speaker Change: Also contributing to the strong webinar performance was the positive impact of improved reimbursement from commercial and capitated payers who recognize the important role we play as a lower-priced alternative to hospital-based imaging.

Speaker Change: Lastly, our top line is benefiting from a continuing shift in modality mix towards advanced imaging, particularly MRI, CT, and PET-CT.

Speaker Change: where our revenue per scan is substantially higher than with routine imaging.

Speaker Change: Relative to last year's second quarter, our advanced imaging increased by 149 basis points as a percentage of our procedural volume mix.

Speaker Change: This is both a function of an overall industry trend as well as the significant capital investment we have made in the last few years in advanced imaging equipment for growth and replacement.

Speaker Change: Driving the revenue growth within digital health was the

Speaker Change: Artificial intelligence AI businesses including our EBCD breast cancer screening AI powered initiative which grew a hundred and thirty six point six percent quarter over last year's same quarter.

Speaker Change: Adjusted EBITDA was also a quarterly record.

Speaker Change: in conjunction with the strong revenue results which I just discussed.

Speaker Change: Our focus on operational efficiency, improved management and utilization of labor, investments in information technology, and effective cost control contributed to a total company adjusted EBITDA which increased 19.7%

Speaker Change: from last year's second quarter.

Speaker Change: Another contributing factor to adjusted EBITDA growth was the disproportionate growth in the higher profit margin digital health businesses.

Speaker Change: Cumulatively, these factors drove a 76 basis point increase in our adjusted EBITDA margin as compared with last year's second quarter.

Howard Berger: Why While we are pleased with this margin expansion, I remain convinced we have further opportunity to improve the margins in the future. The strong operating results in the second quarter relative to our internal budget resulted in our decision to increase 2024 full-year guidance ranges for revenue, adjusted EBITDA, and free cash flow, which we also increased after reporting our first quarter financial results. Mark will discuss this in more detail in his prepared remarks.

Speaker Change: While we are pleased with this margin expansion, I remain convinced we have further opportunity to improve the margins in the future.

Speaker Change: The strong operating results in the second quarter relative to our internal budget resulted in our decision to increase 2024 full-year guidance ranges for revenue, adjusted EBITDA, and free cash flow.

Speaker Change: which we also increased after reporting our first quarter financial results. Mark will discuss this in more detail in his prepared remarks.

Howard Berger: We continue a multifaceted approach to accelerate growth. With respect to acquisitions, we completed the two previously announced Houston Texas Center acquisitions of 13 centers from Houston Medical Imaging and American Health Imaging. We are now in the beginning process of integrating these acquisitions with each other and onto the RadNet operating clinical and IT system. We are confident there are further opportunities in Houston for acquisitions, de novo build-outs, health system partnerships, and other means of expansion, which include bringing our artificial intelligence and leading-edge clinical and operating digital health solutions to the Houston patient and referring physician community.

Mark: We continue a multi-faceted approach to accelerate growth.

Speaker Change: with respect to acquisitions we completed the two previously announced houston texas center acquisitions of thirteen centers from houston medical imaging and american health imaging

Mark Stolper: we are now in the beginning process of integrating these acquisitions with each other and onto the radmidth operating clinical and it systems

Speaker Change: We are confident there are further opportunities in Houston for acquisitions, de novo build-outs.

Speaker Change: health system partnerships and other means of expansion, which include bringing our artificial intelligence and leading edge clinical and operating digital health solutions to the Houston patient and referring physician communities.

Speaker Change: We also completed an expansion of our Ventura County Joint Venture with Dignity Health System through the recent acquisition of four imaging centers and the addition of Community Memorial Health System in Ventura as a second partner to our RadNet in that JV.

Speaker Change: 2024 continues to be a year of reinvestment in our business.

Howard Berger: We also completed an expansion of our Ventura County Joint Venture with Dignity Health System through the recent acquisition of four imaging centers and the addition of Community Memorial Health System in Ventura as a second partner to our RadNet in that JV. 2024 continues to be a year of reinvestment in our facilities. Year to date, we have opened five de novo facilities, and we have six additional scheduled openings for the remainder of this year, which are in substantial construction as we. Moreover, we have 15 additional projects in development, which we intend to open during 2020.

Speaker Change: Year to date, we have opened five de novo facilities and we have six additional scheduled openings for the remainder of this year, which are in substantial construction as we speak.

Speaker Change: Moreover, we have 15 additional projects in development which we intend to open during 2025.

Howard Berger: These de novo facilities are almost equally split between wholly-owned and joint-ventured centers and are located in markets where we have patient backlogs, require additional capacity, or where we currently lack access points to serve identified patient populations.

Speaker Change: These de novo facilities are almost equally split between wholly owned and joint-ventured centers.

Speaker Change: and are located in markets where we have patient backlogs, require additional capacity, or where we currently lack access points to serve identified patient populations.

Howard Berger: While these projects are requiring us to make capital investments above our normal spending, we are confident that these centers will be material contributors, as have the others that we've already opened, to our long-term performance and growth. We continue to grow our hospital and health system joint venture business. Currently, 149 of our 398 centers, or 37.4%, are held by health system partners.

Speaker Change: While these projects are requiring us to make capital investments above our normal spending, we are confident that these centers will be material contributors, as have the others that we've already opened, to our long-term performance and growth.

Speaker Change: we continue to grow a hostile and he system joint venture businesses currently one hundred and forty nine of our three hundred and ninety-eight centers or thirty-seven point four percent our held within health system partnerships

Howard Berger: Our partners are some of the largest and most successful health systems in our geography. Partners include RWJBarnabas from Memorial Healthcare, Dignity Health, Cedars-Sinai Health System, University of Maryland Medical System in Venice, and others. These and other health systems are seeking long-term 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 toward lower-cost, high-quality solutions.

Speaker Change: Our partners are some of the largest and most successful health systems in our geographies.

Speaker Change: Partners include RWJBarnabas from Memorial Healthcare, Dignity Health, Sears Sinai Health System, University of Maryland Medical System, Adventist, and others.

Speaker Change: These and other health systems are seeking long-term strategies around outpatient imaging and have recognized that cost-effective and efficient freestanding centers will continue to capture market share from hospitals.

Speaker Change: as payors and patients migrate their site of care towards lower-cost, high-quality solutions. Our hospital and health system partners have been instrumental in increasing our procedural volumes with their physicians' relationships.

Howard Berger: Our hospital and health system partners have been instrumental in increasing our procedural volumes with their physicians' relationships, and as I have indicated in the past, our anticipation and hope is that close to 50% of our centers will be in joint ventures within the next two to three years. We continue to make progress in digital health. As some of you remember, we announced earlier this year the formation of the RadNet Digital Health Financial Reporting Segment that was effective January 1st, 2024, which combines the eRAD and Deep Health OS software businesses into what was our Clinical AI Reporting Segment during 2023.

Speaker Change: And as I have indicated in the past,

Speaker Change: Our anticipation and hope is that

Speaker Change: Close to 50% of our centers will be in joint ventures within the next two to three years.

Speaker Change: We continue to make progress in digital health. As some of you remember, we announced earlier this year the formation of the RadNet Digital Health Financial Reporting Segment that was effective January 1st, 2024.

Speaker Change: which combines the eRAD and dPAL OS software businesses into what was our clinical AI reporting segment during 2023.

Howard Berger: The financial impact of these digital health businesses has great potential for RadNet and the healthcare space in general, both as a customer of the Deep Health OS and AI solutions and, of course, as the owner of these businesses, which sell the solutions to customers outside of RadNet. Software businesses, and in particular SAS-based models, can operate at significantly higher margins than RadNet's core imaging center segment and require less capital investment.

Speaker Change: The financial impact of these digital health businesses has great potential for RadNet,

Speaker Change: and the healthcare space in general, both as a customer of the Deep Health OS and AI solutions, and of course, as the owner of these businesses, which sell the solutions to customers outside of RadNet.

Speaker Change: Software businesses, and in particular SAS-based models, can operate at significantly higher margins than RadNet's core imaging center segment and require less capital investment.

Howard Berger: Within digital health, we continue to sell service and support eRED solutions to new and existing customers, while we focus on the ongoing development of the next generation Deep Health OS cloud-based operating system and generative AI module. We continue to believe that Deep Health OS can have a major impact on lowering costs and increasing efficiency in the areas of patient scheduling, pre-authorization, insurance verification, revenue cycle management, Irreverent Recycle Management, and reporting.

Speaker Change: Within Digital Health, we continue to sell service and support eRAD solutions to new and existing customers.

Speaker Change: While we focus on the ongoing development of the next generation DeepHealthOS cloud-based operating system and generative AI modules.

Speaker Change: We continue to believe that Deep Health OS can have a major impact in lowering costs and increasing efficiency in the areas of patient scheduling, pre-authorization, insurance verification, revenue cycle management.

Speaker Change: Revenue and Cycle Management, and reporting.

Howard Berger: We will begin testing some of these AI-powered automation tools of Deep Health OS in the third and fourth quarters of this year and aim to have commercially available solutions as early as the first half of 2025. Our Enhanced Breast Cancer Diagnostic Mammography, or EBCD, offering is virtually complete with the exception of the newly entered Houston market. Adoption rates continue to rise and now exceed over 40% on the East Coast and are averaging close to 30% on the West Coast, where we have more recently implemented the program. Our lung AI and prostate AI tools, as well as neuro AI solutions, are also expanding their customer base, predominantly in Europe. This has been highlighted in the UK, where

Speaker Change: We will begin testing some of these AI-powered automation tools of Deep Health OS in the third and fourth quarters of this year and aim to have commercially available solutions as early as the first half of 2025.

Speaker Change: Our Enhanced Breast Cancer Diagnostic Mammography, or EBCD, offering is virtually complete with the exception of the newly entered Houston marketplace.

Speaker Change: Adoption rates continue to rise and now exceed over 40% on the East Coast and are averaging close to 30% on the West Coast where we have more recently implemented the program.

Speaker Change: Our lung AI and prostate AI tools and as well as neuro AI solutions are also expanding their customer base, predominantly in Europe .

Howard Berger: Our lung AI solution is the partner of choice for a four-country rollout of the National Healthcare System's targeted lung health check lung cancer screening program. Finally, we continue to improve liquidity and financial performance. We ended the second quarter with a cash balance of $741.7 million and a net debt to adjusted EBITDA ratio of just slightly more than one. On April 18th, we opportunistically refinanced our death facilities.

Speaker Change: This has been highlighted in the UK where our lung AI solution is the partner of choice for a four country rollout of the National Healthcare System's targeted lung health check lung cancer screening program.

Speaker Change: Finally, we continue to improve liquidity and financial leverage.

Speaker Change: We ended the second quarter with a cash balance of $741.7 million and a net debt-to-adjusted EBITDA ratio of just slightly more than 1.

Speaker Change: On April 18th, we opportunistically refinanced our guest facilities. With this financing, we are able to reduce our cost of capital, extended maturities, and add additional approximately $168 million to RadNet's cash balance.

Howard Berger: With this financing, we are able to reduce our cost of capital, extend maturities, and add an additional approximately $168 million to RadNet's cash balance. With all of this, RadNet is in the best financial condition in its history and is poised for accelerated growth. At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2024 performance. When he is finished, I will make some closing remarks. Thank you, Howard.

Speaker Change: With all of this, RadNet is in the best financial condition in its history and is poised for accelerated growth.

Speaker Change: At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2024 performance. When he is finished, I will make some closing remarks.

Mark Stolper: I'm now going to briefly review our second quarter 2004-2024 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 second quarter performance. I will also provide an update on the 2024 financial guidance levels, which were released in conjunction with our 2023 year-end results in March of this year and revised in May in conjunction with our first quarter 2024 results.

Mark Stolper: Thank you, Howard.

Mark Stolper: I'm now going to briefly review our second quarter 2024 performance and attempt to highlight what I believe to be some material items.

Mark Stolper: 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 second quarter performance.

Speaker Change: I will also provide an update to the 2024 financial guidance levels, which were released in conjunction with our 2023 year-end results in March of this year, and revised in May in conjunction with our first quarter 2024 results.

Mark Stolper: 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 extinguishments, and non-cash equity compensation. Adjusted EBITDA includes equity and earnings of unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and it is adjusted for non-cash or extraordinary and one-time events taking place during the period.

Speaker Change: In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure.

Speaker Change: 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 extinguishments, and non-cash equity compensation.

Speaker Change: Adjusted EBITDA includes equity and earnings of unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taking place during the period.

Mark Stolper: 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 second quarter 2024 results. For the second quarter of 2024, we reported total company revenue of $459.7 million and adjusted EBITDA of $72.3 million. revenue increased $56 million, or 13.9%, and adjusted EBITDA increased $11.9 million, or 19.7%, as compared with the second quarter of 2023. Breaking this performance down to the individual operating segments, our imaging center segment reported revenue of $443.9 million and adjusted EBITDA of $69.1 million.

Speaker Change: A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet Inc. common shareholders is included in our earnings release.

Mark Stolper: This was an increase of $51.8 million, or 13.2%, in revenue and an increase of $10 million, or 16.9%, in adjusted EBITDA as compared with the second quarter of 2023. Driving this performance were strong aggregate and same-center procedure volumes, the impact of higher reimbursement we are receiving from commercial incapitated payers, the gradual movement toward advanced imaging, and tight expense control. The digital health segment reported revenue of $15.8 million and adjusted EBITDA of $3.3 million.

Unknown Attendee: Thank you for standing by. The conference will begin shortly.

Speaker Change: with that said i'd now like to review our second quarter two thousand and twenty-four results

Mark Stolper: Revenue increased $4.2 million, or 36.4%, and adjusted EBITDA increased $1.9 million, or 135.2%, as compared with the second quarter of 2023. Digital health's significant growth was due in part from a $3.2 million increase in AI revenue, which climbed to $5.6 million during the second quarter of 2023. The total company net loss for the second quarter of 2024 was $3 million as compared with a total company net income of $8.4 million for the second quarter of 2023.

Unknown Attendee: Thank you for your patience.

Speaker Change: For the second quarter of 2024, we reported total company revenue of $459.7 million and adjusted EBITDA of $72.3 million.

Speaker Change: Revenue increased $56 million, or 13.9%, and adjusted EBITDA increased $11.9 million, or 19.7%, as compared with the second quarter of 2023.

Mark Stolper: Net loss per share for the second quarter of 2024 was negative $0.04 compared with net income per share of $0.12 in the second quarter of 2023, based upon a weighted average number of diluted shares outstanding of 73.4 million shares in 2024 and 60.9 million shares in 2023. There were a number of unusual or one-time items impacting the second quarter, including the following.

Speaker Change: Breaking this performance down to the individual operating segments.

Speaker Change: Our imaging center segment reported revenue of $443.9 million and adjusted EBITDA of $69.1 million.

Speaker Change: This was an increase of $51.8 million or 13.2% in revenue and an increase of $10 million or 16.9% in adjusted EBITDA as compared with the second quarter of 2023.

Speaker Change: driving this performance were strong aggregate and same center procedure volumes the impact of higher reimbursement we are receiving from commercial and capitated payers the gradual movement towards advanced imaging and tight expense control

Speaker Change: The digital health segment reported revenue of $15.8 million and adjusted EBITDA of $3.3 million.

Speaker Change: Revenue increased $4.2 million, or 36.4%, and adjusted EBITDA increased $1.9 million, or 135.2%, as compared with the second quarter of 2023.

Speaker Change: Digital health significant growth was due in part from a 3.2 million dollar increase in AI revenue which climbed to 5.6 million dollars during the second quarter of 2023.

Speaker Change: Total company net loss for the second quarter of 2024 was $3 million, as compared with a total company net income of $8.4 million for the second quarter of 2023.

Speaker Change: Net loss per share for the second quarter of 2024 was negative 4 cents compared with net income per share of 12 cents in the second quarter of 23.

Speaker Change: Based upon a weighted average number of diluted shares outstanding of 73.4 million shares in 2024 and 60.9 million shares in 2023.

Mark Stolper: $1.9 million of non-cash loss from interest rate swaps. $5.6 million of non-cash interest expense related to extraordinary interest rate swap, other comprehensive income amortization. $809,000 expense related to leases for de novo facilities under construction that have yet to open their operations. $8.8 million of debt restructuring and extinguishment expenses related to the April 2024 successful debt refinancing transaction, and $3.3 billion of non-capitalized R&D expenses related to the DeepHealth cloud, OS, and generative AI development. Adjusting for the above items, Total Company Adjusted Earnings was $12 million, and Diluted Adjusted Earnings Per Share was $0.16 per share during the second quarter of 2024.

Speaker Change: There were a number of unusual or one-time items impacting the second quarter, including the following.

Speaker Change: one point nine million dollars of noncash loss from interest rate swaps

Speaker Change: 5.6 million dollars of non-cash interest expense related to extraordinary interest rate swap, other comprehensive income amortization.

Speaker Change: $809,000 expense related to leases for de novo facilities under construction that have yet to open their operations.

Speaker Change: $8.8 million of debt restructuring and extinguishment expenses related to the April 2024 successful debt refinancing transaction.

Speaker Change: and $3.3 billion of non-capitalized R&D expenses related to the Deep Health cloud, OS and generative AI development.

Speaker Change: Adjusting for the above items, total company adjusted earnings was $12 million and diluted adjusted earnings per share was $0.16 per share during the second quarter of 2024.

Mark Stolper: This compares favorably with total company adjusted earnings of 2023 of $5.9 million in diluted adjusted earnings per share and cents during last year's second quarter. For the second quarter of 2024, as compared with the prior year's second quarter, MRI volume increased 16%, CT volume increased 14.8%, and PET-CT volume increased 20.4%. Overall volume, taking into account all routine imaging exams, inclusive of x-ray, ultrasound, mammography, and all other exams, increased 9.2% over the prior year's second quarter, on a same center basis, including only those centers which were part of RadNet for both the second quarters of 2024 and 2023.

Speaker Change: yeah

Speaker Change: This compares favorably with total company adjusted earnings of 2023 of $5.9 million and diluted adjusted earnings per share of $0.10 during last year's second quarter.

Howard Berger: John Ransom, Mark Stolper, Howard Berger, John Ransom, John Ransom, John Ransom, John Ransom John Ransom, Mark Stolper, Howard Berger, John Ransom, John Ransom, John Ransom, John Ransom, John Ransom, John Ransom, John Ransom, John Ransom, John[inaudible] Ransom, John Ransom and with that I'd like to turn the call over to Dr. Berger. Thank you, Mark.

Speaker Change: For the second quarter of 2024, as compared with the prior year's second quarter, MRI volume increased 16 percent.

Speaker Change: CT volume increased 14.8% and PET-CT volume increased 20.4%.

Speaker Change: Overall volume, taking into account all routine imaging exams, inclusive of x-ray, ultrasound, mammography, and all other exams, increased 9.2% over the prior year's second quarter.

Speaker Change: On a same-center basis, including only of those centers which were part of RadNet for both the second quarters of 2024 and 2023.

Mark Stolper: MRI volume increased 11.7%, CT volume increased 9.9%, and PET-CT volume increased 13.7%. Overall, same set or volume taking into account all routine imaging exams increased 6.1% over the prior year's same quarter. In the second quarter of 2024, we performed 2,785,804 total procedures. The numbers were consistent with our multimodality approach, whereby 73.5% of all the work we did by volume was from routine imaging.

Speaker Change: MRI volume increased 11.7%, CT volume increased 9.9%, and PET-CT volume increased 13.7%.

Speaker Change: Overall, same setter volume, taking into account all routine imaging exams, increased 6.1% over the prior year's same quarter.

Speaker Change: in the second quarter of two thousand and twenty-four we performed two million seven hundred and eighty five thousand eight hundred four total procedures

Speaker Change: The procedures were consistent with our multimodality approach, whereby 73.5% of all the work we did by volume was from routine imaging.

Mark Stolper: Since we now have a table of our aggregate procedure volumes broken down by modality in our earnings release, I won't go through the numbers, but we'll make the following point. In his remarks, Dr. Berger mentioned that we are experiencing a slow shift to higher acuity procedures, or what we call advanced imaging. In the second quarter, 26.5% of our procedures were from MRI, CT, and PET-CT. And last year's second quarter, this metric was 25%, which represents a shift of 1.5% of all of our procedure volume this year toward advanced imaging.

Speaker Change: Since we now have a table of our aggregate procedure volumes broken down by modality in our earnings release, I won't go through the numbers, but we'll make the following point.

Speaker Change: In his remarks, Dr. Berger mentioned that we are experiencing a slow shift to higher acuity procedures, or what we call advanced imaging.

Speaker Change: In the second quarter, 26.5% of our procedures were from MRI, CT, and PET-CT.

Speaker Change: And last year's second quarter, this metric was 25%.

Speaker Change: which represents a shift of 1.5% of all of our procedure volume this year towards advanced imaging.

Mark Stolper: The Higher Pricing and the Better Margin that the more advanced imaging procedures have improved our financial results, including our operating margin. Overall gap interest expense for the second quarter of 2024 was $26.1 million as compared with $16 million during last year's second quarter.

Speaker Change: The Higher Pricing and the Better Margins.

Speaker Change: that the more advanced imaging procedures have improves our financial results, including our operating margins.

Speaker Change: yeah

Speaker Change: Overall GAAP interest expense for the second quarter of 2024 was $26.1 million as compared with $16 million during last year's second quarter.

Mark Stolper: In the second quarter of 2024, cash interest expense, which includes payments to and from counterparties on interest rate swaps and net interest income from our cash balance, was $3.8 million. This compares with $12.4 million in the second quarter of 2023. The lower cash interest this quarter is primarily the result of significantly more interest income on the larger cash balances, as well as the timing of cash interest paid on our term loans. With regard to the balance sheet as of June 30, 2024, unadjusted for bond and term loan discount. We had $301.6 million of net debt, which is our total debt at par value less our cash balance.

Speaker Change: In the second quarter of 2024, cash interest expense, which includes payments to and from counterparties on interest rate swaps and net interest income from our cash balance, was $3.8 million.

Speaker Change: This compares with $12.4 million in the second quarter of 2023.

Howard Berger: 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 second quarter, 2024 Results, give you more insight into factors which affected the 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.

Speaker Change: The lower cash interest this quarter is primarily the result of significantly more interest income on the larger cash balances, as well as the timing of cash interest paid on our term loan.

Speaker Change: With regards to the balance sheet, as of June 30, 2024, unadjusted for bond and term loan discounts, we had $301.6 million of net debt, which is our total debt at par value less our cash balance.

Mark Stolper: Note that this debt balance includes New Jersey Imaging Network's debt of $140.6 million, for which RadNet is neither a borrower nor a guarantor, and it includes NGIN's cash balance of $86.5 million. This company-wide net debt compares with $518.9 million of net debt as of June 30, 2023. As of March 31st, 2024, excuse me, as of June 30th, 2024, we were undrawn on our $282 million revolving credit line, and we had a cash balance of $741.7 million.

Howard Berger: Let's begin. Our performance in the second quarter was highlighted by the strongest quarter in our company's history with record revenue and adjusted EBTA. Related to last year's second quarter, total company revenue increased 13.9%, imaging center revenue increased 13.2%, and digital health revenue increased 36.4%. Imaging center revenue growth was driven by heavy demand and virtually all of our markets, benefiting from the increasing utilization of diagnostic imaging within health care, as well as the shift of procedural volumes away from the more extensive hospital alternatives to ambulatory freestanding imaging centers like the one's red net operates.

Speaker Change: Note that this debt balance includes New Jersey Imaging Network's debt of $140.6 million for which RadNet is neither a borrower nor a guarantor, and it includes NGIN's cash balance of $86.5 million.

Speaker Change: This company-wide net debt compares with $518.9 million of net debt as of June 30, 2023.

Speaker Change: As of March 31st, 2024, excuse me, as of June 30th, 2024, we were undrawn on our $282 million of revolving credit line and we had a cash balance of $741.7 million.

Mark Stolper: At June 30, 2024, our accounts receivable balance was $195.3 million, an increase of $31.6 million from year-end 2023. The increase in accounts receivable is primarily the result of increased business. Some collection delays resulting from the cyber attack on healthcare and the normal effect of cash collections from the resetting of patient deductibles each year in January. Our DSOs, or Days Sales Outstanding, were 34.9 days at June 30th, near a historic low and flat from the end of the first quarter of 2020.

Speaker Change: At June 30, 2024, our accounts receivable balance was $195.3 million, an increase of $31.6 million from year-end 2023.

Howard Berger: Also, concluding to the strong web and performance was the positive impact of improved reimbursement from commercial and capitated payers who recognize the important role we play as a lower priced alternative to hospital-based imaging. Lastly, our top line is benefiting from a continuing shift in modality mix towards advanced imaging, particularly MRI, CT and PET CT, where our revenue per scan is substantially higher than with routine imaging. Related to last year's second quarter, our advanced imaging increased by 149 basis points as a percentage of our procedural volume mix.

Speaker Change: The increase in accounts receivable is primarily the result of increased business.

Speaker Change: Some collection delays resulting from the cyber attack on change healthcare, and the normal effect of cash collections from the resetting of patient deductibles each year in January .

Speaker Change: Our DSOs, or Days Sales Outstanding, was 34.9 days at June 30th, near a historic low and flat from the end of the first quarter of 2024.

Mark Stolper: Through June 30, 2024, we had total capital expenditures net of proceeds from the sale of imaging equipment of $98.6 million. This total includes $6.9 million spent on equipment notes and the remainder spent in cash and excludes $12.4 million in New Jersey Imaging Network capital expenditures. Note that each year we front load the majority of our capital decisions into the first part of the year and have been spending extraordinarily on growth capex to fund the de novo facilities in construction.

Howard Berger: This is both a function of an overall industry trend, as well as the significant capital investment we have made in the last two years in advanced imaging equipment for growth and replacement. Driving the revenue growth within digital health was the artificial intelligence AI businesses, including our EBCD breast cancer screening AI-powered initiative, which grew 136.6% quarter over last year's same quarter. Adjusted EBITDA was also a quarterly record. In conjunction with the strong revenue results, which I just discussed, our focus on operational efficiency, improved management, and utilization of waiver, investments in information technology, and effective class control contributed to a total company adjusted EBITDA, which increased 19.7% from last year's second quarter.

Speaker Change: Through June 30, 2024, we had total capital expenditures net of proceeds from the sale of imaging equipment of $98.6 million.

Speaker Change: This total includes $6.9 million spent under equipment notes and the remainder spent in cash and excludes $12.4 million of New Jersey Imaging Network capital expenditures.

Speaker Change: Note that each year we front load the majority of our capital decisions into the first part of the year and have been spending extraordinarily on growth capex to fund the de novo facilities in construction.

Mark Stolper: At this time, I'd like to update and revise our 2024 fiscal year guidance levels, which we released in conjunction with our fourth quarter and year-end 2023 results and which we amended after reporting our first quarter 2024 financial results in May. Given the positive trends we are experiencing in virtually all aspects of our business and the strong financial performance of the first and second quarters, we are revising upward certain guidance levels in anticipation of financial results that we believe will exceed our original and revised expectations.

Speaker Change: At this time, I'd like to update and revise our 2024 fiscal year guidance levels, which we released in conjunction with our fourth quarter and year-end 2023 results, and which we amended after recording our first quarter 2024 financial results in May.

Howard Berger: Another contributing factor to adjusted EBITDA growth was the disproportionate growth in the higher profit margin digital health test, witnesses. Kimberley, these factors drove a 76 basis point increase in our adjusted EBITAM margin as compared with last year's second quarter. While we are pleased with this margin expansion, I remain convinced we have further opportunity to improve the margins in this future. The strong operating results in the second quarter relative to our internal budget resulted in our decision to increase 2024 full-year guidance ranges for revenue, adjusted EBITAM, and free cash flow, which we also increased after reporting our first quarter financial results.

Speaker Change: Given the positive trends we are experiencing in virtually

Speaker Change: all aspects of our business and the strong financial performance of the first and second quarters, we are revising upwards certain guidance levels in anticipation of financial results that we believe will exceed our original and revised expectations.

Mark Stolper: We amended our previously announced guidance levels as follows. For revenue, we increased our guidance ranges by $10 million at the low and the high end. For EBITDA, we increased our guidance range, and that range is now $1,685,000,000 to $1,735,000,000. We increased our EBITDA guidance range by $2 million at the low and the high ends to $257,000,000 to $260,000,000 in the imaging center segment. We also increased our capital expenditures in the imaging center segment by $5 million to $135 to $145 million. We lowered our cash interest expense as a result of the refinancing transaction and the higher cash balance to $32 to $37 million, which is a decrease of $5 million in cash interest expense.

Speaker Change: We amended our previously announced guidance levels as follows.

Speaker Change: For revenue, we increased our guidance ranges by $10 million at the low and the high end.

Speaker Change: for ebitda we increased and that range is now one billion six hundred and eighty five million to one billion seven hundred thirty five million dollars

Speaker Change: We increased our EBITDA guidance range by $2 million at the low and the high ends to $257 to $260 million in the imaging center segment.

Howard Berger: Mark will discuss this in more detail in his prepared remarks. We continue a multi-faceted approach to accelerate growth. With respect to acquisitions, we completed the two previously announced Houston Texture Center acquisitions of 13 standards from Houston Medical Imaging and American Health Imaging. We are now in the beginning process of integrating these acquisitions with each other and onto the RadNet operating clinical and IT systems. We are confident there are further opportunities in Houston for acquisitions, denoval buildouts, health system partnerships, and other means of expansion, which include bringing our artificial intelligence and leading edge clinical and operating digital health solutions to the Houston patient and referring physician communities.

Speaker Change: We also increased our capital expenditures in the imaging center segment by $5 million to $135 to $145 million.

Speaker Change: We lowered our cash interest expense as a result of the refinancing transaction and the higher cash balance to $32 to $37 million, which is a lowering of $5 million of cash interest expense, and we increased our free cash flow

Speaker Change: Guidance range by $4 million to $72 to $80 million in the image etc. segment.

Speaker Change: For the digital health segment, our guidance ranges all remain the same and we are on track to meet the originally anticipated projections.

Howard Berger: We also completed an expansion of our Ventura County Joint Venture with dignity health system through the recent acquisition of four imaging centers and the addition of community memorial health system in Ventura as a second partner to RadNet in that JV. 2024 continues to be a year of reinvestment in our business. Year to date, we have opened five denoval facilities, and we have six additional scheduled openings for the remainder of this year, which are in substantial construction as we speak.

Mark Stolper: And we increased our free cash flow guidance range by $4 million to $72 to $80 million in the image etc. segment. For the digital health segment, our guidance ranges all remain the same, and we are on track to meet the originally anticipated projections. I'll now take a few minutes to give you an update on 2025 Medicare reimbursement. As a reminder, Medicare reimbursement represents about 22% of our business mix. With respect to Medicare reimbursement, several weeks ago, we received a matrix for proposed rates by CPT code, which is typically part of the Physician Fee Schedule proposal that is released about this time every year. We have completed an initial analysis and compared those rates to 2024 rates. We volume-weighted our analysis using expected 2025 procedural volume.

Speaker Change: I'll now take a few minutes to give you an update on 2025 Medicare reimbursement. As a reminder, Medicare reimbursement represents about 22% of our business mix.

Speaker Change: With respect to Medicare reimbursement, several weeks ago, we received a matrix for proposed rates by CPT code, which is typically part of the Physician Fee Schedule proposal that is released about this time every year.

Howard Berger: Moreover, we have a 15 additionally projects in development, which we intend to open during 2025. These denoval facilities are almost equally split between wholly owned and joint-ventured centers, and are located in markets where we have patient backlogs, require additional capacity, or where we currently lack access points to serve identified patient populations. While these projects are requiring us to make capital investments above our normal spending, we are confident that these centers will be material contributors as have the others that we've already opened to our long-term performance and growth.

Speaker Change: We have completed an initial analysis and compared those rates to 2024 rates. We volume-weighted our analysis using expected 2025 procedural volumes.

Mark Stolper: As you may recall, four years ago, CMS moved forward with increased reimbursement for evaluation and management CPT codes, which favor certain physician specialties that regularly bill for these services, particularly primary care doctors. CMS proposed doing so with budget neutrality, meaning that it proposed to reallocate reimbursement from physicians who rarely bill for E&M codes to physicians who regularly bill for these codes. As a result, radiology and most other specialties experienced cuts in reimbursement from 2021 through 2024, which was an intentional phase-in of the reimbursement cuts to pay for the reimbursement benefit being provided to primary care physicians.

Speaker Change: As you may recall, four years ago, CMS moved forward with increased reimbursement for evaluation and management CPT codes, which favor certain physician specialties that regularly bill for these services, particularly primary care doctors.

Speaker Change: CMS proposed doing so with budget neutrality, meaning that it proposed to reallocate reimbursement from physicians who rarely bill for E&M codes to physicians who regularly bill for these codes.

Howard Berger: We continue to grow our hospital and health system joint venture businesses. Currently 149 of our 398 centers, or 37.4 percent, are held within health system partnerships. Partners are some of the largest and most successful health systems in our geographies. Partners include RWJ, Barnabas from Memorial Health Care, Dignity Health, Seer's Sinai, Health System, University of Maryland Medical System, Adventist, and others. These and other health systems are seeking long-term strategies around outpatient imaging and have recognized that cross-effective and efficient freestanding centers will continue to capture market share from hospitals as payers and patients migrate their site of care towards lower cost, high quality solutions.

Speaker Change: As a result, radiology and most other specialties experienced cuts in reimbursement from 2021 through 2024, which was an intentional phase-in of the reimbursement cuts to pay for the reimbursement benefit being provided to primary care physicians.

Mark Stolper: The cuts we are currently facing in 2024 were substantially mitigated by congressional legislation that was passed in March of this year as part of the consolidated appropriations act. In the proposed rule we received several weeks ago, governing 2025 reimbursement, Medicare appears to effectively be phasing in the remainder of the E&M code-related cuts avoided last year and this year. The cut proposed for 2025 results from a decrease in the conversion factor in the Medicare fee schedule by about 2.8 percent, from $33.29 down to $32.36, along with certain minor changes to the RVUs of certain radiology CPT codes.

Speaker Change: The cuts we are currently facing in 2024 were substantially mitigated by congressional legislation that was passed in March of this year as part of the Consolidated Appropriations Act.

Speaker Change: In the proposed rule we received several weeks ago, governing 2025 reimbursement, Medicare appears to effectively be phasing in the remainder of the E&M code-related cut avoided last year.

Howard Berger: Our hospital and health system partners have been instrumental in increasing our procedural volumes with their physician's relationships. And as I have indicated in the past, our anticipation and hope is that close to 450% of our centers will be enjoying ventures within the next two to three years. We continue to make progress in digital health. As some of you remember, we announced earlier this year the formation of the RadNet digital health financial reporting segment that was effective January 1, 2024, which combines the ERA and deep health OS software businesses into what was our clinical AI reporting segment during 2023.

Speaker Change: End this here.

Speaker Change: The cut proposed for 2025 results from a decrease in the conversion factor in the Medicare fee schedule by about 2.8% from $33.29 down to $32.36.

Speaker Change: along with certain minor changes to the RVUs of certain radiology CPT codes.

Mark Stolper: Our initial analysis of the proposal for next year implies that RadNet, on roughly $1.8 billion in revenue, would face an approximate $6 to $8 million revenue hit in 2025 from its Medicare business. Because the proposed decrease in the conversion factor affects all physicians, not just radiologists, there are many lobbying groups from the various medical specialties aggressively opposing the cut, including radiology's two main lobbying forces, the Association for Quality Imaging, or AQI, and the American College of Radiology, or ACR.

Speaker Change: Our initial analysis of the proposal for next year implies that RadNet, on roughly $1.8 billion in revenue, would face an approximate $6 to $8 million revenue hit in 2025 from its Medicare business.

Speaker Change: Because the proposed decrease in the conversion factor affects all physicians, not just radiologists, there are many lobbying groups from the various medical specialties aggressively opposing the cut.

Howard Berger: The financial impact of these digital health businesses has great potential for RadNet and the healthcare space in general, both as a customer of the deep health OS and AI solutions and of course as the owner of these businesses which sell the solutions to customers outside of RadNet. Software businesses and in particular SaaS based models can operate at significantly higher margins than RadNet's core imaging center segment and require less capital investment. Within digital health, we continue to sell service and support ERAD solutions to new and existing customers while we focus on the ongoing development of the next generation deep health OS cloud-based operating system and generative AI modules.

Speaker Change: including Radiology's two main lobbying forces, the Association for Quality Imaging, or AQI, and the American College of Radiology, the ACR.

Mark Stolper: At this time, our experts believe there is a high probability that the final rule governing next year's Medicare payments will be less severe than the current proposal as a result of congressional action that could take place later this year. In November of this year, during our third-quarter financial results call, we hope to have a more fulsome update on this matter. While the $6-8 million cut to RadNet's revenue next year is not insignificant, we have reimbursement increases scheduled from capitated and commercial payers that will fully mitigate this Medicare reduction should it go into effect as currently planned. I'd like now to turn the call back over to Dr. Berger, who will make some closing remarks. Thank you, Mark.

Speaker Change: At this time, our experts believe there is a high probability that the final rule governing next year's Medicare payments will be less severe than the current proposal as a result of congressional action that could take place later this year.

Speaker Change: in november of this year during our third quarter financial results call we hope to have more a more fulome update on this matter

Speaker Change: While the $6-$8 million cut to RadNet's revenue next year is not insignificant, we have reimbursement increases scheduled from capitated and commercial payers that will fully mitigate this Medicare reduction should it go into effect as currently proposed.

Howard Berger: We continue to believe that deep health OS can have a major impact in lowering costs and increasing efficiency in the areas of patient scheduling, pre-authorization, insurance verification, revenue cycle management and reporting. We will begin testing some of these AI-powered automation tools of deep health OS in the third and fourth quarters of this year and aimed to have commercially available solutions as early as the first half of 2025. Our enhanced breast cancer diagnostic mammography or EDCD offering is virtually complete with the exception of the newly entered Houston marketplace.

Speaker Change: I'd like now to turn the call back over to Dr. Berger who will make some closing remarks.

Howard Berger: As we progress through the second half of the year, we continue to be excited about future opportunities in RadNet. Our core imaging business, which we are experiencing continuing trends that we believe are sustainable for the foreseeable future. The shift from more expensive hospital imaging to more cost-effective outpatient imaging should continue. We also expect the growing demand for advanced imaging to continue well into the future. This is being driven by technological advances in equipment, contrast materials, radioactive pharmaceuticals, post-processing software, and artificial intelligence, all of which drive new applications for utilizing diagnostic imaging, particularly in population health and screening tools. Prostate, Alzheimer's, Coronary, Cardiac, Angiography, Lung Cancer Screening, just to name a few will be opportunities for more advanced imaging utilization.

Dr. Berger: Thank you, Mark.

Speaker Change: as we progress through the second half of the year we continue to be excited about luture opportunities in red dead

Dr. Berger: Our core imaging business which we are experiencing continuing trends that we believe are sustainable for the foreseeable future.

Speaker Change: The shift from more expensive hospital imaging to more cost-effective outpatient imaging should continue. We also expect the growing demand for advanced imaging

Speaker Change: to continue well into the future.

Howard Berger: Adaption rates continue to rise and now exceed over 40% on the East Coast and our average and close to 30% on the West Coast where we have more recently implemented the program. Our long AI and prostate AI tools and as well as neural AI solutions are also expanding their customer base predominantly in Europe. This has been highlighted in the UK where our long AI solution is the partner of choice for a four-country rollout of the National Health Care Systems targeted health check lung cancer screening program.

Speaker Change: This is being driven by technology advances in equipment, contrast materials, radioactive pharmaceuticals, post-processing software, and artificial intelligence, all of which drive new applications for utilizing diagnostic imaging.

Speaker Change: particularly in the population health and

Speaker Change: Screening Tools

Speaker Change: Prostate, Alzheimer's, Coronary, Cardiac Angiography, Lung Cancer Screening, just to name a few, will be opportunities for more advanced imaging utilization.

Howard Berger: Furthermore, our health system partnership model continues to gain traction as we are engaged in discussions with several new health systems to establish partnerships and work with existing partners to expand joint ventures, which we are already in operation. Meanwhile, within digital health, we are making significant progress with initiatives that are poised to help us drive more revenue, reduce costs, and increase margins. We continue to work towards the commercial launch of our new Deep Health operating system technology platform in the fourth quarter of 2024. Deep Health OS will be the delivery platform for solutions that automate business processes and more effectively manage patient and clinical data, including automating patient scheduling, clinical reporting, medical coding, sales and marketing, and clinical workflow.

Speaker Change: Furthermore, our health system partnership model continues to gain traction as we are engaged in discussions with several new health systems to establish partnerships and work with existing partners to expand joint ventures which we are already in operation.

Howard Berger: Finally, we continue to improve liquidity and financial leverage. We ended the second quarter with a cash balance of $741.7 million and a net debt to adjust an EBITDA ratio of just slightly more than one. On April 18th, we opportunistically refinanced our debt facilities. With this financing, we are able to reduce our cost of capital, extended attorneys, and add additional approximately $168 million to RadNet's cash balance. With all of this, RadNet is in the best financial condition in its history and is poised for accelerated growth.

Speaker Change: Within digital health, we are making significant progress with initiatives that are poised to help us drive more revenue, reduce costs, and increase margins.

Speaker Change: we continue to work towards the commercial launch of our new details operating system technology platform in the fourth quarter of two thousand and twenty-four

Speaker Change: DeepHealthOS will be the delivery platform for solutions that automate business processes

Mark Stolper: At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter, 20, 24 performance. When he is finished, I will make some closing remarks.

Speaker Change: and more effectively manage patient and clinical data including automating patient scheduling, clinical reporting, medical coding, sales and marketing, and clinical workflow.

Mark Stolper: Thank you, Howard. I'm now going to briefly review our second quarter, 2024 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 second quarter performance. I will also provide an update to the 2024 financial guidance levels, which were released in conjunction with our 2023 year-end results in March of this year and revised in May in conjunction with our first quarter, 2024 results.

Operator: The end result will be an improved patient experience. In parallel to the deep health operating system development, we are continuing to grow revenue from clinical AI solutions for breast, lung, and prostate cancer screening. Our breast AI is improving the productivity and accuracy of our radiologists while providing a valuable benefit to our patients for which they are willing to self-pay. We are formulating similar screening programs for prostate, lung, and other chronic diseases for both domestic and international markets, as we firmly believe that healthcare needs to shift toward prevention and early detection and not just focus on treating patients who are already presenting with serious symptoms.

Speaker Change: The end result will be an improved patient experience.

Speaker Change: In parallel to the deep health operating system development, we are continuing to grow revenue from clinical AI solutions for breast, lung, and prostate cancer screening. Our breast AI is improving the productivity and accuracy of our radiologists, while improving a valuable benefit.

Speaker Change: while providing a value of benefit to our patients for which they are willing to self-pay.

Speaker Change: We are formulating similar screening programs for prostate, lung, and other chronic diseases for both domestic and international markets as we firmly believe that health care needs to shift towards prevention and early detection.

Mark Stolper: In my discussion, I will use the term adjusted EBITDA, which is a non-gap 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 extinguishments, and non-cash equity compensation. Adjusted EBITDA includes equity and earnings of unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries, and is adjusted for non-cash or extraordinary and one-time events taken place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to rad that ink, common shareholders is included in our earnings release.

Speaker Change: And not just focus on treating patients who are already presenting with serious symptomatology.

Operator: We are also working with imaging equipment manufacturers in efforts to make their technology smarter and more capable. Operator, we are now ready for the question and answer portion of the call. To ask a question, you may press star then 1 on your telephone keypad. If using a speakerphone, please pick up your headset before pressing the keys.

Speaker Change: We are also working with imaging equipment manufacturers in efforts to make their technology smarter and more capable.

Speaker Change: Operator, we are now ready for the question and answer portion of the call.

Operator: we will now begin the question answer session

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. If using a speakerphone, please pick up your handset before pressing the keys.

Operator: To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question will come from Brian Panquilla with Jeff. You may now go ahead. Hey, good morning, guys.

Speaker Change: To withdraw your question, please press star then 2.

Speaker Change: At this time, we'll pause momentarily to assemble our roster.

Mark Stolper: With that said, I'd now like to review our second quarter, 2024 results. For the second quarter of 2024, we reported total company revenue of $459.7 million and adjusted EBITDA of $72.3 million. Revenue increased $56 million or 13.9% and adjusted EBITDA increased $11.9 million or 19.7% as compared with the second quarter of 2023. Breaking this performance down to the individual operating segments, our imaging center segment reported revenue of $443.9 million and adjusted EBITDA of $69.1 million. This was an increase of $51.8 million or 13.2% in revenue and an increase of $10 million or 16.9% in adjusted EBITDA is compared with the second quarter of 2020.

Speaker Change: Our first question will come from Brian Panquilla with Jeffries. You may now go ahead.

Brian Panquilla: And congratulations on our solid quarter. Maybe Howard, as I think about AI made to start, I know there's a lot of moving pieces there. You guys are working on a lot of things. So, you know, for investors on the call for us, what are the catalysts or the developments that we need to watch out for? What are you working on that we need to keep an eye out for in the next, you know, six to 12 months on the AI front? Thanks. Good morning, Brian. I hope you're well.

Brian Panquilla: Hey, good morning guys, and congrats on a solid quarter. Maybe, Howard, as I think about AI, I know there's a lot of moving pieces there. You guys are working on a lot of things.

Speaker Change: So, you know, for investors in the call for us, what are the catalysts or the developments that we need to watch out for? What are you working on that we need to keep an eye out for for the next, you know, six to 12 months on the AI front?

Howard Berger: Um, I think the main focus, which hopefully will be reflected in our results, is the deployment of the Deep Health operating system internally to the RadNet own centers. That's probably the place where we're going to get the first indications of how these new tools will better improve the patient experience as well as clinical adoption. And that, I think, will drive improved margins in our business. But the importance of this is that we can implement these tools, make them ready for prime Time, if you will, and improve the likelihood of success in the external implementation and commercialization of these tools, which we expect to begin in 2025.

Speaker Change: Good morning, Brian . Hope you're well. I think the main focus, which hopefully will be reflected in our results, is the deployment of the Deep Health operating system internally to the RadNet-owned centers.

Speaker Change: That's probably the place where we're going to get the first indications of how these new tools will better improve the patient experience as well as the clinical adoption.

Mark Stolper: Ray. Driving this performance were strong aggregate and same center procedure volumes, the impact of higher reimbursement we are receiving from commercial and capitated payers, the gradual movement towards advanced imaging and tight expense control. The digital health segment reported revenue of $15.8 million and adjusted EBITDA of $3.3 million. Revenue increased $4.2 million or $36.4% and adjusted EBITDA increased $1.9 million or $135.2% as compared with the second quarter of 2023. Digital health significant growth was due in part from a $3.2 million increase in AI revenue which climbed to $5.6 million during the second quarter of 2023.

Speaker Change: And that, I think, will drive improved margins in our business. But the importance of this is that we can implement these tools

Speaker Change: make them ready for prime time, if you will, and improve the likelihood of success in the external...

Speaker Change: implementation and commercialization of these, which we expect to begin in 2025.

Howard Berger: What is unique about RadNet and maybe more than any other single facet is the enormous amount of data that we own that is helping drive the development of these new tools and which others outside are recognizing the value of and are tapping into RadNet to further collaborate on the development of products both for RadNet and the commercial market.

Speaker Change: What is unique about RadNet, maybe as much as any other single facet, is the enormous amount of data that we own that is helping drive the

Speaker Change: development of these new tools and which others outside are recognizing the value of and are tapping into RadNet to further collaborate on development of

Mark Stolper: Total company net loss for the second quarter of 2024 was $3 million as compared with the total company net income of $8.4 million for the second quarter of 2023. Net loss per share for the second quarter of 2024 was negative 4 cents compared with net income per share of 12 cents in the second quarter of 23. Based upon a weighted average number of alluded shares outstanding of 73.4 million shares in 2024 and 60.9 million shares in 2023.

Howard Berger: So I think in the early stages of this, which are already beginning and on which I hope to be able to report more substantively, certainly at the end of the third quarter, but more particularly with the end of the year's results, we see great opportunity, which was the primary. Unknown Attendee, Andrew Mok, Nathan Malewicki, Brandon Carney, Edward Kressler, Lawrence Solow, That's awesome.

Speaker Change: products both for RadNet and the commercial market.

Speaker Change: So, I think in the early stages of this, which are already beginning and which I hope to be able to report on more substantively, certainly at the end of the third quarter, but more particularly with the end of the year's results.

Speaker Change: We see great opportunity, which was the primary

Mark Stolper: There were a number of unusual or one-time items impacting the second quarter including the following. $1.9 million of non-cash loss from interest rate swaps, $5.6 million of non-cash interest expense related to extraordinary interest rate swap, other comprehensive income amortization. $809,000 expense related to leases for de novo facilities under construction that have yet to open their operations. $8.8 million of debt restructuring and extinguishment expenses related to the April 2024 successful debt refinancing transaction and $3.3 billion of non-capitalized R&D expenses related to the deep health cloud OS and generative AI development.

Speaker Change: reason why we developed

Speaker Change: this interest in not only the clinical side of artificial intelligence but the generative side

Speaker Change: which will address not only improving...

Speaker Change: our margins but addresses the continually issue we have with

Speaker Change: challenges in higher end recruiting

Speaker Change: and therefore leading to automation that will make all of our current employees that much more efficient and comfortable

Speaker Change: So, that's perhaps a little longer answer, Brian , than you wanted, but I think...

Speaker Change: looking at, continuing to look at, expanding...

Speaker Change: margins and deployment.

Speaker Change: internally of RadNet, which, as I want to emphasize, has already begun, will be where I think we'll see the early results of the investment and expertise that we have.

Mark Stolper: Adjusting for the above items total company adjusted earnings was $12 million and diluted adjusted earnings per share with 16 cents per share during the second quarter of 2024. This compares favorably with total company adjusted earnings of 2023 of 5.9 million dollars and diluted adjusted earnings per share of 10 cents during last year's second quarter. For the second quarter of 2024 as compared with the prior year's second quarter, MRI volume increased 16%, CT volume increased 14.8%, and PET CT volume increased 20.4%.

Howard Berger: And then maybe Mark, as I look at the balance sheet, obviously, you're sitting on a good chunk of cash. I'm guessing, you know, you're looking to deploy that at some point. So just curious how you're thinking about capital deployment and what you're seeing in the market for equity. Yeah, maybe that's something better that I can answer at this point, but we're very carefully assessing and deploying that capital in both segments of the company, the digital health division as well as the imaging center segment.

Brian Panquilla: That's awesome. And then maybe, Mark, as I look at the balance sheet, obviously you're sitting on a good chunk of cash. I'm guessing, you know, you're looking to deploy that at some point. So just curious how you're thinking about capital deployment and what you're seeing in the market for acquisitions today.

Mark Stolper: Yeah, maybe that's something better that I can answer at this point, but...

Mark Stolper: We're very carefully assessing deploying that capital in both segments of the company.

Speaker Change: the digital health division, as well as the imaging center segment. We have, as we've always had in the past, a number of

Howard Berger: We have, as we've always had in the past, a number of acquisitions constantly that we're looking at. Most of those in the past have, as you well know Brian, been more of our tuck-in acquisitions, which we tend to accomplish in the three to five times EBITDA range. But there may be other larger acquisitions that could stretch that multiple for what we would call very strategic investments that we would be looking at that would expand our geographic presence in the imaging center division.

Mark Stolper: Over all volume, taking into account all routine imaging exams, including inclusive of X-ray, ultrasound mammography, and all other exams, increased 9.2% over the prior year's second quarter. On a same center basis, including only of those centers, which were part of RadNet for both the second quarters of 2024 and 2023, MRI volume increased 11.7%, CT volume increased 9.9%, and PET CT volume increased 13.7%. Overall same center volume, taking into account all routine imaging exams, increased 6.1% over the prior year's same quarter.

Speaker Change: acquisitions constantly that we're looking at. Most of those in the past have, as you well know Brian , been more of our tuck-in acquisitions which we

Brian Panquilla: tend to try to accomplish in the threeat to five times ebitda range but there may be other larger acquisitions that could stretch that multiple

Speaker Change: for what we would call very strategic investments that we would be looking at that would expand our geographic

Howard Berger: But we need to also be mindful of the opportunities that we have in the digital health division to improve the tools that we're working on and add other tools that I believe will complement the opportunity to roll out a broader artificial intelligence platform. At the end of the day, I think artificial intelligence on both the clinical and the generative side will be transformative for radiology, perhaps more than any other specialty.

Speaker Change: presence in the imaging center division pan but we need to also be mindful of the opportunities that we have in the digital health division

Speaker Change: to

Mark Stolper: In the second quarter of 2024, we performed 2,785,804 total procedures. The procedures were consistent with our multimodality approach, whereby 73.5% of all the work we did by volume was from routine imaging.

Speaker Change: to improve the tools that we're working on and add other tools that I believe will complement

Speaker Change: of the

Speaker Change: opportunity to roll out a broader artificial intelligence

Speaker Change: platform.

Speaker Change: At the end of the day, I think...

Speaker Change: Artificial intelligence on both the clinical and the generative side will be transformative for radiology, perhaps more than any other specialty.

Mark Stolper: Since we now have a table of our aggregate procedure volumes broken down by modality in our earnings release, I won't go through the numbers, but we'll make the following point. In his remarks, Dr. Berger mentioned that we are experiencing a slow shift to higher acuity procedures, or what we call advanced imaging. In the second quarter, 26.5% of our procedures were from MRI, CT, and PET CT. In last year's second quarter, this metric was 25%, which represents a shift of 1.5% of all of our procedure volume this year towards advanced imaging. The higher pricing and the better margins that the more advanced imaging procedures have, improves our financial results, including our operating margins.

Howard Berger: And I think people will be looking for two important tools in making their decisions as to who they want to be that provider. The first one will be cloud adoption. I think there's no way to avoid having the kind of functionality that health systems and large-scale operators like RadNet will require in order to create the efficiencies that only cloud technology will provide, along with what we believe will be improved cyber security for this data from cyber terrorists, if you will, or hackers. The other part of this, though, is that... There's going to be.

Speaker Change: And I think people will be looking for two important tools.

Speaker Change: in making their decisions as to

Speaker Change: who they want to be that provider. The first one will be crowd adoption.

Speaker Change: I think there's no way to...

Speaker Change: Avoid having the kind of functionality that health systems and large-scale operators like RadNet will require in order to create the efficiencies that only cloud technology will provide along with what we believe will be improved.

Speaker Change: cybersecurity to protect this data from cyberterrorists if you wills or hackers the other part of this though is that

Howard Berger: Hundreds, I probably would be comfortable saying, of artificial intelligence clinical tools that will be useful in various parts of the healthcare industry. A lot of them, as I mentioned before, could be related to population health and screening tools, which we're already experiencing a huge growth in. Not just in cancer screening but also in cardiac screening, which I believe will be a big part of AI and screening in the future. But other specific targeted AI tools that will help improve the accuracy of diagnosis, both on the hospital side as well as the outpatient side, will need to be incorporated.

Mark Stolper: Overall, gap interest expense for the second quarter of 2024 was 26.1 million dollars, as compared with $16 million during last year's second quarter. In the second quarter of 2024, cash interest expense, which includes payments to and from counter parties on interest rate swaps and net interest income from our cash balance was $3.8 million. This compares with 12.4 million dollars in the second quarter of 2023. The lower cash interest this quarter is primarily the result of significantly more interest income on the larger cash balances as well as the timing of cash interest paid on our term loan.

Speaker Change: There's going to be...

Speaker Change: hundreds, I probably would be comfortable saying, of artificial intelligence

Speaker Change: clinical tools that will be useful in various parts of the world.

Speaker Change: of the health care industry, a lot of them, as I mentioned before.

Speaker Change: Could be related to population health and screening tools, which we're already experiencing a huge growth in.

Speaker Change: Not just in

Speaker Change: Cancer Screening, but also Cardiac Screening, which I believe will be...

Speaker Change: a big part of AI and screening in the future. But other specific targeted AI tools that will help improve the accuracy of diagnosis, both

Mark Stolper: With regards to the balance sheet, as of June 30, 2024, unadjusted for bond and term loan discounts, we had $301.6 million of net debt, which is our total debt at par value, less our cash balance. Note that this debt balance includes New Jersey Imaging Network's debt of $140.6 million for which Radnet is neither a borrower or guarantor, and it includes NGIN's cash balance at the $86.5 million dollars. This company-wide net debt compares with $518.9 million of net debt as of June 30th of 2023.

Speaker Change: on the hospital side as well as the outpatient side that will need to be incorporated and the breadathth of all of these ai tools

Howard Berger: And the breadth of all of these AI tools will benefit from, or let's say the people that offer this will benefit if they can consolidate this onto a single platform rather than putting the burden on either the hospital or the imaging centers to try to integrate data from multiple different sources. So you've probably already seen in the marketplace where companies like Company Z talk about doing that kind of integration or platform for AI, and I assure you RadNet will be in the thick of that, whether we own those AI tools or whether we simply provide them on some sort of license basis for our customers. It was awesome. Thank you, Howard. Thanks, Brian.

Speaker Change: will benefit from...

Speaker Change: or let's say the people that offer this will benefit if they can consolidate this onto a single platform rather than putting the burden on either the hospital or the imaging centers to try to integrate from multiple different sources

Speaker Change: So you've probably already seen in the marketplace where there are

Speaker Change: companies that

Speaker Change: talk about doing that kind of integration or platform.

Mark Stolper: As of March 31st, June 30th, 2024, we were undrawn on our $282 million of revolving credit line. And we had a cash balance of $741.7 million. At June 30th, 2024, our accounts receivable balance was $195.3 million, an increase of $31.6 million from year end 2023. The increase in accounts receivable is primarily the result of increased business, some collection delays resulting from the cyber attack on change healthcare and the normal effect of cash collections from the resetting of patient deductibles each year in January. Our DSOs or day sales outstanding was 34.9 days at June 30th near a historic low and flat from the end of the first quarter of 2024.

RadNet: for AI and I assure you RadNet will be in the thick of that. Whether we own those AI tools or whether we simply provide them on some sort of license basis for our customers.

Speaker Change: Awesome. Thank you, Howard.

Speaker Change: a friend

Howard Berger: Our next question will come from David MacDonald with Truth. You may now go ahead. Good morning, guys.

Speaker Change: Our next question will come from David McDonald with Truist.

David MacDonald: A couple of quick questions. I wanted to just briefly come back to the volume strength in the quarter. You know, you guys talked a little bit about the de novo development activity. But wondering if you could also just touch on, you know, your remote capabilities, you know, equipment efficiency, and what you're seeing on throughputs, you know, access to labor to meet these, you know, meet the demand that you guys are seeing. Just any additional detail there would be helpful. I'll be happy to take that.

Speaker Change: You may now go ahead.

David McDonald: mor guys couple of quickquestions wanted to just briefly come back to the volume strength in the quarter know you guys talked a little bit about the dnovo development activity but wondering if you could also just touch on

Speaker Change: your remote capabilities equipment efficiency and what you're seeing on throughputs access to labor to meet these meet the demand that you guys you're seeing just just any additional detail they are be helpful

Howard Berger: Thanks, Dave. Well, you brought up a point which I failed to mention earlier, but we have talked about it in the past, and that is smart technology, if you will, to help address both the efficiency and labor shortages that we have. We currently use a product called Remote Center Operations to manage a lot of the MRs that we do daily that are overseen by technologists who are not necessarily on-site. That technology, which we have in the past been purchasing, we are now developing and beginning to implement ourselves a product and an implementation that we call Tech Live, and that, as I mentioned, has just begun implementation here in this second quarter, and which we will accelerate towards the end of the year

Speaker Change: that

Speaker Change: i'll be happy to take thanks save

Speaker Change: Well,

Mark Stolper: Through June 30th, 2024, we had total capital expenditures net of proceeds from the sale of imaging equipment of $98.6 million. This total includes $6.9 million spent under equipment notes and the remainder spent in cash and excludes $12.4 million in the New Jersey imaging network's capital expenditures. Note that each year, we've front-loaded the majority of our capital decisions into the first part of the year and have been spending extraordinarily on growth catbacks to fund the Denogo facilities in construction.

Speaker Change: You brought up a point which I have failed to mention earlier but we have talked about it in the past and that is

Speaker Change: smart technology if you re will to help

Speaker Change: address.

Speaker Change: both the efficiency and labor shortages that we have we currently use a product called remote tenner operations to manage a lot of the mrs that we do daily that i are overseen by technologists

Speaker Change: who are not necessarily on site. That technology, which we have in the past been purchasing, we are now developing and beginning to implement ourselves a product and an implementation that we call TechLive.

Mark Stolper: At this time, I'd like to update and revise our 2024 fiscal year guidance levels which we released in conjunction with our fourth quarter and year end 2023 results and which we amended after reporting our first quarter 2024 financial results in May. Given the positive trends, we are experiencing in virtually all aspects of our business and the strong financial performance of the first and second quarters. We are revising upwards certain guidance levels in anticipation of financial results that we believe will exceed our original and revised expectations.

Speaker Change: And that, as I mentioned, has just begun implementation here in this second quarter, and which we will accelerate towards the end of the year. But the importance of this is that we believe that the same kind of tools are capable of being used.

Howard Berger: But the importance of this is that we believe that the same kind of tools are capable of being implemented, designed, and implemented for basically all of the imaging modalities that we operate, so not just MR, but CT, PET-CT, X-ray, ultrasound, nuclear medicine, and that is the future, if you will, not only because of the efficiencies that it creates and improved quality, but also, as I've stressed over and over again, If I were able to flip a switch and open all of our rooms for all the demand that we are currently getting, you would see a large increase in our revenues and, subsequently, in our profitability.

Speaker Change: of being designed and implemented for basically all of the imaging modalities that we operate. So not just MR, but CT, PET-CT, X-ray, ultrasound.

Speaker Change: Nuclear Medicine. And that is the future, if you will, not only because of the efficiencies that it creates and improved quality, but also, as I've stressed over and over again, the limitations that are

Mark Stolper: We amended our previously announced guidance levels as follows. For revenue, we increased our guidance ranges by $10 million at the low and the high end. For EBITDA, we increased our and that range is now $1,685 million to $1,735 million. We increased our EBITDA guidance range by $2 million at the low and the high end to $257 million to $260 million in the imaging center segment. We also increased our capital expenditures in the imaging center segment by $5 million to $135 to $145 million.

Speaker Change: The bane of the existence for everybody in health care, but particularly in imaging of available staffing If I were able to flip a switch and open all of our rooms for all the demand that

Speaker Change: We are currently getting, you would see a large increase in our...

Speaker Change: revenues and subsequently in our profitability.

Howard Berger: But this is not an overnight process. It's one that we're working both internally and externally with other partners, both on the technology side and on the recruiting, staffing, and educational side of this, if you will. But that is the future.

Speaker Change: this is not an overnight process it's one that we're working both internally and externally with other partners both on the technology side and on the recruit it staffing and educational side of this if you will

Mark Stolper: We lowered our cash interest expense as a result of the refinancing transaction and the higher cash balance to $32 to $37 million, which is a lowering of $5 million of cash interest expense. And we increased our free cash flow guidance range by $4 million to $72 to $80 million in the image, et cetera, segment.

Howard Berger: Smart technology. I want to introduce that term because you'll be hearing more of it in the very near future from us about how we're working with the OEMs to try to enhance the productivity of their equipment by putting these kinds of tools, which we uniquely have, onto their equipment or integrating with their equipment. So all of that will fall into a broadened effort in our digital health division, which we're all extremely excited about here.

Speaker Change: But that is the future. Smart technology, I want to introduce that.

Speaker Change: term because you'll be hearing more of it

Speaker Change: ah

Speaker Change: in the very near future from us about how we're working with...

Mark Stolper: For the digital health segment, our guidance ranges all remain the same, and we are on track to meet the originally anticipated projections.

Speaker Change: the OEMs in trying to enhance the productivity of their equipment by putting these kind of tools, which we uniquely have, onto their equipment or integrating with their equipment. So thank you.

Mark Stolper: I'll now take a few minutes to give you an update on 2025 Medicare reimbursement. As a reminder, Medicare reimbursement represents about 22% of our business mix. With respect to Medicare reimbursement several weeks ago, we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about this time every year. We have completed an initial analysis and compared those rates to 2024 rates.

Speaker Change: All of that will fall into a broadened...

Howard Berger: Again, not only because of what it represents in terms of the future for healthcare but a new avenue for continued growth of RadNet in a different area other than just the imaging center segment by itself. So I think these future tools will take up more and more of our close call conferences, as well as announcements that we'll be making. But we intend to be very aggressive in investing in both sides of our business because they're really synergistic.

Speaker Change: effort in our digital...

Speaker Change: House.

Speaker Change: Division, which

Speaker Change: We're all extremely excited.

Speaker Change: with here again not only because of what it represents

Speaker Change: In terms of the future for healthcare, but a new avenue for continued growth of RadNet.

Speaker Change: in a different area other than just the imaging center segment by itself.

Mark Stolper: We volume weighted our analysis using expected 2025 procedural volumes. As you may recall, four years ago, CMS moved forward with increased reimbursement for evaluation and management CPT codes, which favor certain physician specialties that regulate bill for these services, particularly primary care doctors. CMS proposed doing so with budget neutrality, meaning that it proposed to reallocate reimbursement from physicians who rarely bill for ENM codes to physicians who regularly bill for these codes. As a result, radiology and most other specialties experienced cuts in reimbursement from 2021 through 2024, which was an intentional phase in of the reimbursement cuts to pay for the reimbursement benefit being provided to primary care physicians.

Speaker Change: I think these future tools will take up...

Speaker Change: More and more of our closed call conferences, as well as announcements that we'll be making.

Speaker Change: but

Speaker Change: we intend to be very aggressive and investing in both sides of of our business because they really

Howard Berger: And the more centers they have, the better that we can develop the new tools, and the more tools we create, the bigger market opportunity that there is for us. Okay, and then guys, just two others.

Speaker Change: they're really synergistic and the more centers they have the better that we can develop the new tools and the more tools we create the bigger market opportunity that there is for us

Speaker Change: Okay, and then guys, just two others.

Howard Berger: You know, just on the de novo is given that these are being added in markets where, you know, have demand backlogs. Can you just talk about, you know, the profitability ramp and you know, the return on invested capital of these relative to where it was maybe a couple of years ago? And then the other question I had was just Any early learnings or feedback from the Houston market, whether that's incoming calls from, you know, other practices, potentially hospital JV partners, or, you know, just just any high level observations from, Yeah, sure. So, I'll take the de novo portion of the question first. Hey, Dave.

Speaker Change: You know just on the de novo's given that these are being added in markets where you

Speaker Change: You know, have demand backlogs. Can you just talk about, you know, the profitability ramp and, you know, the return on invested capital of these relative to where it was maybe a couple of years ago? And then the other question I had was just...

Speaker Change: Any early learnings or feedback from the Houston market, whether that's incoming calls from, you know, other practices, potentially hospital, JV partners, or, you know, just any high-level observations from Houston.

Mark Stolper: The cuts we are currently facing in 2024 were substantially mitigated by congressional legislation that was passed in March of this year as part of the consolidated appropriations act. In the proposed rule, we received several weeks ago, governing 2025 reimbursement, Medicare appears to effectively be phasing in the remainder of the ENM code related cuts avoided last year. And this year, the cut proposed for 2025 results from a decrease in the conversion factor in the Medicare fee schedule by about 2.8 percent from $33.29 down to $32.36.

Speaker Change: Yeah, sure. So I'll take the de novo portion of the question first. Hey, Dave.

Howard Berger: Because the de novo centers have been focused in areas where we have heavy patient demand, including significant backlogs, or in the case of about half of the de novo centers that we have in development today, which are in hospital joint ventures, these are situations where we believe we can fill the new center's patient volume very quickly, faster than we've been able to do historically. Although de novos have always been part of our business, historically, the pace at which we're opening them today exceeds the pace that we've ever done in the past.

Speaker Change: but

Speaker Change: The, because the de novo centers have been focused in areas where we have heavy patient demand, including significant backlogs,

Speaker Change: or in the case of about half of the de novo centers that we have in development today, which are in hospital joint ventures.

Speaker Change: These are situations where we believe we can fill...

Speaker Change: The new center's patient volume very quickly, faster than historically we've been able to do. Although De Novo's, you know, have always been part of our business.

Mark Stolper: Along with certain minor changes to the RVUs of certain radiology CPT codes. Our initial analysis of the proposal for next year implies that RadNet on roughly $1.8 billion in revenue would face an approximate $6 to $8 million revenue hit in 2025 from its Medicare Because a proposed decrease in the conversion factor affects all physicians, not just radiologists, there are many lobbying groups from the various medical specialties aggressively opposing the cut, including radiologies to main lobbying forces, the Association for Quality Imaging or AQI and the American College of Radiology, the ACR.

Speaker Change: Historically, the pace at which we're opening them today exceeds that pace that we've ever done in the past.

Howard Berger: And that's because of these patient volumes. Typically, historically, we've seen that it could take, you know, several quarters to a year for a de novo center to ramp up and start contributing positively to our EBITDA. What we're seeing with the recent de novos and what we expect with the de novos that we have under construction currently is that they're ramping up much more quickly. And, you know, within a quarter or two, they're already starting to have a positive EBITDA contribution.

Dave: and that's because of these patient volumes. So typically, historically, we've seen that it could take, you know, several quarters to a year for a de novo center to ramp up and start contributing positively to our EBITDA. What we're seeing with the recent de novos and what we expect with the de novos that we have under construction currently is that they're ramping up much more quickly. You know, within a quarter or two, they're already starting to have a positive EBITDA contribution. So, you know, if you go back 20, 30 years in this industry, Dave, there was a point where there existed overcapacity.

Howard Berger: So, you know, if you go back 20, 30 years in this industry, Dave, there was a point where there existed overcapacity in the industry as a whole on the outpatient side, you know, with 6,000 to 7,000 imaging centers that have existed for now a couple of decades. And what's happened is that as the industry has steadily grown each year, the industry itself has grown into that overcapacity, where today that overcapacity doesn't exist.

Mark Stolper: At this time, our experts believe there is a high probability that the final rule governing next year's Medicare payments will be less severe than the current proposal as a result of congressional action that could take place later this year.

Dave: in the industry as a whole on the outpatient side you know with six to seven thousand imaging centers

Mark Stolper: In November of this year during our third quarter financial results call, we hope to have more a more fulsome update on this matter. While the $6 to $8 million cut to RadNet's revenue next year is not insignificant, we have reimbursement increases scheduled from capitated and commercial payers that will fully mitigate this Medicare reduction should it go into effect as currently.

Dave: that has existed for now a couple of decades.

Speaker Change: And what happened is that as the industry has steadily grown each year, the industry itself has grown into that overcapacity, where today that overcapacity doesn't exist. And so for in order for us to create

Howard Berger: And so, in order for us to create the capacity that we need to service the patient volumes, we either have to buy somebody that has capacity that we could then fill, which is, you know, less available today than in the past, or we have to build it ourselves. And so, that's what we've been doing. And the ramp-up that we're seeing in these de novo centers is happening much more quickly. With respect to the second part of your question, about Houston, I'll let Dr. Burke comment.

Speaker Change: The capacity that we need to service the patient volumes, we either have to buy somebody that has capacity that we could then fill, which is, you know, less available today than in the past, or we have to build it ourselves. And so that's what we've been doing. And the ramp up that we're seeing in these in these de novo centers is happening much more quickly.

Howard Berger: I'd like now to turn the call back over to Dr. Berger who will make some closing remarks. Thank you, Mark. As we progress through the second half of the year, we continue to be excited about future opportunities in RadNet. Our core imaging business, which we are experiencing continuing trends that we believe are sustainable for the foreseeable future. The shift from more expensive hospital imaging to more cost effective outpatient imaging should continue.

Speaker Change: With respect to the second part of your question with Houston, I'll let Dr. Berger comment.

Howard Berger: Yes, I think the fact that we entered the Houston market has already presented itself with other opportunities, one of which, the second acquisition that we did, we closed this quarter. And then there are other operators that are talking to us. So we expect to make announcements about continued expansion in the Houston market and potentially look at de novos that might be appropriate there. In that regard, I just want to amplify one thing that Mark mentioned, and the validation, I think, of doing de novos, is really looking at that even though about three-eighths of our centers are in joint ventures with hospital systems, 50% of the de Novos are in those joint ventures.

Dr. Berger: Okay. Yes, I think we've...

Dr. Berger: The fact that we entered the Houston market has already presented itself with other opportunities.

Howard Berger: We also expect the growing demand for advanced imaging to continue well into the future. This is being driven by technology advances in equipment, contrast materials, radioactive pharmaceuticals, post-processing software, and artificial intelligence, all of which drive new applications for utilizing diagnostic imaging, particularly in the population health and screening tools. Prostate, Alzheimer's, coronary cardiac angiography, lung cancer screening, just to name a few, will be opportunities for more advanced imaging utilization.

Dr. Berger: One of which, the second...

Speaker Change: acquisition that we did. We closed this quarter and then there's other operators that are talking to us. So we we expect to make announcements about continued expansion in the Houston market and potentially look at

Speaker Change: DeNovo's that might be appropriate there. In that regard I just want to amplify one thing that Mark mentioned and we the validation I think of doing DeNovo's

Speaker Change: is really looking at

Speaker Change: that even though about three-eighths of our centers are in joint ventures with hospital systems,

Howard Berger: Furthermore, our health system, Partnership Model, continues to gain traction as we are engaged in discussions with several new health systems to establish partnerships and work with existing partners to expand joint ventures, which we are already in operation. While digital, within digital health, we are making significant progress with initiatives that are poised to help us drive more revenue, reduce costs, and increase margins. We continue to work towards the commercial launch of our new deep health operating system technology platform in the fourth quarter of 2024.

Mark Stolper: 50% of the de Novos are in those joint ventures.

Howard Berger: And I think the significance of that is that all of the systems that we're dealing with are experiencing the same issues that RadNet's wholly-owned centers are, and that is the capacity either to take on the shift away from the hospital's outpatient work as well as the increasing demand for outpatient imaging. As Mark highlighted, I think what was our year-over-year............... 6.1%, which I believe was about what it was last quarter or somewhere in there, maybe even in that ballpark.

Speaker Change: And I think the significance of that is that all of the systems that we're dealing with...

Speaker Change: are experiencing the same issues that RadNet's wholly-owned centers are, and that is

Speaker Change: capacity either to take on the shift away from the hospitals outpatient work as well as the

Speaker Change: increasing demand for outpatient imaging. As Mark highlighted, I think, what was our, Mark, our year-over-year same-store growth?

Howard Berger: Deep health OS will be the delivery platform for solutions that automate business processes and more effectively manage patient and clinical data, including automating patient scheduling, clinical reporting, medical coding, sales and marketing, and clinical workflow. The end result will be improved patient experience. In parallel to the deep health operating system development, we are continuing to go revenue from clinical AI solutions for breast, lung, and prostate cancer screening. Our breast AI is improving the productivity and accuracy of our radiologists while improving a valuable benefit, while providing a value benefit to our patients for which they are willing to self-pay.

Mark Stolper: itting quite one percent six point at this point one percent which i believe was about what it was last quarter or somewhere in that there maybe even in that bpart but the fact matter is

Howard Berger: But the fact of the matter is, these are the benchmarks by which we're using to make decisions as to where we're deploying capital. And in a way, the market should almost look at our de novo centers as really in lieu of acquisition. And so rather than paying higher multiples, what we're doing is building out these facilities in areas where we know we have that capacity and demand. And again, I'll point out that half of those are coming from our hospital joint venture partners who would not be giving their approval for this expansion if they did not have the same sense of need to add this capacity in a market, meaning the imaging market, which is growing at two to three times the rate that it has in Okay, thanks very much. Thanks Dave.

Speaker Change: These are the benchmarks by which we're using the decision-making as to where we're deploying capital. And, in a way,

Speaker Change: the market should almost look at our demovo centers as really in r of acquisitions

Speaker Change: And so rather than paying higher multiples, what we're doing is building out.

Speaker Change: these in areas where we know we

Speaker Change: have a capacity and demand and again i'll point out that half of those are coming from our hospital joint venture partners who would not be giving their approval for this expansion if they did not

Howard Berger: We are formulating similar screening programs for prostate, lung, and other chronic diseases for both domestic and international markets, as we firmly believe that healthcare needs to shift towards prevention and early detection, and not just focus on treating patients who are already presenting with serious symptomatology. We are also working with imaging equipment manufacturers in efforts to make their technology smarter and more capable.

Speaker Change: have the same sense of need to add this capacity in a market, meaning the imaging market, which is growing at two to three times the rate that it has in the past.

Speaker Change: okay thanks very much

Speaker Change: Thanks, Dave.

John Ransom: Our next question will come from John Ransom with Raymond James. You may now go ahead. Hey, good morning.

Speaker Change: Our next question will come from John Ransom with Raymond James. You may now go ahead.

John Ransom: So a question I am getting is just on margin flow through. So in our model, I mean, you guys were well ahead on revenue, about $20 million, but the EBITDA flow through was a bit less. So the margin was maybe 50 bps less than we would have guessed, even when we were at lower revenue. So is there anything going on with the margin flow through in the quarter? Is it the de Novo's?

Speaker Change: Hey, good morning. Um, so a question I am getting is just on margin flow through. So

Unknown Attendee: Operator, we are now ready for the question and answer portion of the call. We will now begin the question and answer session. To ask the question, you may press star than one on your telephone keypad. If using a speaker phone, please pick up your hands up before pressing the keys. To withdraw your question, please press star than two.

John Ransom: On our model, I mean, you guys were well ahead on revenue, about $20 million, but the EBITDA flow through was a bit less, so the margin was maybe

Speaker Change: fifty bs less than we would have guessed even and we were at lower revenuees is there anything on on with with the marginflow through in the quarters of the denovos is there something else going on

Mark Stolper: Or is there something else going on? Yeah, John, let me take that. First of all, we were happy and proud to show margin expansion. Relative to last year, our total company EBITDA margin was up about 76 basis points, which is a function of, you know, a number of things on the imaging center side. It's a function of the focus and the growth in higher acuity exams, or what we call advanced imaging.

Unknown Attendee: At this time, we'll pause momentarily to send our roster.

Speaker Change: Yeah, John , let me let me take that. First of all, we were happy and proud to show margin expansion, you know, in this quarter relative to last year, our total company EBITDA margin was up about 76 basis points, which is a function of, you know, a number of things on the imaging center side, it's a function of the focus and the growth in the

Brian Tanquilut: Our first question will come from Brian Panquilla with Jeffries. He may now go ahead. Good morning guys and congrats on our solid quarter. Maybe Howard, as I think about AI made to start, I know there's a lot of moving pieces there. You guys are working a lot of things. For investors in the call for us, what are the catalysts or the developments that we need to watch out for? What are you working on that we need to keep an eye out for for the next six to 12 months on the AI front? Thanks. Good morning, Brian. Hope you're well.

Speaker Change: higher acuity exams, or what we call advanced imaging, and there was about a 150-basis point shift.

Mark Stolper: And there was about a 150 basis point shift towards advanced imaging and away from routine imaging relative to last year's second quarter. It's also a function of the fact that we have been successful in getting price increases, both from capitated as well as commercial payors. And it's been a focus of tight cost control, as well as the growth in our digital health businesses, because our digital health businesses have the promise and the capability of driving much higher margins, particularly the SAS-based, you know, software businesses.

Speaker Change: towards advanced imaging and away from routine imaging relative to last year's second quarter it's also a function of the fact that we have been successful in getting price increases both from capitated as well as commercial payerss

Howard Berger: I think the main focus, which hopefully will be reflected in our results, is the deployment of the deep health operating system internally to the red net own centers. That's probably the place where we're going to get the first indications of how these new tools will better improve the patient experience as well as the clinical adoption. And that I think will drive improved margins in our business. But the importance of this is that we can implement these tools, make them ready for a prime time, if you will, and improve the likelihood of success in the external implementation and commercialization of these, which we expect to begin.

Speaker Change: and it's been a focus of tight cost control, as well as the growth in our digital health businesses because our digital health businesses

Speaker Change: have the the promise in the capability of driving much higher margins particular the saas based software businesses

Mark Stolper: So, we are showing margin expansion. But what I will tell you on the imaging center segment side is that our continued point of pain is on the labor front. You know, we, although we have been much more successful in the last year and a half in terms of recruiting and retaining talent, it has become simply more expensive to hire and retain talent. And so, some of the growth, the excellent growth that you're seeing on the top line is going towards higher salaries, benefits, and wages in order to, you know, appropriately staff our centers and meet the heavy demand that we have. So, that's what you are seeing on the flow through is that a bigger portion of that flow through is being allocated to salary benefits and wages.

Speaker Change: So we are showing margin expansion. What I will tell you on the imaging center segment side is that our continued point of pain is on the labor front.

Speaker Change: Although we have been much more successful in the last year and a half in terms of recruiting and retaining talent, it has become simply more expensive.

Speaker Change: to hire and retain talent. And so some of the growth.

Howard Berger: In 2025, what is unique about red net and maybe as much as any other single facet is the enormous amount of data that we own that is helping drive the. Development of these new tools and which others outside are recognizing the value of and are capping into RadNet to further collaborate on development of products both for RadNet and the commercial market. So I think in the early stages of this, which are already beginning and which I hope to be able to report on more substanceively, certainly at the end of the third quarter but more, particularly with the end of the years results, we see great opportunity which was the primary reason why we developed this interest in not only the clinical side of artificial intelligence but the generative side, which will address not only improving our margins but addresses the continually issue we have with challenges in hiring and recruiting and therefore leading to automation that will make all of our current employees that much more efficient and comfortable.

Speaker Change: The excellent growth that you're seeing on the top line is going towards a higher, you know, salary benefits and wages in order to, you know, in order to appropriately staff our centers and meet the heavy demand that we have. So, that's what, that's what you are seeing on the on the flow through is that a bigger portion of that flow through is being allocated towards salary benefits and wages.

Mark Stolper: Okay, and then likewise for the year, I mean, you bump the revenue by 10 and the EBITDA by two. So it's just building in more for labor absorption of that incremental revenue. That's right.

Speaker Change: Okay, and then likewise for the year, I mean, you bumped the revenue by 10 and the EBITDA by 2, so it's just building in more for labor absorption of that incremental revenue.

Mark Stolper: Okay, and just just so you know, our philosophy on guidance and revising guidance is that we look at the actual quarters, meaning the quarters that have already been reported, and compare that relative to our initial budget. And if we're significantly off, then what we do is we add the remaining quarters just at budget. So to the extent that we've overachieved the existing, you know, the already reported quarters, and then we add the new budget, if that now takes us into a new guidance range, that's when we'll revise the guidance ranges. We don't generally re-forecast future quarters.

Speaker Change: That's right.

Speaker Change: Okay, now and just just so you know the way the way we

Speaker Change: Our philosophy on guidance and

Speaker Change: Revising guidance is that we look at the actual quarters, meaning the quarters that have already been reported, and compare that relative to our initial budget, and if we're significantly, and then what we do is we add the remaining quarters just at budget.

Speaker Change: So to the extent that we've overachieved the existing, you know, the already reported quarters, and then we add the new budget, if that now takes us into a new guidance range, that's when we'll revise guidance ranges. We don't generally reforecast.

Mark Stolper: So to the extent that we significantly beat the third and the fourth, you know, see that we beat in the third quarter, we could potentially adjust guidance thereafter. So we try to take a fairly conservative approach. Okay, John, let me just say, I'm sorry, John, let me just amplify one thing.

Speaker Change: the future quarters so to the extent that we significantly beat the third in the fourth see that we beat in the third quarter we could potentially adjust guidance thereafter so we try to take a fairly conservative approach

Howard Berger: So perhaps a little longer answer, Brian, than you wanted but I think looking at, continuing to look at expanding margins and deployment internally of RadNet which as I want to emphasize has already begun, will be where I think we'll see the early results of the investment and expertise that we have.

Howard Berger: I believe some of the slowing, if you will, of margin expansion may be partially attributed to the slower than anticipated implementation of our de novo centers. Here we are in the midpoint of the year where we were looking at initially having 12 imaging centers to be added. We still have 6 or 7 more to go.

Speaker Change: Okay. Yeah, I might be. Yeah.

Speaker Change: John , let me just amplify one thing. I believe some of the slowing, if you will, of margin expansion may be partially attributed to the

Mark Stolper: That's awesome and then maybe Mark as I look at the balance sheet, obviously you're sitting on a good chunk of cash, I'm guessing you're looking to deploy that at some point. So just curious how you're thinking about capital deployment and what you're seeing in the market for acquisitions today.

Speaker Change: the slower than anticipated.

Speaker Change: Implementation of our de novo centers. Here we are in the midpoint of the year where we were looking at initially having 12 imaging centers to be added. We still have

Mark Stolper: Yeah, maybe that's something better that I can answer the road. Good. We're very carefully assessing deploying that capital in both segments of the company. The digital health division as well as the imaging center segment. We have, as we always had in the past, a number of acquisitions constantly that we're meeting at most of those in the past as you well know, Brian, been more of our tuck-in acquisitions which we tend to try to accomplish in the three to five times EBITDA range.

Howard Berger: These are large centers. Many of the regions that we are building these out in have been compromised in terms of the people who approve construction plans, the regulatory issues that we have, getting radioactive material licenses, etc. So I think it really kind of underscores the importance of the Novo Center growth because with the return that Mark described, those will significantly contribute to better margins than what we might experience, what we might otherwise have achieved if we had just stretched to buy a bunch of centers that may not have had the same kind of margins that we know we can build ourselves with the new centers. Howard, that was a perfect segue.

Speaker Change: sticks or seven more to go these are large centers many of the regions that we are building these out in have been compromised in terms of the

Mark Stolper: But there may be other larger acquisitions that could stretch that multiple for what we would call very strategic investments that we would be looking at that would expand our geographic presence in the imaging center division. But we need to also be mindful of the opportunities that we have in the digital health division to improve the tools that we're working on and add other tools that I believe will complement the opportunity to roll out a broader artificial intelligence platform.

Speaker Change: People who approve construction plans, the regulatory issues that we have.

Speaker Change: getting radioactive material licenses etc so i think it really kind of underscores the importance of the noble center growth because

Speaker Change: with the return that Mark described, those will significantly contribute.

Speaker Change: to better margins.

Speaker Change: than what we might otherwise have achieved if we had just stretched to buy a bunch of centers that may not have had the same kind of margins that we know we can build ourselves with the new centers.

Mark Stolper: Perfect segue. So, Mark, one more number question. If we think about kind of a jumping off point, it's in the fourth quarter, and I know we already have to think about 2025. I mean, you've highlighted the potential Medicare cuts. I would imagine there's a good guy in terms of the Novos, you know, running at fuller margins next year than this year as you wrap them up. But what are the puts and takes we should think of next year versus this year as we start, you know, refining our models? Thanks.

Speaker Change: So, Howard, that was a perfect segue.

Howard Berger: Mark, one more numbers question. If we think about kind of jumping off point, it's in fourth quarter, and I know we already have to think about 2025.

Speaker Change: I mean, you've highlighted the Medicare cuts, potentially. I would imagine there's a good guy in terms of the Novos, you know, running at fuller margins next year than this year as you're wrapping it up. But what, what are the puts and takes we should think of?

Speaker Change: next year versus this year as we start, you know, as we start refining our models. Thanks.

Mark Stolper: Yeah, sure. And we'll talk much more about this as we get into the third and fourth quarters and produce those quarterly results. But yeah, so we will have a six to eight million dollar Medicare headwind that will be fully mitigated and then some based upon pricing increases that we're getting from commercial insurance companies and capitated capitated payors. There obviously will be the additional contribution of the six de novo centers that we intend to open by year end.

Speaker Change: Yes, sure. And we'll talk much more about this as we get into the third and fourth quarters.

Mark Stolper: At the end of the day, I think artificial intelligence on both the clinical and the gender to side will be transformative for radiology, perhaps more than any other specialty. And I think people will be looking for two important tools in making their decisions as to who they want to be that provider. The first one will be cloud adoption. I think there's no way to avoid having the kind of functionality that health systems and large-scale operators like Rednet will require in order to create the efficiencies that only cloud technology will provide along with what we believe will be improved cyber security to protect this data from cyber terrorists, if you will, or hackers.

Speaker Change: and produce those quarterly results. But yeah, so we will have a $6 to $8 million Medicare headwind. That will be fully mitigated and then some.

Speaker Change: based upon pricing increases that we're getting from commercial insurance companies and capitated capitated payers there obviously will be the additional contribution of the six

Speaker Change: deova centers that we intend to open by year-end we've opened three denovo seters already in the first

Mark Stolper: We've already opened three de novo centers in the first two quarters of this year. Those will be fully operational for the entire year of 2025. Additionally, we have 15 de novo centers that are currently slated for opening in 2025. So if we're successful in opening all 15 or some portion thereof,

Speaker Change: two quarters of this year on those will be.

Speaker Change: fully operational for the entire year of 2025. Additionally, you know, we have 15 de novo centers that are currently slated for opening in 2025. So, you know, if we're successful in opening all 15 or some

Mark Stolper: The other part of this, though, is that There's going to be hundreds, I probably would be comfortable saying, of artificial intelligence clinical tools that will be useful in various parts of the healthcare industry. A lot of them, as I mentioned before, could be related to population health and screening tools, which were already experiencing a huge growth in, not just in cancer screening, but also cardiac screening, which I believe will be a big part of AI and screening in the future.

Speaker Change: portion thereof, those will all already be, you know, additional contributing factors.

Mark Stolper: Those will all already be, you know, additional contributing factors. Additionally, the Houston acquisitions, which we did this year on April 1st and June 1st, those 13 centers will now be contributing for the entire year of 2025. And we also expect improvement in their financial results from integrating those operations into the RadNet clinical and operating and IT systems. We're in the midst or really at the beginnings of integrating those into the RadNet systems right now.

Speaker Change: Additionally, the Houston acquisitions, which we did this year on April 1st and June 1st.

Speaker Change: Those 13 centers will now be contributing for the entire year of 2025, and we also expect improvement in their financial results from integrating those operations onto the RadNet clinical and operating and IT systems. We're in the midst, or really the beginnings, of integrating those into the RadNet systems right now. There will be further tuck-in acquisitions that we'll be announcing and completing between now and year-end.

Mark Stolper: There will be further tuck-in acquisitions that we'll, you know, be announcing and completing between now and year-end. And there will be additional health system joint ventures with both new partners for new partnerships as well as expansions of existing joint ventures that we're working on currently that, hopefully, we'll announce by year-end and will be major contributors next year. And then, obviously, the further growth and maturity and progress in the digital health side, both on the AI front in terms of getting greater penetration of the EBCD program, both on the East Coast and the West Coast, bringing that EBCD program to the Houston marketplace, which we haven't started implementing, further growth with Aidance and Quantiv on lung and prostate licensing, particularly with the NHS in the UK as that targeted lung health check program rolls out.

Mark Stolper: But other specific targeted AI tools that will help improve the accuracy of diagnosis both on the hospital side as well as the outpatient side that will need to be incorporated. And the breadth of all of these AI tools will benefit from, or let's say the people that offer this, will benefit if they can consolidate this onto a single platform, rather than putting the burden on either the hospital or the imaging centers, to try to integrate from multiple different sources.

Speaker Change: and there will be additional health system.

Speaker Change: joint ventures with both new partners.

Speaker Change: for new partnerships as well as expansions of existing...

Speaker Change: joint ventures that will that we're working on currently that hopefullywe will announce by year-end and will be major contributors next year and then in addition to that obviously the further growth and maturity and progress in the digital health side both on the

Mark Stolper: So you've probably already seen in the marketplace where there are companies that talk about doing that kind of integration or platform for AI, and I assure you, RadNet will be in the thick of that, whether we own those AI tools, or whether we simply provide them on some sort of licensed basis for our customers.

Speaker Change: Amen.

Speaker Change: on the AI front in terms of getting greater penetration of the EBCD program, both on the East Coast and the West Coast.

Speaker Change: Bringing that EBCD program to the Houston marketplace, which we haven't started implementing. Further growth with Aidance and Quantib on...

Speaker Change: lung and prostate licensing, particularly in with the NHS in in the UK as that targeted lung health check program rolls out. We expect to see, you know, significant growth there on the lung side.

Unknown Attendee: Awesome. Thank you, Howard. Thanks, Brian.

Mark Stolper: We are also intending to launch a self-pay prostate screening program here in America, which we've started sowing the seeds for along the lines of what we're doing with breast cancer on the EBCD program. And then, as Howard mentioned, launching the Deep Health OS and doing a full commercial-scale launch to external customers in 2025. So, that's a big laundry list of things that we have on our plate, but they're all very exciting, and I think they're all potential candidates for significant growth in the coming years.

David MacDonald: Our next question will come from David McDonald with truest. You may now go ahead. Good morning, guys. A couple of quick questions. Wanted to just briefly come back to the volume strength in the quarter. You guys talked a little bit about the DeNovo development activity, but wondering if you could also just touch on your remote capabilities, equipment efficiency, and what you're seeing on throughputs, access to labor to meet the demand that you guys are seeing, just any additional detail there at the elbow.

Speaker Change: We are also intending to launch a self-pay.

Speaker Change: prostate screening program here in America, which we've started sowing the seeds for along the lines of what we're doing with breast cancer on the EBCD program. And then, as Howard mentioned, you know, launching the Deep Health OS

Howard Berger: and doing a full commercial scale launch to external customers in 2025. So that's a big laundry list of things that we have on our plate, but you know, they're all very exciting and I think they're all potentials for, you know, having...

David MacDonald: Yeah. I'll be happy to take that. Thanks, Dave. Well, you brought up a point which I have failed to mention earlier, but we have talked about it in the past, and that is smart technology, if you will, to help address both the efficiency and labor shortages that we have. We currently use a product called Remote Center Operations to manage a lot of the MRs that we do daily that are overseen by technologists who are not necessarily on site.

Mark Stolper: And just lastly, for me, you talked about the 150 basis point mixed shift to higher revenue scans. Is that just sort of, in your opinion, is that a kind of permanent structural feature that you'll continue to see?

Speaker Change: Significant growth in the coming years.

Speaker Change: And just lastly for me, I mean, you talked about this 150 basis point mixed shift to higher revenue scans.

Speaker Change: Is that just sort of a, in your opinion, is that a kind of permanent structural feature that you'll continue to see that and, you know, I've asked you this before, but we should think about like maybe 70% of that dropping to the margin line. So if it's up 150, then maybe that's 100 points of margin, all else being equal.

John Ransom: And, you know, I've asked you this before, but we should think about maybe 70% of that dropping to the margin line. So if it's up 150, then maybe that's 100 points of margin, all else being equal. I think that's something that's going to continue, fairly substantially. I think, at the end of the day, it's a demand. It's a combination of current demand as well as new applications. I would point very probably to the growth that we've seen in MRNCT, but which is dwarfed by the growth that we're seeing in PET-CT finally coming into its own, if you will.

David MacDonald: That technology which we have in the past been purchasing, we are now developing and beginning to implement ourselves a product and an implementation that we call TechWive, and that, as I mentioned, has just begun implementation here in this second quarter, and in which we will accelerate towards the end of the year. But the importance of this is that we believe that the same kind of tools are capable of being implemented, design and implemented, for basically all of the imaging modalities that we operate.

Speaker Change: I think that's something that's going to continue.

Speaker Change: Fairly substantially. I think at the end of the day, it's a demand. It's a combination of current demand as well as new applications.

Speaker Change: Point very proudly to

Speaker Change: ...but which is dwarfed by the growth that we're seeing in PET-CT, finally coming into its own, if you will. And the use of PET-CT, which I believe is just going to continue to grow...

John Ransom: And the use of PET-CT, which I believe is just going to continue to grow, may be a function not so much of the demand that we have, but our ability to put more PET-CT scanners and replace older ones, which are now really capable of Unknown Speaker, scanning time and throughput as well as quality is a remarkable shift, and I believe over the last two quarters, I'm doing this from memory, our PET-CT volume is going That is coming from the adoption of prostate cancer screening and now a much more rapid adoption of PET-CT for Alzheimer's disease.

Speaker Change: may be a function, not so much of the demand that we have, but our ability to put more PET-CT scanners and replace older ones, which are now really capable of

David MacDonald: So not just MR, but PT, Pets PT, X-ray, ultrasound, nuclear medicine, and that is the future, if you will, not only because of the efficiencies that it creates and improved quality, but also as I have stressed over and over again, the limitations that are the pain of the existence for everybody in healthcare, but particularly in imaging of available staffing. If I were able to flip a switch and open all of our rooms for all the demand that we are currently getting, you would see a large increase in our...

Speaker Change: improved

Speaker Change: Scanning time and throughput as well as quality.

Speaker Change: It's a remarkable shift, and I believe over the last two quarters, I'm doing this from memory, our PET CT behind this...

Speaker Change: quarter-overquarter and almost all of its organic growth is about twenty percent if i combine this two quarters or somewhere in the at area

Speaker Change: That is coming from adoption of prostate and now a much more rapid adoption of

John Ransom: I should also note that by the end of this year, we will have three PET-MR systems in place for the first time, which I believe will make us the largest provider of that service and which I think will be transformative in the future for adding additional capabilities, not only in diseases that we're looking at today but in new applications for this. So the notion of technology driving imaging cannot be underestimated. I think it's something that is now accelerating, both because of improved equipment that all the OEMs are producing, as well as artificial intelligence and developing new tools to be able to accomplish these things, particularly in the PET area. I think you can build those in.

Speaker Change: that ctt for alzheimer'sdisease should also note that by the end of of sheer we will have in place for the first time three pet m our systems

David MacDonald: Revenues and subsequently in our profitability. But this is not an overnight process. It's one that we're working both internally and externally with other partners both on the technology side and on the recruiting and staffing and educational side of this, if you will. But that is the future. Smart technology, I want to introduce that term because you'll be hearing more of it in the very near future from us about how we're working with the OEMs in trying to enhance the productivity of their equipment by putting these kind of tools which we uniquely have onto their equipment or integrating with their equipment.

Speaker Change: which I believe will...

Speaker Change: make us the largest provider of that service and which I think will be transformative in the future for adding additional

Speaker Change: capabilities, not only in diseases that we're looking at today, but in new applications for this. So, the notion of technology driving imaging cannot be underestimated. I think it's...

Speaker Change: something which is now accelerating both because of improved

Speaker Change: equipment that all the OEMs are producing as well as artificial intelligence and developing new tools to be able to accomplish these, particularly in the PET area, so

David MacDonald: So all of that will fall into a broadened effort in our digital health division which we're all extremely excited with here. Again, not only because of what it represents in terms of the future for healthcare, but a new avenue for continued growth of rednet in a different area other than just the imaging center segment by itself. So I think these future tools will take up more and more of our close call conference conferences as well as announcements that we'll be making.

Howard Berger: Those all should come in with higher margins for a number of reasons, not just because they are more expensive tests, but because we, with the equipment that we've put in that now can do these exams more efficiently, we're able to drive more revenue per unit time. Right. So lastly, for me, I keep saying lastly, and I keep lying.

Speaker Change: I think you can...

Speaker Change: Bill, those all should come in with...

Bill: higher margins.

Bill: For a number of reasons, not just because they are more expensive tests, but because we, with the equipment that we've put in, that now can do these exams more efficiently, we're able to drive more revenue per unit time.

David MacDonald: But we intend to be very aggressive in investing in both sides of our of our business because they really they're really synergistic and the more centers they have the better that we can develop the new tools and the more tools we create the bigger market opportunity that there is for us.

John Ransom: The, you know, the two things I think people are looking for, one being large-scale M&A and, secondly, a major payer stepping up and paying for the AI. So if you were a betting person, would either of those have a greater than a 50-50 chance that either one of those or both might occur by the end of the year? Well, fortunately for you, John, I am a betting person.

Bill: All right.

Speaker Change: So lastly for me, I keep saying lastly and I keep lying, the two things I think people are looking for, one being large scale M&A and secondly being a major payer stepping up and paying for the AI. So if you were a...

Speaker Change: A betting person, would either of those, is there a greater than a 50-50 chance that either one of those or both might occur by the end of the year?

Howard Berger: So I think I think it's a very good idea. I've been doing this for 40 years, John, so I've been betting a long time on imaging, as you well know. But I would say that there's a very good chance that both of those will occur within the next six to 12 months. At one time, I believed it would take longer for the AI to get reimbursed. At this point, our focus is not necessarily CMS, but perhaps one or two or maybe even three of the major payors who are talking to us because the results that we're showing them for artificial intelligence right now, primarily in breast cancer, as you are well aware of, but the value proposition for it is overwhelmingly positive and obvious right now. So those discussions are taking place now.

Bill: Well, fortunately for you, John , I am a betting person. So I think I think it's a very good

Bill: I've been doing this for 40 years, John , so I've been betting a long time on imaging, as you well know. But I would say that there's a very good chance that...

Howard Berger: Okay. And then guys, just two others, you know, just on the de novo is given that these are being added in markets where you have demand backlogs. Can you just talk about, you know, the profitability ramp and, you know, the return on invested capital of these relative to where it was maybe a couple of years ago. And then the other question I had was just any early learnings or feedback from the Houston market, whether that's incoming calls from, you know, other practices, potentially hospital JV partners or, you know, just just any high level observations from Houston.

Speaker Change: Both of those will occur within the next 6 to 12 months.

Bill: At one time, I believed it would take longer for the AI to get reimbursed. At this point, our focus is not necessarily CMS.

Bill: but perhaps one or two or maybe even three of the major payors who are talking to us.

Bill: because the results that we're showing them for artificial touching, right now primarily in breast as you are well aware of, but the value proposition for it

Howard Berger: Yeah, sure. So I'll take the de novo portion of the question first, Dave. The because the de novo centers have been focused in areas where we have heavy patient demand, including significant backlogs or in the case of about half of the de novo centers that we have in development today, which are in hospital joint ventures. These are situations where we believe we can fill the patient, the new centers, patient volume very quickly faster than historically we've been able to do.

Bill: is overwhelmingly positive and obvious right now so those discussions are taking place. I think we have a great team that's

Howard Berger: I think we have a great team that's able to both scientifically as well as from a business standpoint make compelling arguments. I think, as Mark pointed out, we're going to see MR become the bellwether for early prostate cancer detection, which will also have to be incorporated with prostate AI, which we own that tool ourselves. We're working on pilot projects to further demonstrate that. However, even as early as today, there was an article in Radiology with a pilot study done by the Mayo Clinic that showed the efficacy of prostate MR as a far better screening tool than anything else. So, all of these things seem to be accelerating. I'm a betting man, and I think RadNet is a good bet. All right. Thank you, sir. Thank you, John. Take care.

Bill: able to both scientifically as well as from a business standpoint make compelling arguments. I think as Mark pointed out

Mark Stolper: We're going to see MR become the bellwether for early prostate cancer detection which will also have to be incorporated with

Howard Berger: Although de novo's, you know, have always been part of our business, you know, historically, you know, the pace at which we're opening them today exceeds that, you know, that pace that we've ever done in the past. And that's because of these patient volumes. So typically, historically, we've seen that it could take, you know, several quarters to a year for a de novo center to ramp up and start contributing positively to our EBITDA.

Mark Stolper: Prostate AI, which we

Speaker Change: We own that tool ourselves. We're working on pilot projects to further demonstrate that, although, even as early as today, there was an article in Radiology with a pilot study done by the Mayo Clinic that showed the efficacy of...

Mark Stolper: Prostate MR as a far better screening tool than anything else. So all of these things seem to be accelerating and

Howard Berger: What we're seeing with the recent de novo and what we expect with the de novo that we have under construction currently is that they're ramping up much more quickly. And, you know, within a quarter or two, they're already starting to have a positive EBITDA contribution. So, you know, if you go back 20, 30 years in this industry, Dave, there was a point where there existed over capacity in the industry as a whole on the outpatient side, you know, with six to seven thousand imaging centers that have existed for now a couple of decades.

Mark Stolper: I'm a betting man and I think RadNet is a good bet.

Speaker Change: All right. Thank you, sir.

Mark Stolper: Thanks, John. Thank you, John.

Andrew Mok: Our next question will come from Andrew Mok with Barclays. You may now go. Hi, good morning.

Speaker Change: Our next question will come from Andrew Mok with Barclays. You may now go ahead.

Andrew Mok: Wanted to better understand the composition of the digital health segment's EBITDA expectations for the year. I think the non-AI revenue within digital health makes up about two-thirds of the revenue today. So does that have a similar EBITDA contribution?

Howard Berger: And what happened is that as the industry has steadily grown each year, the industry itself has grown into that over capacity where today that over capacity doesn't exist. And so for in order for us to create the capacity that we need to service the patient volumes, we either have to buy somebody that has capacity that we could then fill, which is, you know, less available today than in the past, or we have to build it ourselves. And so that's what we've been doing and the ramp up that we're seeing in these in these de novo centers is happening much more quickly.

Andrew Mok: Hi, good morning.

Andrew Mok: I wanted to better understand the composition of the digital health segment EBITDA expectations for the year. I think the non-AI revenue within digital health makes up about two-thirds of the revenue today. So does that have a similar EBITDA contribution? And then relatedly, how should we think through the net impact of the EBCD program so far in the runway from here? What's the latest adoption rate for the program? And what does that actually translate into from a procedure standpoint? So for instance, if you've done

Speaker Change: 956,000 mammograms in the first half of this year. How many are actually Sage DX procedures within that, that you're able to collect an incremental $40 out of pocket on? Thanks.

Mark Stolper: And then relatedly, how should we think through the net impact of the EBCD program so far on the runway from here? What's the latest adoption rate for the program? And what does that actually translate into from a procedure standpoint? So, for instance, if you've done 956,000 mammograms in the first half of this year, how many are actually Sage DX procedures within that that you're able to collect an incremental $40 out of pocket on? Thanks. Sure. Good morning, Andrew. It's Mark.

Mark Stolper: Sure. Good morning, Andrew. It's Mark. I'll answer the first question regarding the composition of the EBITDA, the digital health business.

Mark Stolper: I'll answer the first question regarding the composition of the EBITDA, the digital health business. So, there are two businesses in the digital health segment, one of which, as you correctly pointed out, is the AI business, and the other is the software business. The software business has historically been a very profitable business, and last year, that ERAD business, which is now being morphed into what we call Digital... Deep Health OS, that ERAD business last year did about $37 million in revenue and $20 million in EBITDA. So when we move that very profitable business into the digital health business, or the digital health segment, that certainly is driving more revenue and profitability in the digital health operating segment.

Howard Berger: With respect to the second part of your question, with Houston, I'll let Dr. Berker comment. Okay. Yes, I think the fact that we entered the Houston market has already presented itself with other opportunities, one of which the second acquisition that we did, we closed this quarter, and then there's other operators that are talking to us.

Andrew Mok: So, there's two businesses in the digital health segment, one of which, as you correctly pointed out, is the AI business, the other is the software business.

Mark Stolper: The software business has historically been a very profitable business, and last year that ERAD business, which is now being morphed into what we call digital...

Mark Stolper: So we expect to make announcements about continued expansion in the Houston market, and potentially look at denobos that might be appropriate there. In that regard, I just want to amplify one thing that Mark mentioned, and the validation, I think, of doing denobos is really looking at that even though about three-eighths of our centers are in joint ventures with hospital systems, 50% of the denobos are in those joint ventures. And I think the significance of that is that all of the systems that we're dealing with are experiencing the same issues that RadNet's Holy Home centers are, and that is capacity either to take on the shift away from the hospital's outpatient work, as well as the increasing demand for outpatient imaging.

Andrew Mok: DeepHealth OS. That ERAD business last year did about 37 million dollars of revenue and 20 million dollars of EBITDA.

Andrew Mok: So when we move that very profitable business into the digital health business or digital health segment, that that certainly is driving, you know, more of the revenue and the profitability in the digital health

Mark Stolper: We are expecting this year the digital health operating segment to do about 60 to $70 million in revenue. I would say, you know, close to 40 million of which will be software sales, software licensing sales, you know, of E-Rad. And then the remainder will be, you know, let's call it 25 million-ish, give or take. It will be AI revenue. AI runs, right now; our cost structure at AI, given, you know, the teams at Aidens, Quanta, Deep Health, all the developers, the machine learning folks, the AI scientists, the FDA people, marketing sales, you name it, is running close to about $25 million, if not a little bit more than that.

Mark Stolper: Operating segment.

Mark Stolper: We are expecting this year the digital health operating segment to do about 60 to 70 million dollars of revenue.

Mark Stolper: I would say, you know, close to 40 million of which, again, will be software sales, software licensing sales, you know, of eRAD.

Mark Stolper: And then the remainder will be, you know, let's call it $25 million-ish, give or take, will be AI revenue.

Mark Stolper: runs, right now, our cost structure at AI, given, you know, the teams at Aidens, Quanta, Deep Health, all the developers.

Mark Stolper: As Mark highlighted, I think what was our year-over-year, same-store growth, 6.1 percent, 6.1 percent, which I believe was about what it was last quarter, or somewhere in there, maybe even in that ballpark. But the fact of the matter is, these are the benchmarks by which we're using the decision-making as to where we're deploying capital. And in a way, the market should almost look at our denobos centers as really in lieu of acquisitions.

Mark Stolper: The machine learning folks, the AI scientists, the FDA people, marketing, sales, you name it, is running close to about $25 million, if not a little bit more than that.

Mark Stolper: We are expecting our quarterly revenue for the Deep Health business to be somewhere north of $6 million as we're exiting this year. And so our AI business, by itself, will turn profitable sometime in the fourth quarter of this year, so that when we look forward to 2025, we're gonna have two profitable businesses as part of digital health, both being the software business and then the AI business. And, of course, we're expecting growth in the AI business, which leads into your second question about adoption rates for EBCD.

Mark Stolper: We are expecting our quarterly revenue of the Deep Health business

Mark Stolper: to be somewhere north of $6 million as we're exiting this year. And so our AI business by itself will turn profitable sometime in the fourth quarter of this year so that when we look forward to 2025, we're gonna have two profitable businesses as part of digital health.

Mark Stolper: And so rather than paying higher multiples, what we're doing is building out these in areas where we know we have that capacity and demand. And again, I'll point out that half of those are coming from our hospital joint venture partners who would not be giving their approval for this expansion, if they did not have the same sense of need to add this capacity in a market, meaning the imaging market, which is growing at two to three times the rate that it has in the past.

Mark Stolper: both being the software business and then the AI business. And of course, we're expecting to

Mark Stolper: have growth in the ai business which which leads into your second question

David MacDonald: Okay, thanks very much. Thanks David.

Mark Stolper: What we're currently seeing, and I'm gonna bifurcate it between East Coast rates and West Coast rates because we started the implementation of EBCD on the East Coast going back to the fourth quarter of 2022. We're seeing about a 42% adoption rate on the East Coast for women electing to be part of the EBCD program, which means that they're desiring to have their scan read by AI. And on the West Coast, which we have more recently adopted, we're close to a 30% rate in terms of adoption.

Mark Stolper: about adoption rates for EBCD.

Mark Stolper: What we're currently seeing, and I'm going to bifurcate it between East Coast rates and West Coast rates, because we started the implementation of EBCD on the East Coast.

Mark Stolper: We're seeing about a 42% adoption rate on the East Coast for women electing to be part of the EBCD program, which means that they're desiring to have their scan read by, the initial scan read by AI.

John Ransom: Our next question will come from John Ransom with Raymond James. You may now go ahead. Hey, good morning. So a question I am getting is on margin flow through. So on our model, I mean, guys were well ahead on revenue about $20 million, but the EBITF flow through was a bit less. So the margin was maybe 50 dips less than we would have guessed even when we were at lower revenues. Is there anything going on with the margin flow through in the quarter? Is it the denobos? Or is there something else going on?

Mark Stolper: And on the West Coast, which we have much more recently adopted, we're close to a 30%

Mark Stolper: The last report we all received was about 28%. So what we're really encouraged about that on the West Coast is that it took many months on the East Coast to get anywhere near a 30% adoption rate. And what we've done is taken a lot of the learnings from the East Coast, such as the marketing collateral, pricing, how we train our schedulers and front office people to communicate the benefits of the services, all of that benefit and pain that we had to go through on the East Coast adoption, we've been able to adopt as best practices on the West Coast to be able to drive a much higher adoption rate. I don't see any reason why the adoption rates on the West Coast should be any different from the East Coast adoption rates.

Mark Stolper: rate in terms of adoption. The last report we all received was about 28%. So the what we're really encouraged about that on the West Coast is that it took, you know, many months on the East Coast to get anywhere near, you know, the 30% adoption rate. And what we've done is we've taken a lot of the learnings

Mark Stolper: Yeah, John, let me take that. First of all, we were happy and proud to show margin expansion in this quarter relative to last year. Our total company EBITDA margin was up about 76 basis points, which is a function of a number of things. On the imaging center side, it's a function of the focus and the growth in the higher acuity exams or what we call advanced imaging and there was about 150 basis points shift towards advanced imaging and away from routine imaging relative to last year's second quarter.

Mark Stolper: from the East Coast, such as the Marketing Collateral.

Mark Stolper: pricing, how we train our schedulers and front office people to communicate the benefits of the services.

Mark Stolper: All of that benefit and pain that we had to go through on the east coast adoption, we've been able to adopt as best practices on the west coast to be able to drive a much higher adoption rate.

Mark Stolper: I don't see any reason why the adoption rates on the West Coast should be any different, ultimately, than the East Coast adoption rates. And we're still seeing growing adoption rates on the East Coast. So we think that there's

Howard Berger: We're still seeing growing adoption rates on the East Coast. So we think that there's more to come in terms of the success of this program as we move later on into this year and into 2025. I don't know, Howard. Do you have anything more to add?

Mark Stolper: It's also a function of the fact that we have been successful in getting price increases both from capitated as well as commercial payors. And it's been a focus of tight cost control as well as the growth in our digital health businesses because our digital health businesses have the the promise and the capability of driving much higher margins, particularly the SaaS based, you know, software businesses. So we are showing margin expansion. What I will tell you on the imaging center segment side is that our continued point of pain is on is on the labor front.

Mark Stolper: More to come in terms of the success of this program as we move later on into this year and into 2025. I don't know, Howard, do you have anything more to add?

Mark Stolper: Yeah, I would just want to point out that one of the reasons, and we anticipated this, that the adoption rate would be slower on the West Coast is that a substantial portion of our volumes on the West Coast, and therefore revenue, come from our capitated contracts. And generally speaking, we cannot and do not do artificial intelligence for the EBCD on patients who are capitated without our discussing this with the medical groups that we essentially sub-capitate with.

Howard Berger: Yeah, I would just want to point out that one of the reasons, and we anticipated this, that the adoption rate would be

Howard Berger: Slower on the West Coast.

Howard Berger: is that a substantial portion of our volumes on the West Coast and therefore revenue come from our capitated contracts.

Howard Berger: And generally speaking, we cannot and do not do artificial intelligence for the EBCD.

Howard Berger: on the patients who are capitated without our discussing this with the medical groups that essentially we sub-capitate with.

Mark Stolper: We are beginning to have those conversations, you know, already with them, and there's a high degree of interest that they may want to change their plan design to include artificial intelligence for breast cancer because they even more readily see the long-term benefit of reducing some of their costs and improving outcomes for which they become the responsible payor, if you will. We haven't done this yet because we haven't implemented the East Coast yet, but if we take out the capitated lives, which we don't have that discretion right now of offering that on a pay-for-service basis to those capitated lives, if we rule those out and reassess, I would imagine that we would be in the mid to high 30s for our fee-for-service patients on the West Coast. In fact, I will instruct our teams to do that because I think it's an interesting exercise.

Mark Stolper: You know, we, although we have been much more successful in the last year and a half in terms of recruiting and retaining talent, it has become simply more expensive to to hire and retain talent. And so some of the growth, the excellent growth that you're seeing on the top line is going towards higher salary benefits and wages in order to, you know, in order to appropriately staff our centers and meet the heavy demand that we have. So that's what that's what you are seeing on the flow through is that a bigger portion of that flow through is being allocated towards salary benefits and wages.

Howard Berger: We are beginning to have those conversations, you know, already with them and there's a high degree of interest that they may want to change their plan design to include in

Howard Berger: in the program, the Artificial Intelligence for Breasts, because they...

Howard Berger: even more readily see the long-term benefit of reducing some of their costs and improving outcomes for which they become the responsible pay or if you will we haven't done this yet because we've

Howard Berger: not had the east coast implemented but if if we take out the capit ated lives which

Speaker Change: We, uh...

Howard Berger: and don't have that discretion right now.

Mark Stolper: Okay. And then likewise for the year, I mean, you bumped the revenue by 10 and the EBITDA by 2. So it's just building in more for a labor of portion of that incremental revenue. That's right. Okay. So the rising guidance is that we look at the actual quarters, meaning the quarters that have already been reported and compare that relative to our initial budget, and if we're significantly, and then what we do is we add the remaining quarters just at budget.

Howard Berger: of offering that on a pay-for-service basis.

Howard Berger: to those decapitated lives, if we rule those out and...

Howard Berger: reassessed, I would imagine that we would be in the mid to high 30s.

Mark Stolper: for our fee-for-service patients on the West Coast, and, in fact, I will instruct our teams to do that because I think it's an interesting exercise. But I think I just want to underscore one thing, is that...

Mark Stolper: So to the extent that we've over achieved the existing, you know, the already reported quarters and then we add the new budget, if that now takes us into a new guidance range, that's when we'll provide guidance ranges. We don't generally re-forecast the future quarters. So to the extent that we significantly beat the third and the fourth, you know, see that we beat in the third quarter, we could potentially adjust guidance thereafter. So we try to take a fairly conservative approach.

Mark Stolper: But I think I just want to underscore one thing: this will be the standard of care for doing mammography, and whether it happens tomorrow or next year or the year after, in our opinion here and that of most people who have seen these results and understand the science behind artificial intelligence, particularly for breast imaging and breast cancer, it is the way to significantly improve the outcome and reduce costs. So we're just in the early stages of this game, but I'm happy to say we're the ones leading the way into this becoming adopted on a much larger scale.

Mark Stolper: This will be the standard of care for doing mammography, and it's whether it happens tomorrow or next year or the year after, in our opinion here, and that of...

Mark Stolper: Most people who have seen these results and understand the science.

Mark Stolper: artificial intelligence, particularly for breast imaging and breast cancer, it is the way to significantly improve the outcome and reduce costs. So we're just in the early stages of this program.

Mark Stolper: but I'm happy to say we're the ones leading the way.

Howard Berger: Okay, John, let me just amplify one thing. I believe some of the slowing, if you will, of margin expansion may be partially attributed to the slower than anticipated implementation of our in the midpoint of the year where we were looking at initially having 12 imaging centers to be added. We still have six or seven more to go. These are live centers. Many of the regions that we are building these out in it have been compromised in terms of the people who approved construction plans, the regulatory issues that we have, getting radioactive material licenses, et cetera.

Mark Stolper: And I think with our initiative, this is something that could have taken five to ten years. So I'm very proud of our teams and the decisions that we've made over the years here to commit to the future of healthcare in radiology and imaging being driven by these kinds of sophisticated tools.

Mark Stolper: into this becoming adopted on a much larger scale. And I think with our initiative, this is something that could have taken five to 10 years.

Andrew Mok: Okay. And just to clarify, when you say adoption rate, is that within the facilities that are offering the program? And if so, do you have kind of an offer rate then or what is the coverage rate?

Mark Stolper: I'm very proud of our teams and the decisions that we've made over the years here to

Mark Stolper: Commit to

Mark Stolper: the future of health care in radiology and imaging being driven by these kind of sophisticated tools.

Speaker Change: Got it. Okay. And just to clarify, when you say adoption rate, is that within the facilities that are offering the program? And if so, do you have kind of an offer rate then or what the coverage rate is?

Mark Stolper: Yeah, so the adoption rate is based upon the denominator of that, which is the number of mammography screening exams that we do. So, we do about a little over 2 million mammography exams per year. That's our current kind of run rate, of which about 1.6 million are screening mammography exams. And so those are the exams that we offer this service on. So to the extent that, you know, someone schedules a screening mammography exam, now she's eligible for us to sell, you know, upsell the EBCD program.

Speaker Change: Yeah, so the adoption rate is based upon the denominator of that is

Speaker Change: the number of mammography screening exams that we do. So we do about a little over 2 million mammography exams per year, that's our current kind of run rate, of which about 1.6 million.

Howard Berger: So I think it really kind of underscores the importance of the Lenovo Center growth because with the return that Mark described, those will significantly contribute to better margins than what we might experience, what we might otherwise have achieved, if we had just stretched to buy a bunch of centers that may not have had the same kind of margins that we know we can build ourselves with the new centers.

Speaker Change: are, you know, screening mammography exams. And so those are the exams that we offer this service on. So to the extent that

Speaker Change: You know, someone schedules a screening mammography exam.

Mark Stolper: Now, she's eligible for us to upsell the EBCD program, and so we're seeing 40 percent of all women on the East Coast who are scheduling their mammography screening exam to elect into this program, and 28 to 30 percent on the West Coast.

Mark Stolper: And so we're seeing 40% of all women on the East Coast, you know, who are scheduling their mammography screening exam to elect into this program and 28 to 38 to 30% on the West Coast. Unknown Attendee, Andrew Mok, Nathan Malewicki, Brandon Carney, Edward Kressler, Larry Bland, Yeah, the revenue mix that you're seeing in the report is based upon payments received, not accrued net revenue. So what we do is we apply the differential in those payments, you know, to the current accrued revenue and say, Hey, you know, 25% or 30% of our revenue is MRI, and so on and so forth.

Mark Stolper: So Howard, perfect segue. Mark, one more thing. We already have to think about 2025. I mean, you've highlighted the Medicare cut potentially. I would imagine there's a good guy in terms of the novos running at fuller margins next year than this year as you're wrapping them up. But what are the puts and takes we should think of next year versus this year as we start refining our models.

Mark Stolper: Is that clear? Got it, okay.

Speaker Change: Yeah, that makes sense. And if I could just follow up with one more, I think that the same center advanced imaging volumes were very strong in the quarter, up double digits, leading to the continued procedural mix shift that you talked about, but the revenue mix between routine advanced actually looks relatively flat sequentially. So just curious what's going on underneath the volume mix with respect to pricing or anything else that's keeping the revenue mix flat sequentially. Thanks.

Mark Stolper: So you'll see a lag. So I would expect, you know, in the coming quarters, as we continue to see the, you know, increase towards higher acute exams, I would expect to see that those percentages will actually shift in terms of revenue as well. Got and why is that because bad debt assumptions are different? What's the driver of that?

Speaker Change: Yeah, the...

Mark Stolper: Yes, sure. And we'll talk much more about this as we get into the third and fourth quarters and produce those quarterly results. But yeah, so we will have a six to eight million dollar Medicare headwind. That will be fully mitigated and then some based upon pricing increases that we're getting from commercial insurance companies and capitated paywares. There obviously will be the additional contribution of the six denovo centers that we intend to open by year ends.

Speaker Change: The revenue mix that you're seeing in the report, it's based upon payments received, not accrued net revenue. So what we do is we apply the differential in those payments.

Mark Stolper: to the current accrued revenue and say hey you know

Mark Stolper: 25% or 30% of our our revenue is is MRI and so on and so forth. So you'll see a lag. So I would expect, you know, in the coming quarters, as we continue to see the

Mark Stolper: We've opened three denovo centers already in the first two quarters of this year. Those will be fully operational for the entire year of 2025. Additionally, we have 15 denovo centers that are currently slated for opening in 2025. So if we're successful at opening all 15 or some portion thereof, those will already be additional contributing factors. Additionally, the Houston acquisitions, which we did this year on April 1st and June 1st, those 13 centers will now be contributing for the entire year of 2025.

Mark Stolper: the increase towards higher acute exams, I would expect to see that those percentages will actually shift in terms of the revenue as well.

Speaker Change: And why is that? Is that because bad data assumptions are different? What's the driver of that?

Mark Stolper: Just the lag in terms of the DSO of the difference between payments received versus accrued net revenue, which is an estimate based upon how many exams you do in the quarter. It might also be worth pointing out, Mark, that in the case of advanced imaging, all of those procedures require authorization from the payor, and therefore it's a slower process of getting those patients done, submitting the bills with the authorization, and ultimately getting paid, whereas for routine imaging, mammography, x-ray, and ultrasound, those do not require authorization, and those get paid as quickly as we can present the bills. Got it. Okay. Thank you. The next question will come from Larry Solow with CJS Security. You may now go. Great. Good morning. Good morning.

Speaker Change: Just the lag in terms of the DSO of the difference between payments received versus accrued net revenue. Accrued net revenue is an estimate based upon how many exams you do in the quarter. Payments are based upon payments that you're collecting from prior quarters.

Mark Stolper: It might also be worth pointing out, Mark,

Mark Stolper: And we also expected improvement in their financial results from integrating those operations onto the radnet clinical and operating and IT systems. We're in the midst or really the beginnings of integrating those into the radnet systems right now. There will be further talking acquisitions that will be announcing and completing between now and year end. And there will be additional health system joint ventures with both new partners for new partnerships as well as expansions of existing joint ventures that we're working on currently that hopefully will announce by year end and will be major contributors next year.

Speaker Change: procedures require an authorization.

Mark Stolper: from the payor. And therefore, it's a slower process of getting those patients done, submitting the bills with the authorization, and ultimately getting paid. Whereas on the routine imaging, mammography, x-ray, and ultrasound, those do not require authorization, and those get paid as quickly as we can present the bills.

Speaker Change: Got it. Okay. Thank you.

Speaker Change: Our next question will come from Larry Solow with CJS Securities. You may now go ahead.

Larry Solow: A couple of follow-ups, I guess, most of my questions have been answered. I guess Mark, on the Deep Health operating system, sounds really exciting. I'm just curious, as you roll this out, would you expect to start even getting some benefit on margins maybe just next year or in the first year, or do you feel like it takes a little while? Is there some kind of learning curve you think to incorporate systems across internally?

Speaker Change: Great.

Mark Stolper: And then in addition to that, obviously the further growth and maturity and progress in the digital health side both on the AI front in terms of getting greater penetration of the EBCD program, both on the east coast and the west coast, bringing that EBCD program to the Houston marketplace, which we haven't started implementing, further growth with Aiden's in quantum on long and prostate licensing, particularly with the NHS in the UK as that targeted lung health check program rules out. We expect to see significant growth there on the lung side.

Larry Solow: Good morning. Good morning.

Larry Solow: A couple of follow-ups, I guess, most of my questions have been answered. I guess, Mark, on the deep health,

Larry Solow: here.

Mark Stolper: As you roll this out, would you expect it to start even getting some benefit on margins maybe just next year?

Speaker Change: In the first year, do you feel like it takes a little while, is there some kind of learning curve you think to incorporate?

Mark Stolper: And then the second question is, do you eventually, when you go external, do you think the external opportunity is actually bigger, greater than the internal opportunity? And then, also, the third question there is, have there been thoughts to externalize, or have you been approached on the EBCD AI test as well from external parties? Sure.

Speaker Change: The second question is, do you eventually when you go external, do you think the external opportunity is actually bigger, greater than the internal opportunity?

Speaker Change: And then have you also, third question there is, have there been thoughts to externalize or have you been approached on the EBCD AI test as well?

Mark Stolper: We're also intending to launch a self-pay prostate screening program here in America, which we've started selling the seeds for along the lines of what we're doing with breast cancer on the EBCD program. And then as Howard mentioned, you know, launching the the deep health OS and doing a full commercial scale launch to external customers in 2025.

Mark Stolper: Okay, let me take the first part of the question first, which is, do we expect to see any benefits with respect to, you know, in 2025 with the rollout of DeepHealth OS? And the answer to that question is, absolutely. One of the unique aspects of the DeepHealth OS relative to what we're currently using, which is our own ERAD, you know, kind of RISC-PACS technology platform, is that the DeepHealth OS has a number of AI-powered modules as part of it that are focused on automating business functions that we perform on behalf of our centers in order to automate aspects of the business that today we rely heavily on labor and human capital for.

Speaker Change: from external parties. Thanks.

Speaker Change: Sure. Okay, let me take the first part of the question first, which is, do we expect to see any benefits?

Larry Solow: with respect to, you know, in 2025 with the rollout of DeepHealthOS. And the answer to that question is yes, absolutely. One of the unique aspects of...

Larry Solow: The DeepHealth OS relative to what we're currently using, which is our own eRAD, you know, kind of RISPax technology platform, is that the DeepHealth OS has a number of

Mark Stolper: So that's a big laundry list of things that we have on our plate, but you know, they're all very exciting, and I think they're all potentials for, you know, having significant growth in the coming years.

Mark Stolper: And just lastly for me, I mean, you talked about this 150 basis point makeshift to higher revenue scans. Is that just sort of a, in your opinion, is that a kind of permanent structural feature that you'll continue to see that? And, you know, I've asked you this before, but we should think about like maybe 70% of that dropping to the margin line. So if it's up 150, then maybe that's 100 points of margin, all of us being equal.

Mark Stolper: And these are in the areas of automating patient scheduling, pre-authorization, insurance verification, customer call centers or patient call centers, as well as certain revenue cycle functions. So we're already testing a couple of these modules internally, but when they have a full-scale rollout here, we expect that these automation tools will make our business much more efficient, which will have two benefits. One will be, I think, from a patient-facing standpoint, it's gonna be better and more efficient for patients.

Mark Stolper: I think that's something that's going to continue fairly substantially. I think at the end of the day, it's a demand. It's a combination of current demand as well as new applications. I would point very probably to the growth that we've seen in MRNCT, but which is dwarfed by the growth that we're seeing in PETCT. Finally, coming into its own, if you will, and the use of PETCT, which I believe is just going to continue to grow, maybe a function not so much of the demand that we have, but our ability to put more PETCT scanners and replace older ones, which are quality, is a remarkable shift.

Mark Stolper: They're gonna be able to schedule their exams more efficiently and more expeditiously. We'll be able to take payments on a more automated basis, from an AR and a collections standpoint, and we'll be able to get authorizations faster and more efficiently from the insurance company. So all of these things should have the intended effect of reducing our reliance on expensive human capital.

Speaker Change: More efficiently and more expeditious way, we'll be able to take payments more a more automated basis and you know from a from an a or an AR collections standpoint, we're gonna be able to get authorizations faster and more efficient you know from the insurance company. So all of that.

Mark Stolper: And I believe over the last two quarters, I'm doing this for memory, our PETCT vine is quarter over quarter, and almost all of its organic growth is about 20% if I combine this two quarters or somewhere in that area. That is coming from adoption of prostate, and now a much more rapid adoption of PETCT for Alzheimer's disease. I should also note that by the end of this year, we will have in place for the first time three PETMR systems, which I believe will make us the largest provider of that service, and which I think will be transformative in the future for adding additional capabilities not only in diseases that we're looking at today, but in new applications for this.

Speaker Change: These things should have the intended effect of reducing our reliance on.

Larry Solow: Expensive human capital. So we do expect to see benefits just from Radnet adopting it internally and then of course as we launched a fully commercialized product and start selling in licensing that product to both our 200 plus existing E Rad custom.

Mark Stolper: So we do expect to see benefits just from RadNet adopting it internally. And then, of course, as we launch the fully commercialized product and start selling and licensing that product to both our 200 plus existing E-Rad customers, as well as the rest of the industry, we expect and intend that this product is gonna be very successful. I mean, it's a cloud-based product.

Larry Solow: As well as the rest of the industry, we expect and intend that this product is going to be very successful I mean, it's it's you know a cloud based product. It's got you know all of the new and advanced bells and whistles, including these generative AI modules.

Mark Stolper: It's got all of the new and advanced bells and whistles, including these generative AI modules. We're already talking to our existing customer base. We previewed a number of its capabilities in a demo last year at the big radiology show in November of last year called the RSNA, the Radiological Society of North America show in Chicago. We're gonna be doing that same kind of customer outreach this November at the show this year.

Larry Solow: We're already talking to our existing customer base, you know, we previewed a number of its capabilities and a demo last year at the Big Radiology show in November of last year called the RF and a the Radiological Society of North America show in Chicago, We're gonna be doing that same.

Mark Stolper: So, the notion of technology driving imaging cannot be underestimated. I think it's something which is now accelerating both because of improved equipment that all the OEMs are producing as well as artificial intelligence, and developing new tools to be able to accomplish these particularly in the PET area. So, I think you can build those, those all should come in with higher margins for a number of reasons, not just because they are more expensive tests, but because we, with the equipment that we put in that now can do these exams more efficiently, we're able to drive more revenue per unit time.

Larry Solow: You know kind of kind of customer outreach. This November and the show. This year. So we you know we were we're very excited and think that this product is as good or better than anything else. That's on the marketplace, particularly for an outpatient freestanding imaging centers.

Mark Stolper: So we're very excited and think that this product is as good or better than anything else that's on the marketplace, particularly for outpatient freestanding imaging centers where this workflow that we've built into it and scalability of the product, because we've had to make it scalable and work for RadNet internally, we think is gonna be the best in the industry. There was a third part of your question that I can't remember. Just on the, you know, thoughts about, you know, have you been approached at all about externalizing the hands for breast cancer detection? Oh, yeah.

Larry Solow: Where this workflow that we built into it you know and and scalability of the product because we've had to make it scalable and worked for for Radnet internally, we think it's going to be the best in the industry.

Speaker Change: There was a third part of your question I that I can't remember.

Speaker Change: Oh It was just on the thoughts about have you been approached at all about externalizing, the enhanced breast cancer detection tool.

Mark Stolper: So yes, we're going to continue to drive adoption rates internally, and we are having discussions with third parties about providing this technology, you know, and potentially even creating kind of an EBCD-like program for other customers. We haven't yet found any customer that hasn't been our focus.

Larry Solow: Cool.

John Ransom: So, lastly for me, I keep saying, lastly, I keep lying. The two things I think people are looking for, one being large scale M&A, and secondly, being a major payer stepping up and paying to the AI. So, if you were a bedding person, would either of those, is there a greater than a 50-50 chance that either one of those or both might occur by the end of the year? Well, fortunately for you, John, I am a betting person.

Speaker Change: Oh, yeah. So yeah. So we're gonna contained where connect going to continue to drive them.

John Ransom: So I think it's a very good, I've been doing this for 40 years, John, and so I've been betting a long time on imaging, as you well know, but I would say that there's a very good chance that both of those will occur within the next six to 12 months. At one time I believe it would take longer for the AI to get reimbursed. At this point, our focus is not necessarily CMS, but perhaps one or two or maybe even three of the major payors who are talking to us because the results that we're showing them for artificial attention right now, primarily in breast as you are well aware of, but the value proposition for it, is overwhelmingly positive and obvious right now.

Larry Solow: Adoption rates internally and we are having discussions with third parties about providing this technology.

Larry Solow: And potentially even creating kind of an a b C D like program for other customers, we havent yet.

Larry Solow: Find any customer that hasn't been our focus but.

Larry Solow: That's certainly where we're headed and I think you know.

Mark Stolper: But, you know, that's certainly where we're headed. And I think, as Dr. Berger mentioned, reimbursement is a big part of that, because one of the, or probably the main reason why AI solutions have not been adopted on a widespread basis in the industry is the lack of the ability for radiologists to bill and collect for the use of these AI tools. We believe that once radiologists can actually build and collect data for the use of these tools, then the whole industry is going to want to adopt these tools.

Larry Solow: As Dr. Berger mentioned reimbursement is a big part of that because one of the or probably the main reason why AI solutions have not been adopted on a widespread basis in the industry is the lack of.

Dr. Berger: The ability for radiologists to bill and collect for the use of this these AI tools.

Speaker Change: We believe that one.

Larry Solow: Radiologists can actually bill and collect for the use of these tools then the whole industry is going to want to adopt these tools very similar to what happened many years ago. When our mammography mammography equipment was shifting from a two D. A technology to three D.

Mark Stolper: It is similar to what happened many years ago when mammography equipment was shifting from 2D technology to 3D technology with tomosynthesis. There was a period of several years where Hologic introduced the technology to the world, but it wasn't being adopted on a widespread basis because radiologists couldn't charge anything more for doing a 3D exam, and therefore, they didn't want to make the capital investment in Hologic to provide a service that they couldn't bill and collect for. And that's the problem with AI right now.

Larry Solow: With tomo synthesis, there was a period of several years, where hologic had introduced the technology to the world, but it wasn't being adopted on a widespread basis, because radiologists couldn't charge anything more for doing a three D exam and therefore, they didn't want to make the capital.

John Ransom: So those discussions are taking place. I think we have a great team that's able to both scientifically as well as from a business standpoint, make compelling arguments. I think as Mark pointed out, we're going to see MR become the bell weather for early prostate cancer detection, which will also have to be incorporated with prostate AI, which we own that tool ourselves. We're working on pilot projects to further demonstrate that, although even as early as today there was an article in radiology with a pilot study done by the Mayo Clinic that showed the efficacy of prostate MR as a far better screening tool than anything else. So all of these things seem to be accelerating and I'm a betting man and I think red net is a good bet.

Larry Solow: Testament to our to provide a service that they couldn't bill and collect for and that's the problem with AI right. Now we do believe that that's just a matter of time and once there is more widespread adoption for AI reimbursement then that's the time that we're gonna be able to have a successful.

Mark Stolper: We do believe that that's just a matter of time. And once there is more widespread adoption of AI reimbursement, then that's the time that we're going to be able to have successful licensing. I appreciate that call.

Larry Solow: Our licensing business.

Larry Solow: I guess just one last question. Mark, with the increase in the minimum wage in California and salaries, did that impact you guys at all? Yes, it did.

Speaker Change: Got it I appreciate that color I guess, just just one last question just mark on it.

Speaker Change: The minimum wage in California and salaries.

Speaker Change: You guys at all.

Mark Stolper: You know, the minimum wage is being increased from $17.50 to $20 or $21. I can't remember. And that is built into our budget this year. But the implementation of that was delayed. It was supposed to go into effect on either June 1st or July 1st. Do you remember, Howard?

Speaker Change: It does you know the minimum wage what is being increased from 17 to $17 52, I think it's a 20 or $21 I can't remember and that is built into our budget. This year on the implementation of that was delayed it was supposed to go into.

Speaker Change: I think it was it was either June 1st of July 1st you remember Howard.

Unknown Attendee: All right. Thank you, sir. Thanks, John. Good job. Take care.

Howard Berger: Yeah, June 1st. Yeah. And because of budgetary reasons and the impact on Newsom's budget, you know, particularly from the county facilities and the hospitals, you know, all the health care workers that they employ, they delayed that implementation to later, later this year. I think it did go into effect August 1st. Is that right, Howard?

Howard Berger: Yes June 1st Yeah, and and that because of budgetary reasons and the impact on new sums budget, you know, particularly from the county facilities in the hospitals, you know all the health care workers that they employ they've delayed that implementation to later.

Brandon Carney: Our next question will come from Andrew Locke with Barclays. Give me now. Go ahead.

Brandon Carney: Hi, good morning. I wanted to better understand the composition of the digital health segment EBITDA expectations for the year. I think the non AI revenue within digital health makes up about two thirds of the revenue today. So does that have a similar EBITDA contribution? And then relatedly, how should we think through the net impact of the EBCD program so far in the runway from here? What's the latest adoption rate for the program?

Howard Berger: Later this year I think it did go into effect August 1st is that right Howard.

Howard Berger: Now it's currently, it's scheduled to go into effect, I believe, October 1st. But there's still some doubt as to whether or not they're going to do it this year or kick that can down the road to January 1st of next year. So there's a little bit of a good guy or cushion built into our guidance because we had anticipated that going into effect earlier in the year. Got it.

Howard Berger: No. It's currently is scheduled to go in place I believe October 1st but there's.

Speaker Change: Still some doubt as to whether or not they're going to do it this year or kick that can down the road to January 1st of next year, Yeah. So there's a little bit of a good guy or a cushion built into our.

Brandon Carney: And what does that actually translate into from a procedure standpoint? So for instance, if you've done 956,000 mammograms in the first half of this year, how many are actually sage DX procedures within that that you're able to collect an incremental $40 out of pocket on? Thanks. Sure. I'll go ahead and do its mark. I'll answer the first question regarding the composition of the EBITDA, the digital health business. So there's two businesses in the digital health segment, one of which, as you correctly pointed out, is the AI business, the other is the software business.

Speaker Change: Our guidance, because we had anticipated that going into effect earlier on in the in the year.

Larry Solow: Great. Okay, great. Thank you. Our next question will come from UNZ with Bea Riley. You may now go. Hi, this is Brandon Carney on behalf of you.

Speaker Change: Got it great. Okay, great. Thank you I appreciate it.

Speaker Change: Our next question will come from U N D with B Riley.

Speaker Change: You May now go ahead.

Speaker Change: Yeah.

Speaker Change: Hi, This is Brandon on for you on congrats on another strong quarter and thanks for taking our questions.

Brandon Carney: Congratulations on another strong quarter. Thanks for taking our questions. First, we're curious about the recent CMS update on diagnostic radiopharmaceuticals and how that would affect your PET scan volume. The proposed reimbursement change was for outpatient settings in the hospital, and the update was for a more favorable reimbursement. Does that mean that the hospital has more incentives to keep those PET scans within the outpatient department rather than sending those patients to freestanding centers like yours? Yeah, sure.

Brandon: First we're curious about the recent CMS update on the diagnostic radiopharmaceuticals on how that would affect your pet pet.

Brandon Carney: The software business has historically been a very profitable business, and last year that ERAD business, which is now being morphed into what we call Digi. Deep Health OS, that eRAD business last year did about $37 million a revenue and $20 million of EBITDA. So when we move that very profitable business into the digital health business or digital health segment, that certainly is driving more of the revenue and the profitability in the digital health operating segment.

Speaker Change: Pet scan volume.

Speaker Change: The proposed reimbursement change was for outpatient setting in the hospital and the update.

Speaker Change: For a more favorable reimbursement does that mean that the hospital has more incentive to keep those pet scans within the outpatient department rather than sending those patients to freestanding centers like yours.

Mark Stolper: So yeah, um, that that impacts you, as you say, as you rightfully said, the hospitals and not us. I look at the hospitals are a big player in the pet CT business today. And they'll, you know, They're going to continue to try to keep as much of that business in-house.

Speaker Change: Yeah sure so yeah.

Speaker Change:

Speaker Change: That impacts here as he said as you rightfully said that the hospitals are not not us I look at the hospitals are a big player in pet C. T business today and look you know are.

Brandon Carney: We are expecting this year the digital health operating segment to do about $60 to $70 million of revenue. I would say close to $40 million of which, again, will be software sales, software licensing sales of eRAD. And then the remainder will be, let's call it 25 million-ish give or take, will be AI revenue. AI runs, right now, our cost structure at AI given, you know, the teens at eight-inch quant of deep health, all the developers, the machine learning folks, the AI scientist, the FDA people, marketing sales, you name it, is running close to about $25 million if not a little bit more than that.

Speaker Change: They're going to continue to try to keep as much of that business in house I think like all the other modalities, it's an inevitability that more and more of this business is going to move into the the outpatient centers and it's and we're already demonstrating that with the growth of of.

Mark Stolper: I think, like all the other modalities, it's an inevitability that more and more of this business is going to move into the outpatient centers. And we're already demonstrating that with the growth of prostate imaging and Alzheimer's imaging on the PET-CT side, where I think we've done more PSMA tests than anyone else, whether on the hospital side or the outpatient side. We've done about 13,900 PSMA tests since the beginning of time. We've done, this quarter alone, over 2,100 PSMA tests.

Speaker Change: Prostate imaging in Alzheimers imaging on the on the Pet C. T side, where I think we are we've done more P. S. M a task.

Speaker Change: And any one else you know wet weather on the hospital side of the outpatient side, we've done about 13900 P. S. M. A test since the beginning of time, we did we've we've done.

Speaker Change: Last this quarter alone we've done over 'twenty 100 P. S M. A task and I and the same thing that you know you're seeing in Alzheimer's, which is the other big growth area of Pet C. T is that are you know, where we're kind of leading the way of these amyloid tests, we've done over four.

Mark Stolper: And the same thing that you're seeing in Alzheimer's, which is the other big growth area of PET-CT, is that we're kind of leading the way with these amyloid tests. We've done over 1,500 of these tests in the last several quarters. In July, we did over 360 of these tests alone.

Brandon Carney: We are expecting our quarterly revenue of the deep health business to be somewhere north of $6 million as we're exiting this year. And so our AI business by itself will turn profitable sometime in the fourth quarter of this year so that when we look forward to 2025, we're going to be having two profitable businesses, as part of digital health, both being the software business and then the AI business. And of course, we're expecting to have growth in the AI business which leads into your second question about adoption rates for EBCD.

Speaker Change: 1400, Oh excuse me over 1500 of these tests.

Speaker Change: In the last several quarters in Juul in July we did over 360 up these tests alone. So I think that regardless of what the hospitals are arguing in and regardless of how.

Mark Stolper: So I think that regardless of what the hospitals are doing and regardless of how they're paying for these radioactive tracers, the fact of the matter is they're charging significantly more for the technical component of the PET-CT than we are. Generally, we're seeing that in the range of two to four times what we're charging. So I think that, though hospitals will always be in the imaging business, more and more of this business is going to be captured in the outpatient setting. Unknown Speaker Great.

Speaker Change: They're paying for these radioactive tracers. The fact of the matter is they're charging significantly more for.

Speaker Change: The technical component of the Pet C. T. Then we are generally we're seeing that in the range of two to four times, what we're charging so I think that.

Brandon Carney: What we're currently seeing, and I'm going to bifurcate it between East Coast rates and West Coast rates because we started the implementation of EBCD on the East Coast going back to the fourth quarter of 2022, we're seeing about a 42 percent adoption rate on the East Coast for women electing to be part of the EBCD program which means that they're desiring to have their scan read by, the initial scan read by AI, and on the West Coast which we have much more recently adopted, we're close to a 30 percent rate in terms of adoption. The last report we all received was about 28 percent.

Speaker Change: Although the hospitals will always be in the imaging business that are you know more and more of this business is going to be captured in the outpatient landscapes.

Brandon Carney: Thanks for that, especially the numbers you've given; very helpful. You know, it's great to see the 14% same center growth in PET scan volume. And just to follow up on what you were saying about Alzheimer's, can you give some context about, you know, how the increase is going? Right now, you know, we saw the approval of another Unknown Attendee, Andrew Mok, Nathan Malewicki, Brandon Carney, Edward Kressler, Larry Bland. Yeah, so I'll start.

Speaker Change: Oh, great. Thanks for that especially the numbers you've given them very helpful.

Speaker Change: Great to see the 14% our same center growth on the pet scan volume and just a follow up on what you were seeing on the Alzheimer's can you give some context about like you know how the increases going right. Now you know we saw the approval with another.

Speaker Change: Amyloid agent.

Speaker Change: And I think Jay you mentioned that they saw a tripling of their there sales for there.

Speaker Change: <unk> amyloid imaging agent.

Speaker Change: What are you guys seeing on the Alzheimer's specifically you know is it.

Brandon Carney: So what we're really encouraged about that on the West Coast is that it took many months on the East Coast to get anywhere near a 30 percent adoption rate. What we've done is we've taken a lot of learnings from the East Coast such as the marketing collateral, pricing, how we train our schedulers and front office people to communicate the benefits of the services, all of that benefit and pain that we had to go through on the East Coast adoption, we've been able to adopt as best practices on the West Coast to be able to drive a much higher adoption rate.

Speaker Change: It relates to the growth quarter to quarter.

Mark Stolper: So, as I mentioned, we've done over 1,400 of these studies thus far. And it's growing fast. And, you know, if I look at the last two months, in July, we did a little over 360 of these studies. In June, so the month prior to that, we did only 208 of these studies.

Jay: Yeah. So I'll start so as I mentioned, we've done over 1400 of these studies.

Speaker Change: Thus far it's growing fast in the end and you know if I look at the last two months and in July we did a little over 360 of these studies in June so the month prior to that we did only 208 of these studies. So you know we're talking about over a.

Speaker Change: 60% increase on a month to month basis. These are still relatively small numbers you know given the fact that we do north of 75000.

Mark Stolper: So, you know, we're talking about over a 60% increase month to month. But these are still relatively small numbers, you know, given the fact that we do north of 75,000 PET-CT scans, or at least that's our current run rate, in a year. But we're seeing a lot of growth. We are seeing that the regional MACs, as we call them, these are the Medicare administrators, are starting to more freely authorize these initial studies. We've seen others, as you mentioned, come in on the radioactive contrast side to make that more competitive, which will ultimately drive down the cost of the radioactive tracer.

Brandon Carney: I don't see any reason why the adoption rates on the West Coast should be any different ultimately than the East Coast adoption rates and we're still seeing growing adoption rates on the East Coast. So we think that there's more to come in terms of the success of this program as we move later on into this year and into 2025. I don't know how or do you have anything more to add. Yeah, I would just want to point out that one of the reasons and we anticipated this that the adoption rate would be slower on the West Coast is that a substantial portion of our volumes on the West Coast and therefore revenue come from our capitated contracts and generally speaking, we cannot and do not do artificial intelligence for the EBCD on the patients who are capitated without our discussing this with the medical groups that essentially we subcapitate with.

Speaker Change: Pet Cts or at least that's our current run rate in a year.

Speaker Change: But we're seeing we're seeing a lot of growth we are seeing that.

Speaker Change: That the regional Macs that we call on and these are the Medicare administrators or are starting to more freely authorize. These these initial studies we've.

Mark Stolper: We think that that's going to continue and that, as the cost goes down, that's going to drive more and more of these initial studies. I would also mention that, you know, as exciting as an opportunity as Alzheimer's is on the PET-CT side, it's perhaps a more exciting opportunity on the MRI side. Most all of these patients need an initial MRI to establish a baseline, and then every four to five months through the therapy. Once these patients go on these initial therapies, whether it's the Biogen therapy or the Eli Lilly or others, you know, in terms of these treatments, they're going to need additional MRIs every four to five months to monitor potential adverse side effects of these therapies.

Speaker Change: We've seen others as you mentioned come in on the radioactive contrast side too to make that more competitive which will ultimately drive down the cost.

Speaker Change: Cost of the radioactive tracer, we think that that's going to continue and that that's that you know as the cost goes down that's going to drive you know more and more of these initial studies I would also mention that you know is as exciting as an opportunity as the Alzheimer's is on the pet C T side.

Speaker Change: It is perhaps a more exciting opportunity on the MRI side. Most all of these patients need an initial MRI to establish a baseline and then every four to five months through the therapies are one once these patients go on these initial therapies, whether it's the biogen therapy or the.

Brandon Carney: We are beginning to have those conversations, you know, already with them and then there's a high degree of interest that they may want to change their plan designed to include in the program the artificial intelligence for breast because they even more readily see the long term benefit of a reducing some of their cost and improving outcomes for which they become the responsible pay or, if you will, we haven't done this yet because we've not had the East Coast implemented, but if we take out the capitated lives, which we don't have that discretion right now of offering that on a pay for service spaces to that to those capitated lives, if we rule those out and reassess, I would imagine that we would be in the mid to high 30s for our fee for service patients on the on the West Coast and in fact, I will instruct our teams to do that because I think it's an interesting exercise but I think I just want to underscore one thing is that this will be the standard of care for doing mammography and it's whether it happens tomorrow or next year or the year after in our opinion here and that of most people who have seen these results and understand the science, behind artificial intelligence, particularly for breast imaging and breast cancer, it is the way to significantly improve the outcome and reduce cost. So we're just in the early stages of this ball game, but I'm happy to say we're the ones leading the way into this becoming adopted on a much larger scale and I think with our initiative, this is something that could have taken five to ten years, so I'm very proud of our teams and the decisions that we've made over the years here to commit to the future.

Speaker Change: Eli Lilly or others.

Speaker Change: In terms of these treatments are they're going to need additional mris every four to five months to monitor potential adverse side effects of these of these therapies. So.

Mark Stolper: The Alzheimer's opportunity we remain, you know, excited about because it's going to be just another driver of advanced imaging, both on the PET-CT and the MRI. Great, thanks for that. Very helpful. And then one last one.

Speaker Change: Ah the Alzheimer's opportunity, where we remain excited about because it it's gonna be just another.

Speaker Change: Driver of advanced imaging, both on the Pet C T and the and the MRI side.

Speaker Change: Great. Thanks for that very helpful. And then one last one.

Howard Berger: Just wondering if you can clarify what you mean by the patient backlog. Are these patients that have appointments on the calendar, or is it some other kind of measurement of incoming volume? And then how does that backlog really help to inform plans for expanding capacity? Yeah, the backlogs that we have are defined by if somebody calls in for an exam today, what is the earliest time that we can fit them into our schedule? And we monitor those by the number of days that it takes to easily schedule a patient.

Speaker Change: Just wondering if you can clarify what you mean by the patient backlog.

Speaker Change: Does this is this are these patients that have appointments on the calendar or is it other some other kind of a measurement of incoming volume and then how does that backlog really helped him formed plans on expanding capacity.

Speaker Change: Yeah.

Speaker Change: The backlogs that we have are defined by if somebody calls in for an exam today.

Speaker Change: What is the earliest time that we can fit them into our schedule and we monitor those by the number of days that it takes to easily schedule a patient that being said if there is a more urgent need we do keep a certain number of slots available for what we'd call.

Howard Berger: That being said, if there is a more urgent need, we do keep a certain number of slots available for what we call add-ons. But the current circumstances we find ourselves in are that we probably have the capacity to do a lot more of the demand that we're currently being asked to provide. But our limitation is not so much the equipment as it is the technologists that we need in order to staff the facilities to do that.

Speaker Change: Add ons, but.

Speaker Change: Yeah.

Speaker Change: Circumstances, we find ourselves in is that we probably have the capacity.

Speaker Change: To do a lot more.

Speaker Change: Zee.

Speaker Change: Demand.

Speaker Change: Currently being asked to provide but our limitation is not so much the equipment as it is the technologists that we need in order to staff the facilities to do that so we find ourselves having closed rooms, which just pushes the backlogs even higher.

Howard Berger: So we find ourselves having closed rooms, which just pushes the backlog even higher. These are things that we're trying to really address by not only hiring, you know, or more aggressive recruiting and hiring, but really with technologies to upgrade equipment that gives us better capacity and throughput, and which then fundamentally would lower our backlog. So it is a nice problem to have, but not one that is optimally in the best interest of providing the level of care that we would otherwise like to.

Brandon Carney: Of health care in radiology and imaging being driven by these kind of sophisticated tools. Got it okay and just to clarify when you say adoption rate is that within the facilities that are offering the program and if so do you have kind of an offer rate then or with the coverage rate is? Yeah so the adoption rate is based upon the denominator of that is the number of mammography screening exams that we do so so we do about a little over two million mammography exams per year, that's our current kind of run rate of which about 1.6 million are screening mammography exams.

Speaker Change: These are things that we're trying to really address a die not only hiring are you now or more aggressive recruiting and hiring but really with technologies to.

Speaker Change: To upgrade equipment that gives us better capacity and throughput and which then fundamentally would lower our backlog. So it is a.

Brandon Carney: And so those are the exams that we offer this service on so to the extent that someone schedules a screening mammography exam. Now she's eligible for us to sell the EBCD program and so we're seeing 40% of all women on the east coast who are scheduling their mammography screening exam to elect into this program in 28 to 38 to 30% on the west coast. Is that clear? Got it. Okay. Yeah, that makes sense.

Speaker Change: A nice problem to have but not one that is optimally in the best interest of providing the level of care that we would otherwise like to but.

Howard Berger: But this is the challenge that we're faced with, and it's better than sitting around and waiting for the phone to ring. Every aspect of what we can do to potentially accommodate the requests that we're getting are being pursued. Great. Thanks again for taking our, and this concludes our question-and-answer session. I would like to turn the call back over to Dr. Berger for any closing comments. All right, thank you. I'd 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.

Howard Berger: 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. Good day. The conference has now concluded. Thank you for attending today's presentation.

Speaker Change: This is the challenge that we're faced with and it's better than sitting around and waiting for the phone to ring, but every.

Speaker Change: Every aspect of what we can do to potentially accommodate the requests that we're getting are being pursued.

Speaker Change: Oh, great. Thanks, again for taking our questions.

Speaker Change: Right.

Speaker Change: This concludes our question and answer session I would like to turn.

Speaker Change: The conference back over to <unk> Bakr Berger for any closing remarks.

Bakr Berger: All right. Thank you.

Bakr Berger: I'd 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.

Brandon Carney: If I could just follow up with one more, I think that the same center, advanced imaging volumes were very strong in the quarter of double digits, leading to the continued procedural mix shift that you talked about, but the revenue mix between routine advanced actually looks relatively flat sequentially. So just curious what's going on underneath the volume mix with respect to pricing or anything else that's keeping the revenue mix flat sequentially. Thanks.

Speaker Change: Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders.

Speaker Change: You for your time today, and I look forward to our next call.

Speaker Change: Good day.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: The conference has now concluded.

Brandon Carney: Yeah, the revenue mix that you're seeing in the report, it's based upon payments received, not accrued net revenue. So what we do is we apply the differential in those payments to the current accrued revenue and say, hey, 25% or 30% of our revenue is MRI and so on and so forth. So you'll see a lag. So I would expect in the coming quarters as we continue to see the increase towards higher acute exams, I would expect to see that those percentages will actually shift in terms of the revenue as well.

Speaker Change: Thank you Kristen that's a question you may not disconnect.

Brandon Carney: Got it. Why is that because bad data assumptions are different? What's the driver of that? Just the lag in terms of the DSO of the difference between payments received versus accrued net revenue. Accrued net revenue is an estimate based upon how many exams you do in the quarter. Payments are based upon payments that you're collecting from prior quarters. It might also be worth pointing out, Mark, that in the case of advanced imaging, all of those procedures require an authorization from the payor and therefore it's a slower process of getting those patients done, submitting the bills with the authorization and ultimately get again paid. Whereas I'm in routine imaging, mammography, x-ray and ultrasound, those do not require authorization and those get paid as quickly as we can present the bills. Got it. Okay.

Brandon Carney: Thank you.

Larry Solow: Our next question will come from Larry Solo with CJS Securities. You may now go ahead. Great. Still morning. Good morning. A couple of follow-ups, I guess most of my questions may answer. I guess, Mark, on the deep health operating system sounds really exciting. I'm out. Would you expect to start even getting some benefit on margins maybe just next year or the first year? Do you feel like it takes a little while?

Larry Solow: Is there some kind of learning curve, do you think, to incorporate systems across internally? Then the second question is, do you eventually, when you go external, do you think the external opportunity is actually bigger, greater than the internal opportunity? And then have you also, third question there has it been thought to externalize? You haven't even approached the EBC-DIS, EBC-D, AI test as well, from external parts. Sure.

Mark Stolper: Okay, let me take the first part of the question first, which is do we expect to see any benefits with respect to, you know, in 2025 with the rollout? Right, right. Yeah, the deep health OS. And the answer to that question is yes, absolutely. One of the unique aspect of the deep health OS relative to what we're currently using, which is our own e-rad, you know, kind of wrist packs, technology. Platform is that the deep health OS has a number of generative AI-powered modules as part of it that is focused on automating business functions that we perform on behalf of our centers in order to automate aspects of the business that today we rely heavily on, you know, labor and human capital for.

Mark Stolper: And these are in the areas around automating patient scheduling, pre-authorization, insurance verification, customer call centers or patient call centers, as well as certain revenue cycle functions. So we're already testing a couple of these modules internally, but when they have a full scale rollout here, you know, we expect that these automation tools will make our business much more efficient, which will, you know, have two benefits. One will be, I think from a patient facing standpoint, it's going to be better and more efficient to patients.

Mark Stolper: They're going to be able to schedule their exams more efficiently and more expeditiously. We'll be able to take, you know, payments more on a more automated basis and, you know, from an AR and a collections standpoint, we're going to be able to get authorizations faster and more efficient. You know, from the insurance company. So all of these things should have the intended effect of reducing our reliance on, you know, expensive human capital.

Mark Stolper: So we do expect to see, you know, benefits just from radnet adopting it internally. And then of course, as we launch the fully commercialized product and start selling and licensing that product to both our 200 plus existing e-rad customer. As well as the rest of the industry, we expect and intend that this product is going to be very successful. I mean, it's, you know, a cloud-based product. It's got, you know, all of the new and advanced bells and whistles, including these generative AI modules.

Mark Stolper: We're already talking to our existing customer base. You know, we previewed a number of its capabilities in a demo last year at the big radiology show in November of last year called the RSNA, the Radiological Society of North America show in Chicago. We're going to be doing that same, you know, kind of customer outreach this November in the show this year. So we, you know, we're very excited and think that this product is as good or better than anything else that's, you know, on the marketplace, particularly for outpatient, you know, free standing imaging centers, where this workflow that we've built into it, you know, and scalability of the product because we've, you know, had to make it, you know, scalable and work for radnet internally.

Mark Stolper: We think it's going to be the best in the industry. There was a third party your question that I can't remember. It's just on the thoughts about you've been approached at all about externalizing the enhanced breast cancer detection tool. Oh yeah, so we're going to continue to drive adoption rates internally and we are having discussions with third parties about providing this technology and potentially even creating kind of an EBCD-like program for other customers.

Mark Stolper: We haven't yet signed any customer that hasn't been our focus but you know that's certainly where we're headed and I think you know as Dr. Berger mentioned reimbursement is a big part of that because one of the or probably the main reason why AI solutions have not been adopted on a widespread basis in the industry is the lack of the ability for radiologists to billing collectors. For the use of these AI tools, we believe that once radiologists can actually billing collect for the use of these tools, then the whole industry is going to want to adopt these tools very similar to what happened many years ago when mammography equipment was shifting from 2D technology to 3D technology with tomocynthesis.

Mark Stolper: There was a period of several years where hologic had introduced the technology to the world but it wasn't being adopted on a widespread basis because radiologists couldn't charge anything more for doing a 3D exam and therefore they didn't want to make the capital investment to provide a service that they couldn't billing collect for and that's the problem with AI right now. We do believe that that's just a matter of time and once there is more widespread adoption for AI reimbursement, then that's the time that we're going to be able to have a successful AI licensing business.

Mark Stolper: I appreciate that color. I guess just one last question. Mark, any increase in minimum wage in California and sellers did that impact you guys at all? It does. The minimum wage is being increased from $17.50 to I think it's $20 or $21. I can't remember and that is built into our budget this year. The implementation of that was delayed. It was supposed to go into effect. I think it was either June 1st or July 1st.

Mark Stolper: Do you remember Howard? Yes, June 1st. Yeah, and that because of budgetary reasons and the impact on new sums budget, you know, particularly from the county facilities in the hospitals, you know, all the healthcare workers that they employ, they've delayed that implementation to later this year. I think it did go into effect August 1st. Is that right Howard? No, it's currently scheduled to go in place. I believe October 1st, but there's still some doubt as to whether or not they're going to do it this year.

Mark Stolper: Sure. Yeah. So there's a little bit of a good guy or our cushion built into our guidance because we had anticipated that going into effect earlier on in the year. Got it. Great. Okay. Great. Thank you. Appreciate it.

Brandon Carney: Hi. This is Brandon Carney on for you on. I can grab another strong quarter. Thanks for taking our questions. First, we're curious about the recent CMS update on the diagnostic radio pharmaceuticals and how that would affect your pet pet scan volume. The proposed reimbursement change was for outpatient setting in the hospital and the update was for a more favorable reimbursement of that mean that the hospital has more incentive to see those pet scans within the outpatient department rather than sending those patients to freestanding centers like yours.

Brandon Carney: Yeah. Sure. So that impacts you. As you rightly said, the hospitals are not not us. I look, the hospitals are a big player in pet CT business today and they'll, you know, they're going to continue to try to keep as much of that business in house. I think like all the other modalities. It's an inevitability that more and more of this business. It's going to move into the outpatient centers and it's and we're already demonstrating that with the growth of the prostate imaging and Alzheimer's imaging on the on the pet CT side where I think we are we've done more PSMA tests.

Brandon Carney: You know, then anyone else, you know, what were there on the hospital side of the outpatient side? We've done about 13,900 PSMA tests since the beginning of time. We've done last this quarter alone. We've done over 2100 PSMA tests and the same thing that, you know, you're seeing in Alzheimer's, which is the other big growth area of pet CT is that, you know, we're kind of leading the way of these, you know, amyloid tests.

Brandon Carney: We've done over 1400, oh, excuse me, over 1500 of these tests, you know, in the last several quarters in July, we did over 360 of these tests alone. So I think that regardless of what the hospitals are doing and regardless of how they're paying for, you know, these radioactive tracers, the fact of the matter is they're charging significantly more. For the technical component of the pet CTs and we are generally, we're seeing that in the range of two to four times what we're charging.

Brandon Carney: So I think that, you know, though the hospitals will always be in the imaging business that, you know, more and more of this business is going to be captured in the outpatient landscape. Great. Thanks for that, especially the numbers you've given here helpful. You know, it's great to see the 14% same center growth on the pet scan volume. Just to follow up on what you were seeing on the Alzheimer's, can you get some context about like, you know, how the increase is going right now.

Brandon Carney: You know, we saw the approval of another Amaloid Agent, I think you mentioned that they saw a tripling of their sales for their Amaloid imaging agent. What are you guys seeing on Alzheimer's specifically, you know, as it relates to the growth quarter to quarter? Yeah, so I'll start. So as I mentioned, we've done over 1,400 of these studies thus far, it's growing fast. And you know, if I look at the last two months, you know, in July we did a little over 360 of these studies in June.

Brandon Carney: So the month prior to that, we did only 208 of these studies. So, you know, we're talking about over a, you know, 60% increase, you know, on a month to month basis. These are still relatively small numbers, you know, given the fact that we do north of 75,000, you know, pet CTs, or at least that's our current run rate in a year. But we're seeing, we're seeing a lot of growth. We are seeing that the regional max that we call them, these are the Medicare administrators are starting to more freely authorize these initial studies.

Brandon Carney: We've seen others, as you mentioned, come in on the radioactive contrast side to make that more competitive, which will ultimately drive down the cost of the radioactive tracer. We think that that's going to continue and that that's, you know, as the cost goes down, that's going to drive, you know, more and more of these initial studies. I would also mention that, you know, is exciting as an opportunity is the Alzheimer's is on the pet CT side.

Brandon Carney: It's perhaps a more exciting opportunity on the MRI side. Most all of these patients need an initial MRI to establish a baseline. And then every four to five months through the therapies, once these patients go on these initial therapies, whether it's the biogen therapy or the Eli Lilly or others, you know, in terms of these treatments, they're going to need additional MRIs every four to five months to monitor potential adverse, you know, side effects of these therapies. So the Alzheimer's opportunity, we remain, you know, excited about because it's going to be just another driver of advanced imaging both on the pet CT and the MRI side. Great. Thanks for that. Very helpful.

Howard Berger: And then, when I was going to, just wondering if you can clarify what you mean by the patient backlog. Does this, are these patients that have appointments on the calendar or is it other, some other kind of measurement of incoming volume? And then how does that backlog really help to form plans on expanding capacity? Yeah. The backlogs that we have are defined by, if somebody calls in for an exam today, what is the earliest time that we can fit them into our schedule?

Howard Berger: And we monitor those by the number of days that it takes to easily schedule a patient. That being said, if there is a more urgent need, we do keep a certain number of slots available for what we call add-ons. But the current circumstances we find ourselves in is that we probably have the capacity to do a lot more of the demand that we're currently being asked to provide. But our limitation is not so much the equipment as it is the technologists that we need in order to staff the facilities to do that.

Howard Berger: So we find ourselves having closed rooms which just pushes the backlogs even higher. These are things that we're trying to really address by not only hiring or more aggressive recruiting and hiring, but really with technologies to upgrade equipment that gives us better capacity and throughput and which then fundamentally would lower our backlogs. So it is a nice problem to have, but not one that is optimally in the best interest of providing the level of care that we would otherwise like to.

Howard Berger: But this is the challenge that we're faced with and it's better than sitting around and waiting for the phone to ring. But every aspect of what we can do to potentially accommodate the request that we're getting a big pursuit. Thank you. Great. Thanks again for taking our questions.

Howard Berger: Let's conclude our question and answer session. I would like to turn the conversation over to Dr. Berger for any closing remarks. All right. Thank you. I'd 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. It's 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. Good day.

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