Q3 2024 RadNet Inc Earnings Call
Pardon me, ladies and gentlemen. Thank you for standing by for the RadNet conference call. The presentation will begin momentarily. Thank you for your patience.
[music].
Sure.
Speaker Change: Good day and welcome to the Radnet, Inc. Third quarter 2024 financial results Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing to Starkey followed by zero.
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Speaker Change: Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Mark Stolper Executive Vice President and CFO of Radnet. Please go ahead.
Mark Stolper: Thank you.
Mark Stolper: Good morning, ladies and gentlemen, and thank you for joining Doctor Howard Berger and me today to discuss Radnet third quarter 2024 financial results.
Mark Stolper: 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: This presentation contains forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of 1995.
Mark Stolper: Typically statements concerning anticipated future financial and operating performance Radnet the ability to continue to grow the business by generating patient referrals and contracts with radiology practices recruiting and retaining technologists, receiving third party reimbursement for diagnostic imaging services.
Mark Stolper: 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.
Mark Stolper: Forward looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties, which may cause radnet actual results could differ materially from the statements contained herein.
Mark Stolper: These risks and uncertainties include those risks set forth in Radnet reports filed with the SEC from time to time, including <unk> Annual report on Form 10-K for the year ended December 31 2023.
Mark Stolper: 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.
Speaker Change: And with that I'd like to turn the call over to Dr. Berger.
Dr. Berger: Thank you Mark and good morning, everyone.
Dr. Berger: And thank you for joining us today.
Speaker Change: On today's call Mark and I plan to provide you with highlights from our third quarter 2024 results give you more insight into factors, which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions I'd like to thank all 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: Yeah.
Speaker Change: I am very pleased with our performance in the third quarter. It was the strongest quarter in our company's history with record revenue and adjusted EBITDA.
Speaker Change: Relative to last year's third quarter total company revenue increased 14, 7% and our digital health revenue increased 34, 3%.
Speaker Change: Imaging center revenue growth was driven by healthy demand in virtually all of our markets.
Speaker Change: In spending from the increasing utilization of diagnostic imaging within health care as well as the continuing shift of procedural volumes away from the more expensive hospital alternatives to ambulatory freestanding centers like the ones we operate well.
Speaker Change: Also contributing to the strong revenue performance was the positive impact of improved reimbursement from all payers, who recognize the important role we are playing at a lower price is a lower priced alternative the hospital based imaging.
Speaker Change: Lastly, our topline is benefiting from a continuing shift in modality mix towards advanced imaging Mris shoot you in person team, where our revenue per scan is substantially higher than with routine imaging.
Speaker Change: During the third quarter.
Speaker Change: Advanced imaging represented 26, 7% of our procedural volume an increase of 142 basis points from last year's same quarter. This is both a function of an overall industry trend of more of these exams being ordered as a result of technology advances in these modalities.
Speaker Change: And the significant capital investments, we have made in the last several years and the advanced imaging equipment for growth and replacement.
Contributing to the strong revenue growth within digital health, where the AI businesses.
Speaker Change: <unk> yeah.
Speaker Change: You see the breast cancer program grew 75% quarter over quarter from last year.
Speaker Change: Adjusted EBITDA was also a quarterly record.
While the strong revenue results, which I just discussed contributed to more EBITA.
Speaker Change: Our focus on operational efficiency improved management and utilization of labor investments in information technology and effective cost controls contributed to a 27, 2% increase from last year's third quarter.
Speaker Change: Another contributing factor to adjusted EBITDA growth was the disproportionate growth in our higher profit margin digital health businesses cumulatively cumulatively. These factors drove a 156 basis points increase in our adjusted EBITDA margin as compared with last year's third quarter.
Speaker Change: While we are pleased with this margin expansion I remain convinced we have further opportunity to improve margins in the future.
Speaker Change: The strong operating results in the third 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 and second quarters financial results Mark will discuss this in.
Speaker Change: More detail in his prepared remarks.
Speaker Change: 2024 continues to be a year of investment in our business year to date, we have opened five de novo facilities and we have three additional anticipated site openings for the remainder of 2024.
Speaker Change: Moreover, we have 15 additional projects in development, which we intend to open during 2025.
Speaker Change: These de novo facilities split almost equally between wholly owned and JV centers and are located in markets, where we have patient backlogs require additional capacity or where we currently lack access points to service identified patient populations.
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 to our long term performance and growth.
Speaker Change: We continue to grow our hospital and health system joint venture businesses. Currently 152 of our 399 centers or 38, 1% are held within health system partnerships, which includes two imaging centers that were jointly open in the third quarter with.
Speaker Change: The University of Maryland Medical system, and one inside our three way joint venture.
Speaker Change: The San Fernando Valley in Los Angeles, with Cedars Sinai and the Providence Health system.
Speaker Change: Our system.
Speaker Change: These and other systems are seeking long term strategies around outpatient imaging and have recognized a cost effective and efficient freestanding centers will continue to capture market share from hospitals as payers and patients migrate to the site of care towards lower cost high quality solutions.
Speaker Change: Our hospital and health system partners have been instrumental in increasing our procedural volumes with their physician relationships.
Speaker Change: We continue to gain momentum with initiatives inside the digital health segment. Some of you may have seen last week that we announced the first customer for our suite of solutions powered by the deep health O S. On Red Oak full service radiology provider to more than 120 hospitals radiology groups in imaging center.
Speaker Change: Well implement a variety of deep Cup O S solutions to streamline its clinical and operational workflow include.
Speaker Change: Deploying the detailed O S.
Speaker Change: Sure and smart reporting features.
Speaker Change: <unk>, who is a new customer to us.
Speaker Change: We knew that it does not cause any.
Legacy either red or deep ELD solutions will begin implementation of a deep health O S solutions in the first quarter of 2025.
Speaker Change: Additionally earlier this morning, we announced a collaboration with GE healthcare aimed at accelerating the adoption of AI powered workflows and clinical solutions through smart technologies.
Speaker Change: This collaboration brings together Ge's health care legacy in bringing innovative hardware solutions.
Street with deep helps leading edge AI powered digital solutions. Our shared objective is to make imaging hardware more capable enriching diagnostic equipment with AI powered workflow and critical solutions to Dennis servings, Kush, clinicians and patients and all imaging settings.
Speaker Change: Our first offer he with GE is in the area of my mom like mammography, we're bringing together details smart mammal solution and Ge's Center graph Pristina mammography unit will improve speed critical accuracy operational efficiency and improve patient care.
Speaker Change: Smart Manno has a deep health AI.
Speaker Change: Powered SaaS solution designed to seamlessly integrate into existing breast cancer diagnostic workflows, enhancing diagnostic accuracy and workflow efficiency by incorporating imaging informatics into advanced mammography systems, the smartest man mammal solution can.
Speaker Change: Port High volume breast center cancer screening programs Smart mammal care, probably took prioritize cases based on suspicion level and ensure seamless integration and interoperability with existing health care I T infrastructure.
As one of its advanced features integration and smart mammals with Gs Center graph Pristina Mammography unit will include smart alerts a workflow solution that alerts rapid AI processes with the goal of alerting imaging sites, two cases with potentially suspicious lesions.
Speaker Change: In minutes.
Speaker Change: This kind of solution aims to empower.
Speaker Change: Earlier diagnostic examinations follow ups compliance.
Speaker Change: And reduced anxiety for women with potentially suspicious filings.
Speaker Change: The G E deep held collaboration agreement will enable GE healthcare to distribute smart in ammo and other deep house solutions to imaging providers in the United States as part of GE healthcare.
Health care is a comprehensive portfolio of imaging technologies.
Speaker Change: In addition to collaborating on smart Randall we N G E health care intend to explore areas of further collaboration for smart technology solutions in other modalities and clinical domains.
Banning the access to an impact of AI based workflows.
Speaker Change: And our booth at the <unk> convention in Chicago, we will be demonstrating among other things smart memo with the GE Pristina unit details O S workforce solutions, our breast prostate and lung AI solutions as well as other technologies deep.
Speaker Change: Deep health solutions, we will all be will also be demonstrated in the booths of GE healthcare and Siemens, where we are demonstrating an ultrasound integration with deep health technology.
Speaker Change: We are meeting with dozens of potential customers and partners at the convention and true Barclays and Jefferies will be hosting investor presentations at our booth on December 2nd and third.
We encourage anyone listening today to reach out to Barclays or Jefferies should you want to join one of these investor presentations at our booth.
Speaker Change: At this time I'd like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2014 for our results.
Speaker Change: When he is finished I will make some closing remarks.
Mark Stolper: Thank you Howard.
Howard Berger: I'm now going to briefly review, our third quarter 2020 for performance and attempt to highlight what I believe to be some material items.
Howard Berger: He will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our third quarter performance.
Howard Berger: I will also provide an update.
Howard Berger: I'm 24 financial guidance levels, which were released in conjunction with our 2023 year end results in March of this year and revised in May and August in conjunction with our first and second quarter of 2024 financial results.
Howard Berger: Yeah.
In my discussion today I will use the term adjusted EBITDA, which is a non-GAAP financial measure.
Howard Berger: 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 extinguishment and noncash equity compensation.
Howard Berger: Adjusted EBITDA includes equity and earnings in unconsolidated operations and subtract allocations of earnings to Noncontrolling interest in subsidiaries and is adjusted for noncash or extraordinary and onetime events taking place during the period.
Howard Berger: A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to Radnet, Inc. Common shareholders is included in our earnings release.
Howard Berger: With that said I'd now like to review, our third quarter 2024 results.
Howard Berger: For the third quarter of 2020 for Radnet reported total company revenue of $461.1 million and adjusted EBITDA of $73 $7 million.
Howard Berger: Revenue increased $59 $2 million or 14, 7% and adjusted EBITDA increased $15 $7 million or 27, 2% as compared with the third quarter of 2023.
Howard Berger: Breaking this performance down to the individual operating segments. Our imaging Center segment reported revenue of $452 $4 million and adjusted EBITDA of $74 million. This was an increase of $56 $8 million or $14 three per.
Howard Berger: And in revenue and an increase of $14 $8 million or 26, 6% and adjusted EBITDA as can past as compared with last year's third quarter.
Driving this performance were strong aggregate and same center procedure volumes the impact of higher reimbursement and we are receiving from commercial and capitate. It there's the gradual movement towards advanced imaging and tight expense control.
Howard Berger: The digital health segment reported revenue of $16 $4 million and adjusted EBITDA of $3 $2 million.
Howard Berger: Revenue increased $4 $2 million or 34, 3% and adjusted EBITDA increased $950000 or 41, 7% as compared with the third quarter of 2023.
Howard Berger: Digital health significant growth was due in part from a $2 $2 million or 75, 8% increase in AI revenue, which climbed to $5 million during the third quarter of 2023.
Howard Berger: Total company net income for the third quarter of 2024 was $3 $2 million as compared to the total company net income of $17 $5 million for the third quarter 2023.
Fully diluted net income per share for the third quarter of 2024 was four cents compared with a fully diluted net income per share of 25 cents in the third quarter of 2023.
Howard Berger: There were a number of unusual or onetime items impacting the third quarter, including the following.
Speaker Change: It's like $1 million non cash loss from interest rate swaps.
Speaker Change: $304000 in severance expense related to cost savings initiatives.
Speaker Change: 1.3 million dollar expense related to leases for de Novo facilities under construction that have yet to open their operations.
$3 $3 million of non capitalized research and development expenses related to the deep health cloud O S and generative AI.
Speaker Change: $417000 of acquisition transaction costs.
And $147000 loss in conjunction with the extinguishment of debt and related expenses.
Speaker Change: Adjusting for the above items total company adjusted earnings were $3.3 million and diluted adjusted earnings per share was 18 cents. During the court in third quarter of 2024. This compares with total company adjusted earnings of $8 $8 million and diluted adjusted.
Speaker Change: Earnings per share of 13 cents during the third quarter of 2023.
For the third quarter of 2024 as compared with the prior years third quarter MRI volume increased 14, 6% C. P volume increased 15, 5% and pet C. T volume increased 23, 8%.
Speaker Change: Overall volume taking into account routine imaging exams inclusive of X-ray ultrasound mammography and all other exams increased 9.0% over the prior year's third quarter.
Speaker Change: On a same center basis, including only those centers, which were part of Radnet for both the third quarters of 2024 and 2023 MRI.
MRI volume increased nine 9%.
Speaker Change: C P volume increased nine 8% and pet C T volume increased 16, 8%.
Speaker Change: Overall same center volume taking into account routine imaging exams.
Speaker Change: Increased five 5% over the prior year same quarter.
Speaker Change: In the third quarter 2024 for $4 2 million and 738007 total procedures.
Speaker Change: The procedures were consistent with our multi modality approach whereby 73, 3% of all the work we did by volume was from routine imaging.
Speaker Change: Let's now have a table of our aggregate procedure volumes broken down by modality.
Speaker Change: Go through the numbers, but we will make the following point.
Speaker Change: In his remarks, Dr. Berger mentioned that we are experiencing a continuing shift to higher acuity procedures or what we call advanced imaging.
Speaker Change: In the third quarter 26, 7% of our procedures were from MRI C T and pet C T.
Speaker Change: In last year's third quarter. This metric was 25, 3% a shift of one 4% of our procedure volumes towards advanced imaging.
Speaker Change: With higher pricing and better margins more advanced imaging improves our financial results, including our operating margins.
Speaker Change: Yeah.
Speaker Change: Overall GAAP interest expense for the third quarter of 2024 was $19 $4 million as compared with $16 $1 million during the last year's third quarter.
Speaker Change: In the third quarter of 2020 for cash interest cash interest expense, which includes payments to and from Counterparties on interest rate swaps and net interest income earned from our cash balance was $4 $3 million.
This compares with $11 $7 million in the third quarter of 2023.
Speaker Change: The lower cash interest this core interest expense. This quarter is primarily the result of a significantly higher interest income on the much larger cash balance.
Speaker Change: Yeah.
Speaker Change: With regards to our balance sheet as of September 32024, unadjusted for bond and term loan discounts, we had $261 million of net debt, which is our total debt at par value less our cash balance.
Speaker Change: This balance this debt balance includes our 49% ownership portion of New Jersey imaging network's debt of $136 $9 million, which radnet is neither a borrower nor a guarantor and it also includes our 49% ownership of N J I N cash back.
Speaker Change: <unk> of $86 $4 million.
Speaker Change: This company wide net that compares with $498 $3 million of net debt as of September 30 of last year.
Speaker Change: As of September 30th 2024, we were Undrawn on our $282 million revolving line of credit and had a cash balance of $748 $9 million.
Speaker Change: At September 30th 2020 for our accounts receivable balance was $199 million, an increase of $35 $4 million from year end 2023.
Speaker Change: The increase in accounts receivables, primarily was the result of increased business and revenue.
Speaker Change: Our days sales outstanding or DSO was at $35 seven days at September 32020 for near a historical low.
Speaker Change: Through September 32024, we had total capital expenditures net of proceeds from the Seattle of imaging equipment of $127 $5 million.
Speaker Change: This total includes $6 9 million dollar spent under equipment notes.
Speaker Change: The remainder spent in cash and excludes $15 $5 million of New Jersey imaging network capital expenditures and a one time $9 million purchase of software code from a vendor.
Speaker Change: At this time I'd like to revise.
Speaker Change: And update our 2024 financial guidance levels.
Speaker Change: Given the positive trends, we are experiencing in virtually all aspects of our business and the strong financial performance of the first nine months of the year, we are revising upwards certain guidance levels in anticipation of financial results that we believe will exceed our.
Speaker Change: Original and revised expectations.
Speaker Change: For revenue, we have increased our guidance range to $1 billion $710 million to $1 billion $760 million.
Speaker Change: Which is roughly a $25 million increase to our revenue guidance.
Speaker Change: Okay.
Speaker Change: We've also increased for the imaging center segment, our EBITDA guidance by.
Speaker Change: By $5 million are now to 262 million to $270 million of adjusted EBITDA.
Speaker Change: For capital expenditures are we have increased our guidance level to $145 million to $155 million, which was done in conjunction with our increased spending on our de novo facilities, which we will be opening a.
Speaker Change: Three by the end of this year in 15 locations sometime in 2025.
Speaker Change: Our cash interest expense decreased to $25 million to $30 million as a result of having a larger cash balance than we anticipated.
Speaker Change: And having more interest income and our free cash flow guidance range, we increased our level, a $283 million to $93 million, which is roughly a.
$10 million to $13 million increase in our free cash flow guidance.
Speaker Change: For the digital health segments.
Speaker Change: We our.
Speaker Change: Our guidance remains substantially the same we did increase our spend by $1 million non capitalized R&D related to the deep deep health cloud based Oh asset generative AI initiatives.
Speaker Change: I'll conclude my remarks with a update on our 2025, we are Medicare reimbursement.
Speaker Change: As a reminder, Medicare reimbursement represented 22% of our business mix.
Speaker Change: With respect to Medicare reimbursement in July of this year.
Speaker Change: Matrix covenants rates by CPT code, which is typically part of the physician fee schedule proposal that is released about that time every year.
Speaker Change: At that time, we completed an initial analysis and compared those rates to 2024 race, we volume weighted our analysis using expected 2000 and twenty-five procedure times.
Speaker Change: As you May recall four years ago, CMS going forward with increased reimbursement for evaluation and management of CPT codes, which states or certain physicians.
Speaker Change: We're going to build for these services.
Speaker Change: Primary care doctors.
Speaker Change: CMS proposed doing so its economy budget neutrality.
Speaker Change: Published reallocate reimbursement from physicians, who rarely bill for these E N M codes to physicians, who regularly built for the east coast.
Speaker Change: As a result, radiology and most other specialties experienced cuts in reimbursement from 2021 through 2024 and intentional phased in of reimbursement cuts to pay for the reimbursement benefit provided to the primary care physicians.
The cuts we are currently experiencing in 2024 were substantially mitigated by congressional legislation that was passed in March this year as part of it.
Speaker Change: Appropriately.
Speaker Change: Yeah.
Speaker Change: And the proposal in June and July of this year in 2025 reimbursement.
Back here.
Speaker Change: We'd be phase again.
Speaker Change: And code related.
Speaker Change: Did this year.
Speaker Change: The proposed 2012, resulting from a decrease in the conversion factor in the Medicare fee schedule by about two 8%.
Along with certain minor changes to RV use a certain radiology CPT codes.
Speaker Change: Our initial analysis of the proposal for next year implied that radnet on roughly $1 $8 billion in revenue with pace and approximately $6 million to $8 million revenue hit in 2025 from its Medicare business.
Medicare final rule, which was released at the very end of October a few weeks ago with consistent with the initial proposal in July.
Speaker Change: Because the proposed decrease in the conversion factor affects all physicians noxious radiologist there've been many lobbying groups from various medical specialties aggressively opposing to cut.
Speaker Change: In response to the cuts representative Greg Murphy, a Republican from North Carolina, along with seven bipartisan co sponsors introduce the Medicare patient access and practice stabilization Act.
Speaker Change: The Bill would provide a 4.73% increase to the Medicare fee schedule conversion factor for calendar year 2025, essentially mitigating the two 8% final rule that Medicare just released and increasing Medicare reimbursement in 2025.
By 193%.
Speaker Change: We expect that this bill will be put forth for a vote in Congress sometime next month at which time, we will have more clarity on 2025 Medicare reimbursement rates.
I'd now like to turn the call back over to Doctor Forever.
Speaker Change: Remarks.
Thank you Mark.
Speaker Change: This is Seth.
Speaker Change: Ladies and most exciting.
Speaker Change: I have seen in our industry.
Speaker Change: Massachusetts is entering a time of transformation.
Speaker Change: It's too easy and straightforward.
Speaker Change: This dynamic period.
Speaker Change: The trends for Radnet and the rest of the outpatient imaging imaging industry are strong and are projected to be sustainable for years to come we continue to experience.
Speaker Change: Growing procedural volumes driven by advances in equipment contrast materials radioactive isotopes post processing software and more recently artificial intelligence page.
Speaker Change: Patients are frequently being directed away from hospitals to more cost effective ambulatory sites of care like the centers Radnet operates.
Speaker Change: Later focus on using diagnostic imaging for population health preventative medicine and screening programs.
Speaker Change: Most importantly, we begin.
And acceleration in technology from generative and clinical AI that will transform the way our industry operates and delivers it services.
Speaker Change: These advances will increase patient access improves the patient experience.
Speaker Change: Increase the productivity and accuracy of radiologists, and most importantly improved patient outcomes.
Speaker Change: It is our objective to position bed needs to be on the leading edge of this transformation by doing this both in our core imaging center business and within our digital health initiatives.
Speaker Change: Inside of our core business, we are focusing on growth areas, such as prostate Alzheimer's and cardiac imaging.
Which are being enabled by advances in equipment and software in Radiopharmaceuticals.
Speaker Change: We are partnering with health systems to provide patients with better access and lower cost solutions advancing population health screening programs for breast lung prostate and cardiac disease.
Speaker Change: And testing alternative site opportunities within Walmart and retail malls.
Speaker Change: Digital health is making significant progress with initiatives that are poised to help us drive more revenue reduce cost and increase margins to this end. We are excited about the commercial launch of deep health O S and a few weeks, which is a delivery platform for solutions that automate office processes and more.
Speaker Change: Effectively manage patient and clinical data, including automating patient scheduling clinical reporting medical coding and sales and marketing and clinical workflows.
Speaker Change: In parallel to the deep health OS development, we continue to grow revenue from clinical AI solutions for breast lung and prostate cancer screening.
Speaker Change: 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 pay out of pocket.
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 and not just focus on two patients who are already sick.
Speaker Change: And finally as we discussed this morning with the GE healthcare announcement, we are also working with imaging equipment.
To bring smart technology solutions to the equipment marketplace that will greatly benefit all stakeholders.
Speaker Change: The Allergist Technologists imaging center staff, referring physicians and patients.
Speaker Change: Operator, we are now ready for the question and answer orphan cool.
Thank you we.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We're using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause for just a moment to assemble our roster.
Speaker Change: Yeah.
Speaker Change: And our first question today will come from Brian Tim Quillin with Jefferies. Please go ahead.
Speaker Change: Hey, good morning, guys and congrats on the GE deal in the quarter, So maybe Howard and Ron.
Speaker Change: Mark as well just on the GE announcement this morning.
Speaker Change: If you could share with us just more details on how that contract or that agreement actually works and what exactly does.
Speaker Change: Smart memo cover and how different is this from your a b C D offering in terms of what the eventual client slash radiology clinics would have access to or be able to offer in terms of clinical services.
Speaker Change: The platform. Thanks.
Speaker Change: Good morning, Brian I hope you're well.
Speaker Change: First let me start by saying that the major.
Speaker Change: Component of Smart mammography.
Speaker Change: The embedding of the deep health operating system onto in this case are the GE center graph Pristina mammography system. What that means is is that the capabilities of the <unk>.
AI solutions, both clinical and generative.
Speaker Change: B embedded onto the gantry of the GE mammography system, allowing essentially for a turnkey operation.
As you are well aware we.
Speaker Change: We have begun for example, deploying mammography systems in malls and Walmart locations and basically this system will allow us to plug and play we will be able to install the system.
Speaker Change: And simply need a power source and a connection to the internet to essentially make this function in the same way they had a patient coming into a Radnet center would experience in other words all of the information systems.
Speaker Change: And clinical tools, which would include the DCD program as part of our AI critical package will be available as part of an offering that G E health care.
Speaker Change: System and their marketing and sales force will help distribute for us. So this will allow more.
Oh greater faster if you will deployment of these systems not only perhaps in the more conventional way that people are used to getting their mommas mammography, but in nonconventional sites, where imaging can be performed like in the wall.
Speaker Change: Our and mall locations, we believe that there's other opportunities for distribution of this type of a network of equipment that will help facilitate access and compliance and make.
Speaker Change: What is the estimated to be about a third of the.
Speaker Change: Female population more accessible to getting early breast cancer screening. So I think the best way to look at this is Ed. It's a collaboration between our in this case G with their mammography system and Radnet with.
Speaker Change: Her deep health AI tools to essentially create an environment that will allow not only easy access but also facilitate the results and distribution of information. Since this is since the deep health system is a.
Speaker Change: Cloud native based system, so things like a faster turnaround time for the reporting results.
Speaker Change: And to the patients will allow us.
Speaker Change: More rapid.
Opportunities to navigate people into the next appropriate step for there.
Speaker Change: Mammography and breast.
Speaker Change: Screening programs.
Speaker Change: Did I leave something out there Brian that you'd like me to elaborate on further.
Howard Berger: That's really helpful. Howard and then maybe just one comment that you made earlier.
Howard Berger: You see opportunity to drive margins further up so just curious how youre thinking about the composition of the drivers of that thanks.
Howard Berger: Well that's the.
Speaker Change: Improving margins is really where we expect the deep health operating system, which we have already begun to deploy some of the modules inside radnet centers will streamline activities, which are manual processes right now.
Speaker Change: Relative to things like.
Speaker Change: Scheduling reporting tools data migration into the cloud.
Speaker Change: More medical records.
Speaker Change: Revenue cycle management.
Speaker Change: I could go on and on.
But things that are both currently dependent on a limited.
Labor force to try to help keep up with the demands that we have so what we'd expect to do is be able to process a lot more in the way of Ah Ah patient demands and needs that will be not only faster, but even more accurate and make all of our.
Speaker Change: Employees that much more efficient in their use of the systems. So I think.
Speaker Change: Response of the deep health platform is one to two which is a existential problem that everybody in health care has been particularly in radiology with the shortage of both radiologist Tech now technological staff and office staff to.
Speaker Change: To help facilitate the patient experience.
Howard Berger: I got it thank you Howard.
Brian: Thanks, Brian.
Speaker Change: And our next question today will come from John Ransom with Raymond James. Please go ahead.
John Ransom: Hey, good morning, just wanted to.
John Ransom: <unk> G E deal a little bit.
Speaker Change: Who are your primary targets for selling the solution to and you know who's going to be responsible for that selling if they're gonna be yourself isn't gonna be G E.
Speaker Change: And you know should.
Speaker Change: Should we think about maybe Walmart being one of the top potential suspects, sometimes with getting this rollout.
Speaker Change: Well the prospects for this are obviously current hospitals and imaging center outpatient or ambulatory imaging center providers.
But I think there's a bigger market beyond that and what we like to refer to as a alternative or non traditional imaging locations are much like what Walmart and the retail malls that we are.
Speaker Change: Experiencing and piloting AR for these kind of access so when you start to think of what that market could look like it's a substantially larger than just the existing conventional market.
Speaker Change: In addition, we think that there's other market opportunities. There are companies out there are and will be one of them that we'll be looking at providing mammography in Ob gyn, new offices, where women come to for their wellness visits on an annual basis and for which that mark.
Speaker Change: It is already being tapped into and which this is a particularly good opportunity given that as.
Speaker Change: As I mentioned, just a moment ago. This is a turnkey operation that will allow our radnet to install.
Install these with just the need for a power source and a connection to the internet in order to provide.
Speaker Change: Not only the equipment and doing the mammogram itself, but registering patients billing for patients of facilitating the storage of medical records and retrieval.
Speaker Change: Doing the actual interpretation by using a clinical AI such as the Sage D X program access through the UCB program.
Speaker Change: All being able to do this with a goal of trying to give ourselves a.
Speaker Change: To a woman why they're still in the office. So these are the kind of transformative changes I think that the technology will allow us to achieve wow.
Speaker Change: Doing a better job of compliance and access.
Detection ultimately.
Speaker Change: Did better outcomes this will be a dual role for both GE and.
Speaker Change: Radnet to help first a.
Speaker Change: And her team are.
Speaker Change: Through the deep Health Division.
Speaker Change: Try a enable and educate them.
Speaker Change: G E marketing and sales force, which is quite extensive not only here in.
Speaker Change: The U S, but globally to wear.
Speaker Change: These kind of products will even be a more embraced for large scale screening programs. So I look at this as truly being a collaboration not just in terms of creating the product and pouring it but educating and giving a greater opportunity.
Speaker Change: <unk> for making this type of inroads as quickly as possible. We will of course, meaning radnet will look to show the detailed platform.
Speaker Change: Which is something that can be integrated with other mammography systems, but none that will have a what the current.
Speaker Change: Integration between the G E Pristina mammography system and the deep held to be embedded in fully integrated so that there's not a variety of AI and <unk> tools that all have different vendors and require.
Speaker Change: A far more.
Speaker Change: Cost as well as difficulty in implementing.
Speaker Change: Okay.
Speaker Change: And then just kind of switching gears, Mark I know, we're not giving twenty-five guidance today, but.
Speaker Change: I know you talked about the Medicare headwind, you've talked about the de novo's, what what are some of the other puts and takes we should think about when we when we build out our 25 models.
Speaker Change: Sure and obviously, we issue guidance, we will issue 2025 guidance in AR at the end of February of next year, So and we're going through our budgeting process today, So I don't want to.
Go too deep into it but I will say you know as you mentioned the headwinds.
Speaker Change: You know are potentially on the Medicare a side that could be as much of this is a $6 million to $8 million headwind should the final.
Speaker Change: Final rules go into effect as as a M. Best proposed but we do think our experts think that.
Speaker Change: That will be either partially mitigated or fully mitigate it with this.
Congressional Bill that I talked about in my prepared remarks.
You know the other the other challenge I think that that were facing like every other health care company within radiology and outside of radiology is the increasing cost and availability of labor.
Speaker Change: Been managing through that as best we can we've certainly Ah yeah, it's been inflationary as we've had to.
Pay more to attract talent and to retain talent, but you know on the positives.
Speaker Change: The business continues to.
Speaker Change: Experienced heavy demand we have backlogs in virtually every market in which we operate.
We are in the process as we mentioned of building new facilities aggressively to build our capacity to meet the heavy demand that we were that we know exists out there. We've got three centers that were anticipating opening before year end, we've got 15 de novo projects on the docket for two.
Speaker Change: <unk> thousand and 25, and and we'll have additional projects with it after 2000 after 2025.
We've also.
Speaker Change: We're aggressively expanding our hospital joint ventures as as we said in the prepared remarks, we have three additional sites that went into joint ventures.
In the third quarter two within the University of Maryland system, one here in Los Angeles with theaters and.
Speaker Change: The Providence Health system, we're gonna be announcing new new relationships with new partners will have a new joint ventures with existing partners and expansions within with our with our joint venture. So that would be built into next year's budget. We're also experiencing as well.
Speaker Change: We noted in our in our.
Speaker Change: The prepared remarks, a shift towards advanced imaging modalities, you know we had a 100 over 140 basis point shift in this third quarter relative to last year's third quarter in favor of MRI and pet D. T that comes with higher revenue higher margins and profitability.
Speaker Change: We don't see a.
Speaker Change: We think that that trend is sustainable.
Speaker Change: Going forward not because we're driving it but we are aggressively investing in those technologies in terms of you know our growth capex in our AR and our replacement Capex.
Speaker Change: It's just what's going on in the industry with all the technology advances around.
Speaker Change: The equipment itself post processing software.
Speaker Change: Contrast materials radioactive isotopes, it's driving more indications for physicians to order. These types of diagnostic tests and so we think that that trend would be positive for our guidance.
Next year, we will continue to be doing some small tuck in acquisitions, we've got an active pipeline today as we speak and.
Speaker Change: And that will continue to be a part.
Speaker Change: Part of the strategy going forward.
Speaker Change: And of course, all of that the growth that we see within digital health you know not not that justice Ge's Martin ammo announcement, but you know the continuing growth and penetration of our a b C D program.
Their growth in the UK and in Europe, with our lung AI product.
Speaker Change: The detailed lung product, but where we are.
Rolling out a program in the U K called the targeted among health check program with the National Health service, there that will continue to drive revenue.
Speaker Change: And you know as as many investors will see in a at the RCA in a few weeks is that we're going to be working in other areas with other modalities other equipment manufacturers around smart embedding smart technology tools and solutions into other.
Speaker Change: There are equipments and other ultimately alternative imaging locations. So I think we're.
Speaker Change: We're excited about the next 12 months and most.
Speaker Change: <unk>, where we're coming out with the detailed OS commercialized product.
Speaker Change: To start marketing and selling aggressively with.
Speaker Change: Within 2025.
Speaker Change: And just lastly for me the structure of your deal with GE. As this is a software license just how does that work.
Speaker Change: Hi, John its Dr. Berger Yeah. This is a software licensing arrangement.
With.
Speaker Change: With GE.
Speaker Change: And they will through there.
Speaker Change: Sales and marketing force distribute that for us on their equipment. We will of course as I said also be doing some of that ourselves directly to other providers and then.
Speaker Change: Other opportunities where the benefits of our deep health program. It is a licensing.
Speaker Change: Product or program right now, which has the capability of also being SaaS space. So we're playing with all of the models because some.
Speaker Change: Some people might want to do this as more as a capital investment.
Speaker Change: Some people might want to do it as a variable expense and we're capable of doing that because we not only put.
Speaker Change: A clinical AI tools on them on their way to a B C D program.
And our reporting tools, but also the.
Speaker Change: Office space.
Generally of AI tools, which are the radiology products that manage the rest of it.
Speaker Change: All of the other office I should say.
Speaker Change: Fireman's like scheduling and billing are in a turnkey operation.
Speaker Change: Okay. Thank you.
Thank you John.
Speaker Change: And our next question today will come from Andrew Mok with Barclays. Please go ahead.
Speaker Change: Hi, Good morning. This is Evan on for Andrew <unk> during the quarter, we saw AI revenue decreased nearly 10% sequentially versus Q Q, well mammography volumes remained largely constant or the underlying drivers of that and do you still expect the business to exit the year profitable. Thank you.
Yeah. Thank you for the question.
Yeah, It was a little.
Speaker Change: Uh huh.
Speaker Change: I guess I should have pointed this out in the script in Q2, we had a $600000 implementation fee within our AI AI.
Speaker Change: AI businesses that was not reoccurring in 2023, so if you adjust for that the AI business went up sequentially I think about 100 to $200000.
I, probably should've called should've called that out.
Speaker Change: The answer to your second part of the question is yes, we do still anticipate that the AI business will reach profitability here in the in the fourth quarter and entering into 2025.
Speaker Change: Just a quick follow up what is the current <unk> adoption rate on both the east and West Coast.
Speaker Change: Yeah.
Speaker Change: Our adoption rate on the east coast, where its now been implemented for approaching two years Ah is approaching 45% are our goal is to get it at 50% and there seems to be good trends.
Speaker Change: Make us confident that we can get there.
Speaker Change: 2025 on the east and the West coast, the adoption rate is closer to 40%, but that's way down somewhat because of the large capitation program.
Speaker Change: We have here and for which we are negotiating with all of the cat potato providers to.
Speaker Change: Have the.
Speaker Change: A b C D program become part of their capitation by providing us a higher revenue.
Speaker Change: So we expect to have progress. So that we can talk about that are in 2025 also so if you were to strip away the.
Speaker Change: The capitation portion of our business.
Speaker Change: The adoption rate here on the West Coast, where it's only been implemented now for a little over a year would probably be closer to 40%.
Speaker Change: Thanks for the color.
Speaker Change: And our next question today will come from Larry Solow with CJS Securities. Please go ahead.
Larry Solow: Great Thanks, and good morning Howard.
Mark Stolper: Good morning, Mark I guess, just following up on the.
Mark Stolper: Digital health question just on the on the G collaboration just any timelines on when I.
Mark Stolper: I guess the rolling in your software into an existing machine right. So it won't take that usual OEM.
Mark Stolper: Lots of time, but can you just give us an idea of when these products actually will be available for commercialization.
Speaker Change: Well I'll answer that one Larry good morning.
Speaker Change: The commercialization efforts will begin.
Speaker Change: Really at the our SMA, where we will have all of this.
Speaker Change: Smart memo, both at our booth and the GE Booth.
Speaker Change: At Mccormick place, where the meeting is held in Chicago.
Speaker Change: On demonstration and which we are able to deliver today. There are some upgrades that are coming.
The GE system that will further enhance our viewing and resolution.
Speaker Change: That are in for F D a.
Speaker Change: Hopefully will be an upgrade to the systems that they may sell today sometime in the second quarter of next year, but essentially the tools are tested.
Speaker Change: <unk> tested and the pending a final FDA approval that deep health, we'll be getting about adoption.
Speaker Change: Our application of the a B C D excuse me not the Michigan, but the AI tool.
Speaker Change: On the G E systems, which we expect this month.
Speaker Change: We'll be ready for a rollout of these systems in the first quarter of 2025.
Speaker Change: Gotcha and then just.
Howard.
Speaker Change: Update just on your <unk>.
Efforts to build out both on the hospital partnership Sade, and just you know.
Speaker Change: Collaborations, although a large health.
Speaker Change: Health care institutions, and also just acquisitions that'd be an update on how Houston is coming along obviously you made some couple of nice tuck in acquisitions, there to build out and start building out new locations, just maybe give us a little update on.
Speaker Change: With all my stuff.
Speaker Change: Well I think there's there as Mark mentioned, we have an active pipeline of acquisition opportunities.
Speaker Change: Both small and large that were.
Speaker Change: Considering as you're well aware, we have a rather substantial cash balance and.
Speaker Change: We're looking to deploy that capital both on the deep health side as well as on the imaging services side we've.
Speaker Change: We've got 15 more.
Speaker Change: More de Novo centers, which are in various stages of construction that will open throughout the course of 2025.
Speaker Change: As well as three more that will be.
Operational in this quarter.
Speaker Change: So we are deploying our capital.
Speaker Change: In every aspect that we can.
To drive more revenue.
We believe we're also going to see opportunities there.
Speaker Change: May drive opportunities in the AI space.
Speaker Change: Where are we where we may have a critical AI tools that we may feel that we can acquire and a very attractive manner, rather than build ourselves. So while the AI tools that we have today are primarily screening tools.
Speaker Change: Cancer screening tools for our breast lung and prostate are there are other work efficiency tools and improvement in diagnostic accuracy.
Other areas of our business for more of the routine work that we do for example in ultrasound and X-ray are that we will be looking.
Speaker Change: For that will help drive productivity and accuracy for our radiologists, So I think.
Speaker Change: That.
Speaker Change: Pretty big.
Speaker Change: Or a lot of things on the plate for us to look at in 2025, along with increasing the number and breadth of joint ventures.
Centers that are in joint ventures with hospital systems that I believe once we are they become more aware of what the deep health and smart technologies allow us to do will make them even more excited about.
Speaker Change:
Speaker Change: Driving their relationship and partnerships with with Radnet further into their hospital systems, even if it's not with centers that we currently enjoy.
Speaker Change: In a partnership.
Speaker Change: Partnership arrangement with them.
Speaker Change: Alright, Thank you I'm pretty sure that Colorado.
Speaker Change: Yeah.
Speaker Change: And our next question today will come from Jim Sidoti with Sidoti and co. Please go ahead.
Speaker Change: Hi, good morning, and thanks again for taking the questions you talked about the the program in the U K for screening for lung cancer.
Speaker Change: What are the hurdles you need to implement that in the U S.
Speaker Change: Well that's a that's.
Speaker Change: That's a question Jim that unfortunately doesn't have a great answer right now part of the problem here.
Speaker Change: In the U S as opposed to let's say the U K and the U K I think as most people know has.
Speaker Change: Our National Health service.
Speaker Change: Yes.
Speaker Change: It manages over 90% of the health care for that population and therefore once they adopt something Ah, it's a lot easier for them to push it down we really don't have a similar model here and.
And even know lung cancer.
Speaker Change: In the U K has already been determined to be of extraordinary value in terms of better outcomes for for those people who are at risk, which right now.
Speaker Change: United States Public service Task Force has said is 50.
Speaker Change: 50 years of age and 20 years of.
Speaker Change: Smoking history.
Speaker Change: Still only about less than 5% of the patients eligible AR are accessing it.
Speaker Change: To be perfectly blunt, it's the hurdles that are in place are.
Speaker Change: In the front of patients who are at risk.
Speaker Change: That has to go through a consultation has to get authorizations are in it.
Speaker Change: Substantially different.
Speaker Change: Problem.
Speaker Change: Then what women face when they're at risk one out of every eight women.
Speaker Change: We'll experience breast cancer in their lifetime and they can self before there is no such thing as self for full for lung cancer and I believe there is more and more advocates that are.
Speaker Change: Recognizing this as a hurdle and with what's happened in the U K is that the patients can now go directly to them.
Speaker Change: And appropriate provider in the U K and get their lung screening without having to get an authorization or a consultation.
Speaker Change: Somewhere sometime something similar that it has to be adopted here, if we're truly going to get the number of people who should be scanned into the system I I think this is.
Something that's tantamount to almost a type of epidemic here, where Ah <unk>.
Speaker Change: People, who would qualify and get their lung screening and earlier stage kidney cancer.
Speaker Change: The outcomes.
With these kind of streaming tools.
Speaker Change: Very good.
Yes.
Speaker Change: Let's get together and continue to put together like that.
Speaker Change: Yeah compliance or what needs to be reversed.
Speaker Change: Here in the U S and the expectation is with the efforts that we see that the NHS is making in the U K within another two years, perhaps 80% or more of the at risk patients there will be getting annual lung screening annual.
Speaker Change: Our biannual lung screening so.
This is a case where it does.
Speaker Change: A socialized health care program, certainly has achieved further results and weekend here or we have here. Despite having all the technological skills to do something which can certainly provide a better outcomes for patients yeah, I think having said.
Speaker Change: Right. The idea here is to be to use these models like in the U K to talk to the payers here about widespread population health screening for lung cancer. We are in the process of getting FDA approval on the the agents.
Speaker Change: The lung or the deep health agents lung.
Speaker Change: Here, which we're anticipating receiving sometime.
Speaker Change: Midyear 2025, so we will have the tools as Dr. Berger said to be able to launch similar programs here and obviously, we're going to we're going to share the success of the U K.
Speaker Change: With with the payers and see if we can get some traction.
Speaker Change: And so with the new administration coming in in general not just lung cancer, but in general do you see any any new risk for your business any new opportunities for our business and how do you think you'll adapt.
Speaker Change: Yeah, I'm not sure the new administration coming in really in packs.
Speaker Change: Our business in it in you know in a big way I think.
Speaker Change: When we were under the Trump administration from 2016 to 2024.
Speaker Change: They were supportive of a lot of the programs at the current are the current administration has been pushing cancer programs cancer moonshot.
Speaker Change: We'll see I don't know that reimbursement.
It might change.
Speaker Change: Our western perspective.
Speaker Change: I think there's one area, where we may and health care in general benefit from the New administration that is regulatory issues right now.
Speaker Change: There is a substantial hurdle with.
Speaker Change: Any growth and particularly with mergers and acquisitions has to.
Speaker Change: Pass in order to.
Speaker Change: Do sizable acquisitions and my strong belief is that are those workers will be lower and big.
Speaker Change: Think available.
Speaker Change: Each to continue in health care.
Speaker Change: And that is creating scale for businesses that can deliver more cost effective.
Speaker Change: Health care. So if it's if it's one area that I think we can point to that I believe does each.
Speaker Change: Some changes if you will or a regulatory and that seems to be a major.
Speaker Change: For that the Trump administration.
Speaker Change: Alright, thank you.
Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Dr. Berger for any closing remarks.
Speaker Change: Again, I would like to take this opportunity to thank all of our shareholders for their continued support and the employees of Radnet for their dedication and hard work.
Speaker Change: Management will continue its better endeavor to be a market leader that provides great services with an appropriate return on investment.
Speaker Change: We're all stakeholders. Thank you all for your time today and sharing this.
Important and exciting journey with us I look forward to our next call good day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].