Q4 2024 RadNet Inc Earnings Call
Please go ahead.
Thank you.
Speaker Change: Ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss <unk> fourth quarter and full year 2024 financial results.
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 1095.
Speaker Change: This presentation contains forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of 1095, specifically statements concerning anticipated future financial and operating performance <unk> ability to continue to grow the business by generating patient referrals and contracts with.
Speaker Change: Radiology practices recruiting.
Speaker Change: 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.
Speaker Change: 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 <unk> actual results to differ materially from the statements contained herein.
Speaker Change: These risks and uncertainties include those risks set forth in Radnet reports filed with the SEC from time to time, including Radnet Annual report on Form 10-K for the year ended December 31, 2024 to be filed shortly.
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.
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.
Dr. Berger: Thank you Mark good morning, everyone and thank you for joining us today.
Dr. Berger: On today's call Mark and I plan to provide you with highlights from our fourth quarter and full year 2024 results give you more insight into factors, which affected this performance.
Dr. Berger: And discuss our future strategy.
Dr. Berger: 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.
Dr. Berger: With that let's begin.
Dr. Berger: I am very pleased with the performance in the fourth quarter. It was the strongest quarter in the company's history with record revenue.
Dr. Berger: Revenue and adjusted EBITDA.
Dr. Berger: Total company revenue increased 13, 5% to $477 $1 million and adjusted EBITDA increased 14% from last year's fourth quarter to $75 million.
Digital health revenues increased 28, 1% to $18 9 million.
Dr. Berger: And digital health adjusted EBITDA increased 61, 6% to $4 5 million from last year's fourth quarter.
Dr. Berger: Imaging Center revenue was driven by increased demand in virtually all of our markets benefiting from the growing utilization of diagnostic imaging within healthcare as well as the continuing shift of procedural volumes away from the more expensive hospital alternatives to ambulatory freestanding imaging centers.
Dr. Berger: As a result, we experienced 8% aggregate in 4% same center procedural volume growth in this year's fourth quarter relative to last year's same quarter.
Dr. Berger: Also contributing to the strong revenue performance was the positive impact of improved reimbursement from commercial Payors, who recognize the important role we are playing as a lower priced alternative to hospital based imaging.
Dr. Berger: Lastly, relevant revenue benefited from the continuing shift in modality mix towards advanced imaging, MRI and pet <unk>, where revenue per scan is substantially higher than with routine imaging during the fourth quarter advanced imaging represented 26, 8% of revenue.
Dr. Berger: Procedural volume an increase of 137 basis points from last year's same quarter. This is both a function of the overall industry trend of more of the PCT exams being ordered as a result of technology advances in these modalities as well as the significant Kevin.
Dr. Berger: <unk> investment we have made in the last few years in advanced imaging equipment for growth and replacement.
Dr. Berger: 2024 was also a year of significant investment.
During 2024, we opened nine de novo facilities in markets, where there are patient backlogs, where we require additional capacity are we currently lack access points to service identified patient populations. These centers should be material contributors to long term performance and growth.
Dr. Berger: We continue to grow the hospital and health system joint venture business. Currently 153 of <unk> 398 centers or 38, 4% are held within system partnerships.
Dr. Berger: This is an increase of 23 centers from year end 2023.
Dr. Berger: Health systems continue to seek 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 their site of care towards lower cost high quality solutions our.
Dr. Berger: Little and health system partners have been instrumental in increasing our procedural volumes.
Dr. Berger: With their physician.
Medical group relationships.
Dr. Berger: Momentum continues with initiatives inside the digital health segment in the fourth quarter, we commercially launched the detailed upper OS operational and diagnostic software suites announced partnerships with GE and Siemens to bundle with or embed smart technologies into an <unk>.
Dr. Berger: <unk> and ultrasound equipment and commercialize the tech live remote scanning solution for MRI and other modalities.
Dr. Berger: During 2024, we also continued to build executive management capabilities within digital health, culminating with keys, we absorbed joining as the CEO of the digital Health Division in September of 2023.
Dr. Berger: Throughout 2025, we will be focused on implementing these detailed solutions within the Radnet network of centers, which is expected to drive operational efficiencies in many of the business processes performed on behalf of the imaging centers primarily through automation further.
Dr. Berger: More of these technologies will help create capacity that will enable the imaging centers to service increasing demand for diagnostic services.
At the same time, we will be investing aggressively to build the necessary infrastructure within digital health to sell and support external customers embedded in our 2025 digital <unk> guidance is approximately $20 million of investment primarily directed towards building sales marketing customer.
Dr. Berger: <unk> support and implementation capabilities requisite to support significant external growth in the coming years.
Dr. Berger: We continue to focus.
Dr. Berger: On strengthening the balance sheet by managing liquidity and financially and financial leverage.
Dr. Berger: At year end 2024 residents cash balance was $740 million and the net debt to adjusted EBITDA leverage ratio was under one times.
Dr. Berger: During 2024, we consummated a $230 million stock offering in March a debt refinancing transaction in April, which lowered our cost of capital and extended maturities through 2031, and a debt repricing transaction in November which further lowered the interest cost on red.
Dr. Berger: Credit facility.
Dr. Berger: At this time I would like to turn the call back over to Mark to discuss some of the highlights of our fourth quarter and full 2020 for performance as well as discuss our 2025 guidance. When he is finished I will make some closing remarks.
Mark: Thank you Howard.
Mark: I am now going to briefly review, our fourth quarter and full year 2020 for performance and attempt to highlight what I believe to be some material items.
Speaker Change: 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 fourth quarter and full year 2024th performance.
I will also provide 2025 financial guidance levels, which were released in last evenings financial results press release.
Speaker Change: Release.
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 explained extinguishment and non cash equity compensation adjust.
Speaker Change: Adjusted EBITDA includes equity and earnings of unconsolidated adopt it operations and subtract allocations of earnings to Noncontrolling interests in subsidiaries and is adjusted for noncash or extraordinary and onetime events taking place during the period.
Speaker Change: 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 fourth quarter and full year 2024 results.
Speaker Change: As many of you may have seen in the financial results press release, we made last night, we had a very strong fourth quarter, while I won't recap all the financial information that's contained in yesterday's earnings report here are some highlights.
Speaker Change: Fourth quarter total company revenue and adjusted EBITDA were quarterly records revenue increased 13, 5% and adjusted EBITDA increased 14% from last year's fourth quarter.
Speaker Change: The digital health segment also exhibited strong growth in the quarter with revenue growing 28, 1% and adjusted EBITDA growing 61, 6% from last year's fourth quarter.
Speaker Change: Fourth quarter adjusted earnings per share for Radnet grew to 22 per share versus <unk> 15 per share for last year's fourth quarter.
Speaker Change: 8% aggregate and 4%.
Speaker Change: 4% same center procedure volume growth drove much of the topline performance.
Speaker Change: Also benefiting the fourth quarter was the continuing shift in business mix in favor of advanced imaging.
Speaker Change: Advanced imaging during the quarter represented 26, 8% of our procedure volume an increase of 137 basis points from last year's fourth quarter.
Speaker Change: Higher acuity advanced imaging drive more revenue per procedure and improved profitability.
Speaker Change: The strong ending to the year caused us to meet or exceed the principal 2024 guidance ranges of revenue adjusted EBITDA and free cash flow in both the imaging centers segment as well as digital health.
Speaker Change: We finished 2024 with a strong cash and liquidity position.
Speaker Change: At year end, we had over $740 million of cash on the balance sheet full availability of $282 million revolving credit facility.
Speaker Change: And a term loan that is priced at <unk>, plus 225 basis points reflective of the financial repricing transaction, we completed.
Speaker Change: The refinancing transaction, we completed in April and the repricing transaction, we completed in November.
Speaker Change: Continued improvement in revenue cycle have capped our dsos or days sales outstanding at 32, three days near our record low.
Speaker Change: With regards to our financial leverage as of December 31, 2024, unadjusted for bond and term loan discounts, we had $268 8 million of net debt, which is our total debt at par value less our cash balance.
Speaker Change: Note that this debt balance includes radnet ownership percentage of New Jersey imaging network net debt of $41 4 million for which Radnet is neither a borrower nor guarantor.
Speaker Change: At year end, our net debt to adjusted EBITDA leverage ratio was below one times.
Speaker Change: As some of you may have seen we released 2025 guidance financial guidance ranges in conjunction with our financial results press release last night.
While I'm not going to run through all the numbers on the call on this call I will emphasize some important points.
Speaker Change: In January and February of 2025, we experienced severe winter weather conditions. These winter weather conditions were significantly more severe than the first quarter of 2024, which experienced a relatively mild winter season.
Speaker Change: As a result, our operations in the northeast mid Atlantic and in Houston, which together account for almost 60% of our revenues were impacted materially.
Speaker Change: Winter storms impacted our business principally in two ways first the patient schedules on the days of the storm suffer from cancellations due to difficult travel conditions loss of powers at centers center closures and the inability of our own staff to come to work.
Speaker Change: Second the patient flow of our referring physicians is similarly impacted causing a disruption in our scheduled appointments for days following the storm.
Speaker Change: Unfortunately, one scanning slots go unused they are never made up.
Speaker Change: In addition to the winter storms on the East coast and in Huston in January and February we lost revenue and adjusted EBITDA as a result of the southern California wildfires.
Speaker Change: So radnet suffered no property damage at any of our nearby centers during and after the fires all businesses regardless of industry lost revenue populations were displaced in the utilization of healthcare was not a priority for those impacted by the wildfires.
Speaker Change: We estimate that the impact we suffered in January and February from the winter storms and the wildfires was approximately $22 million of revenue and $15 million of adjusted EBITDA.
Speaker Change: Fortunately our business has bounced back in recent weeks and we are experiencing strong volumes in line with our original projections we.
Speaker Change: We do not expect an impact from the severe weather conditions or the wildfires fires to go beyond the first quarter of this year.
Speaker Change: Okay.
Speaker Change: As a result of these weather and wildfire impacts in January and February we modified our full year 2025 budget and the guidance ranges for the loss of this revenue and adjusted EBITDA.
Speaker Change: Our original projections for the second third and fourth quarters of 2025 remain unchanged from the original budget.
Speaker Change: In regards to the digital health reported reportable segment, we are anticipating 2025% revenue growth in the neighborhood of 30%.
Speaker Change: This growth will continue but.
It will come from a combination of revenue increases in our clinical AI solutions as well as sales and licensing from the deep health OS Smart technologies and Tech life portfolios.
Speaker Change: The growth in digital health adjusted EBITDA is expected to lag revenue growth due to approximately $20 million of planned investments throughout 2025 in the infrastructure, which is necessary to support external customers.
Speaker Change: Areas of investment include sales marketing customer support and implementation.
Speaker Change: I would now like to turn the call back over to Dr. Berger, who will make some closing remarks.
Dr. Berger: Thank you Mark.
Speaker Change: As we begin 2025.
Speaker Change: Agnostic imaging is rapidly transitioning into a tech enabled specialty.
Speaker Change: Fundamentally in order to service the growing demand for diagnostic imaging, which is expected to steadily rise over the next decade, and as Jim challenged by labor shortages, which appear to unlikely be abated in the near future our industry needs to embrace technology solutions.
Speaker Change: That will enhance operational efficiency streamline workflow improves the patient experience and provide better clinical outcomes.
Speaker Change: It is <unk> mission to lead the industry down this path through.
Speaker Change: Through providing digital health solutions.
Speaker Change: Address the most critical industry needs.
Speaker Change: The announcement that was made earlier this week with Ob Gyn specialist of Palm beaches as a case study of how radnet can be a solution provider to enable leading edge diagnostic imaging at the point of care.
Speaker Change: Enabling physician offices multi specialty medical groups urgent care centers. In addition to Ob gyn offices with tools to provide high quality cost effective diagnostic imaging.
Speaker Change: Which will increase access to imaging services, particularly for mammography ultrasonography and X-ray. These with these.
Speaker Change: These routine imaging procedures represent about 75% of all outpatient imaging services.
Furthermore, tech enabled point of care imaging will create better compliance for routine screening.
Speaker Change: Such such as mammography and will reduce costs to the health care system by providing additional sites that are more convenient and cost effective.
Speaker Change: In order to effectively and safely provide these imaging services.
Speaker Change: Alternative sites of care will need tech enabled turnkey solutions to manage workflow professional interpretive services powered by clinical artificial intelligence and solutions to improve the effectiveness of onsite or remote technologists.
Speaker Change: Radnet is uniquely positioned to lead radiology in this direction because of his 35 plus year experience in building the industry's largest and most successful outpatient provider.
Speaker Change: It's significant financial and managerial resources.
Speaker Change: Its industry relationships, including those with radiology is largest equipment manufacturers and more recently.
Speaker Change: It's newly developed array of digital health solutions, including the <unk>.
Speaker Change: Depot, Oss Smart mammography Smart Sonographer Tech lies in its ability to develop and commercialize <unk>.
Speaker Change: Clinton critical clinical AI tools, such as what we have already accomplished in breast lung prostate and brain.
Speaker Change: These essential solutions are driving our continued focus and investment into digital health.
Speaker Change: 2025 will be an important year for Onboarding digital health team members in sales marketing customer support and invitation both internally and externally.
Speaker Change: Lastly, we will be opportunistically evaluating acquisitions that serve to either add new products and services and clinical AI solutions <unk> provide us with our customer base to which we can market and so our portfolio of solutions.
Speaker Change: Operator, we are now ready for the question and answer portion of the call.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: So anytime you question has been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from David Macdonald with Truest. Please go ahead.
David MacDonald: Hey, good morning, guys.
David MacDonald: So guys. Just one quick question I just wanted to ask a quick follow up on the weather impact. So it sounds like I just wanted to confirm.
David MacDonald: More on the wildfires Southern California piece as you guys kind of look out at your scheduling and this and that you expect to be kind of back to a 100% in terms of scheduling.
David MacDonald: Either.
David MacDonald: Later in March or certainly by the end of the quarter. So no leakage into the second quarter.
Dave: Hi, Dave.
Dave: Well, let me first put a little.
Dave: Yes.
Dave: Contextual contractual world, Okay context here.
Dave: The fire storms and I want to use the word storm.
Dave: In southern California, particularly in the Los Angeles area.
Dave: Pasadena area.
Dave: <unk> side and.
Dave: And then to a county.
Speaker Change: We're like almost a snow storm in the sense that it impacted virtually everybody throughout southern California, having lived through that because of my location in the corporate headquarters here in Los Angeles.
Speaker Change: Everybody was impacted by this I can tell you that on a daily basis people were glued to the television watching these buyers just to get some sense of when relief might occur and when we can start returning back to normal in addition.
Speaker Change: To that the air quality was noticeably dangerous and people were just reluctant to travel.
Speaker Change: Which was all hampered by the fires and the emergency vehicles that were given obviously first priority and being brought in from all over not only southern California, but other states. So the impact of this is not just a simple fire, but something.
Speaker Change: That effectively could almost be thought of as like a massive snow storm that not only impacted the days and in this case about Tenda weeks 10 days to two weeks that this ongoing saga unfolded.
Speaker Change: But both.
Speaker Change: Afterwards, both in terms of people, who were on impacted directly but indirectly and new people that were impacted and were reaching out to try to.
Speaker Change: Provide their own comfort inn and age so that being said.
Speaker Change: We have recover I believe is there.
Speaker Change: Back to normal probably within the last 10 days.
Speaker Change: And find ourselves slowly.
Speaker Change: Increasing back to or perhaps even exceeding in some areas. The volumes that we had projected for the first quarter.
Speaker Change: And if you add what we estimate our loss of business was the first unimpeded by both the fire storms here in southern California.
Speaker Change: Severe winter weather conditions on the East coast.
Speaker Change: Probably would have met or exceeded our first quarter budget.
Dave: That being said and more directly to your answer a question Dave.
Dave: We believe that March should be a very normal month for us.
Dave: It is indicated as I mentioned by the improved volumes, we're seeing throughout the company.
Dave: Over the last 10 days.
Dave: As well as March being.
Dave: A more normal month from a climate climate standpoint that we expect not to be impacted by weather. So I think.
Dave: January and February were extraordinary circumstances.
Dave: That affected not only radnet, but.
Dave: Virtually everybody in those markets in every business.
Dave: And is unfortunately, something that we just have to absorb but.
Dave: We're extremely confident in the rest of the.
Dave: For the year and March going forward that.
Dave: The budget projections and expectations will be met and hopefully exceed it.
Dave: As we as we have done almost for every quarter in the last two to three years.
Dave: Okay great.
Dave: I guess second question, just I realize it's early but.
Dave: Any early learnings from the <unk> rollout as you guys start looking at some of your internal.
Dave: Metrics or just some of the feedback from some of the clinical folks just any early learnings there or is it.
Dave: A bit too early to start asking for that.
Dave: Well I think it's a little bit early days, but.
Dave: We have.
Dave: A very close collaboration as you would anticipate between the services side and the digital health side.
Dave: In both testing and rolling out.
Dave: The enormous changes that will occur as a result of the <unk> operating system.
Dave: And I think all of our.
Dave: Physicians as well as the tech staff and our.
Dave: More administrative.
Dave: Staff, particularly in the scheduling insurance verification are all very enthusiastic about.
Dave: The opportunities for a very substantial change in virtually everything that we do and you would have you would think that this is a logical extension because we're not the first industry to kind of go through these changes if you will things like.
Dave: Remote scheduling and contact centers.
Dave: Other kinds of.
Dave: Insurance Triaging through bots.
Dave: All routine and a number of industries, we happened to be a little bit more complicated because the insurance industry itself is one difficult for people to note.
Dave: Navigate through.
Dave: And our live presentation that to mention all of the.
Dave: Thought that has to go into creating this so.
Dave: We believe that we're on target to.
Dave: Implement most of the.
Dave: OS system here in internally through the three quarters remaining in this year.
Dave: And as we presented to the various constituents and Radnet on the services side, they come up with very valuable recommendations on how we can continue to improve and that I believe is a critical part of the value proposition that radnet.
Dave: Plays in creating these deep health solutions, if you will.
Dave: The services side of our business and the digital health side that really was born from.
Dave: From the services side.
Dave: Work together very collaboratively and will produce a product that is unlike anything in the industry from certainly a operational side and I believe also from the clinical side.
Dave: I believe that some of the efforts that we're working on.
Dave: And the digital health area will become a little bit clearer as to how we want to be the leading operator and.
Dave: Developer of these solutions in the industry, particularly as I mentioned in some of my closing remarks into other point of care providers that will help drive the access.
Dave: For the increasing demand, particularly surrounding around routine imaging.
Dave: Nobody else is focused on at all including the.
Dave: Oems and radiology.
Speaker Change: And then guys just last one for me.
Speaker Change: Just anything that you would with regards I guess two part question with regards to the pipeline anything that you'd call out in terms of either.
Speaker Change: Besides the deal Youre seeing anything happening with multiples et cetera, and then I guess the second part of the question is can you provide a little bit more detail on the Palm Beach Obgyn deal is that something they came to you you guys reached out to them are you getting both incoming zander I assume doing outreach is just any detail on how that kind of came together would be interesting.
Speaker Change: Thank you.
Let's see David Yes, yes, and yes.
Speaker Change: They reached out to us because of their own.
Speaker Change: The concern and dissatisfaction.
Speaker Change: With some of the professional and operational.
Speaker Change: Relationships that they had.
Speaker Change: It was a very.
Speaker Change: What you say expeditious.
Speaker Change: Conference.
Conference, but.
Speaker Change: Call and then ultimately <unk>.
Ranging.
Speaker Change: <unk>.
Speaker Change: Our new solution for this group, which is quite large it's the largest provider of Ob Gyn, who services in southern Florida marketplace.
Speaker Change: With 10 offices, five of which provide mammography services.
And when we went in and while their focus was primarily on professional services, we quickly were able to.
Speaker Change: Have them adopt some of the digital health solutions surrounding schedule scheduling.
Speaker Change:
Speaker Change: Noticing that patients visits with.
Speaker Change: Both scheduling as well as their annual visits.
Speaker Change: And sometime in the first part of March they'll actually be adopting our <unk> program, which we expect to have very substantial.
Speaker Change: Endorsement and.
Speaker Change: Adoption for so what they.
Speaker Change: Their inquiry originally came from was to provide better quality professional and interpretive services.
Speaker Change: And we were very quickly able to.
Speaker Change: And the other operational capabilities as well as artificial intelligence that.
Speaker Change: They had not ever see.
Speaker Change: Seriously considered so.
This is a case study for us.
Speaker Change: And one where I believe there will be a lot of other opportunities.
Speaker Change: As I mentioned in my remarks in the Ob Gyn any area that we want to aggressively pursue both to improve access for mammography to help more for women that arent getting their annual screening done.
Speaker Change: As well as elevating the quality of the service to take what we believe is now the standard of care with artificial intelligence.
Speaker Change: I'm proud to say that.
Speaker Change: On the east coast and in our in our Florida market well over 50% of our patients are opting in for our early breast cancer detection.
Speaker Change: So we expect that to even be greater where theres better control of the patients, particularly for the woman to get that service with their wellness visits and so.
Speaker Change: This collaboration I believe once.
Speaker Change: I won't take us that long to ramp this up once we are able to statistically demonstrate to the marketplace the value proposition that radnet brings through its.
Speaker Change: Various lines of service not only as a company, but bringing in professional services also.
Speaker Change: Really is looking at the turnkey solutions that I was talking about my last part of my remarks that I think are really critical to help decompress also some of the demand for routine imaging that is more and more difficult for outpatient imaging centers as well as hospitals too.
Speaker Change: Or.
Speaker Change: Okay. Thanks, very much guys appreciate it.
Speaker Change: Thanks, Jay Thanks, Dave.
Speaker Change: The next question comes from Brian <unk> with Jefferies. Please go ahead.
Brian: Hey, good morning, guys.
Speaker Change: Mark I'll start with you as we think about.
Speaker Change: Your comment that volume has bounced back after the impact of this north of the storms.
Speaker Change: If you can give us some color on kind of like what kind of growth rates are you thinking about or contemplating in the guidance. Prior to this and then you know kind of like just any observation that there is like the demand dynamics in the market.
Speaker Change: Sure. So if you were to take the guidance that we released last night and you add back the revenue, which we've estimated that we lost meaning the $22 million and you look at sort of the midpoint of that guidance range.
Speaker Change: It implies about a 7% growth there and.
Speaker Change: We think as we're very very confident and highly achievable and where.
Speaker Change: Hoping to exceed that as we have in the past few years and adjust our guidance throughout the year.
Speaker Change: Within that we're assuming that.
Speaker Change: That is being driven by procedure volume growth and implied in the procedure volume growth is about a 3% same store sales.
Speaker Change: Growth year over year.
Speaker Change: <unk> is more in line with our historical our same center performance, it's less than what we've been.
Speaker Change: <unk> over the last several years and so I think that there is some some potential conservatism built into that but given that we started off the year with January and February and all the impacts of the wildfires in the.
Speaker Change: The winter weather conditions on the East coast, and we didn't have a very good viewer.
Speaker Change: On the trends in the business because of those impacts and so we wanted to be what we felt was conservative for the remainder of the year.
Speaker Change: Totally understand and then maybe Howard as I think about the comments on the $20 million of infrastructure investments and additional health side. If you can walk me through number one is this going to be the run rate or do you think you'll have to.
Speaker Change: Add to that over time as the business keeps growing and then second.
Speaker Change: What are you seeing in the market that for.
Speaker Change: For digital health that prompted you to make these investments today I mean, you have visibility to like contracts, whether it's hospitals for digital health or just other areas of the health care space that requires you to put that level of investment in the business today.
Brian: Good morning, Brian Thanks for the question.
Speaker Change: One thing I'd, just before I respond to your question to me just to add a little color to.
Speaker Change: March remarks.
Speaker Change: Is that there is no.
Speaker Change: Built in benefit from deploying internally the detailed operating system into the Radnet centers. So.
Speaker Change: Additional opportunity both on the revenue side as we create.
Speaker Change: Capacity and better through better workflow and efficiency as well as reducing costs, which we expect to see predominantly in 2026 when were fully implemented some of that may occur, we just can't be certain as to how it will.
Speaker Change: Result in.
Speaker Change: And crossed it may.
Speaker Change: Give us some benefits, but may be duplicative for some period of time as we transition so.
Speaker Change: I want to emphasize that point.
We've put no built in benefit from what we know we will see in 2026 into our 2025 forecasting.
Speaker Change: But more more to the point here.
Speaker Change: I think a lot of the $20 million that we talked about will be onetime costs because there'll be.
Speaker Change: B, primarily in building our sales team marketing teams implementation teams.
Speaker Change: And the other.
Speaker Change: Aspects of taking on this enormous responsibility, which we take both seriously for redness benefit as well as the industry I would tell you that every system that we are partnered with every <unk>.
Speaker Change: <unk> comes to us for potential acquisition.
Speaker Change: Imaging center providers.
Speaker Change: Every hospital that we talk to them that are that we have currently joint ventures with or new ones that we're talking to with which are rather extensive all have the same two fundamental problems number one as we mentioned from a repeatedly in our.
Speaker Change: Quarterly remarks.
Speaker Change: The shift the business away from hospitals for outpatient imaging into the outpatient centers.
Speaker Change: That's a trend that has accelerated particularly after COVID-19.
Speaker Change: The other thing is that they are all being challenged by the labor shortage pools and thats not going to go away, whether it's the shortage that we have for radiologists in the shortage for technologists and other personnel. So what we're building is something that arguably anybody could use that.
Speaker Change: Better drive performance.
Speaker Change: Efficiency.
Speaker Change: And improve quality of care and when you look at the potential impact just in the U S.
All of this in one of the examples that I gave.
Speaker Change: There is about 350 million outpatient imaging procedures done annually that number continues to grow probably at a 3% to 4% range just based on population growth aging.
Speaker Change: <unk> and.
Speaker Change: And newer applications for this.
Speaker Change: The technology, that's being developed both in.
Speaker Change: In the AI space as well as.
Speaker Change: From the equipment manufacturers themselves. So this increasing demand is something that everybody has to be sensitive to and which the current systems are just not capable of managing not only in a cost effective way, but really at a level of <unk>.
Speaker Change: Clinical efficiency and quality that the new technology allows us to do so.
Speaker Change: The investment of this could.
Speaker Change: Could be justified simply to build this for radnet, but whatever is good for radnet will be good for anybody else in the outpatient imaging space. It doesn't mean that everybody is going to run to radnet.
Speaker Change: But certainly nobody else in the space, whether it's the Oems.
Speaker Change: Our other developers of artificial intelligence or other tools is taking on the magnitude of what we're talking about and potentially creating the impact which will be beneficial not only for healthcare excuse me for health for imaging providers hospital or.
Speaker Change: Our outpatient, but also for health care and lowering cost by detecting disease earlier and.
Speaker Change: That's what these systems ultimately are capable of doing and Thats, where the biggest benefit will be to society as a whole health care in general and radiology and in particular and I think that's a.
Speaker Change: Very important social responsibility that radnet.
We take seriously because I'm not certain who could do it.
Speaker Change: At the scale that we're talking about.
Speaker Change: And at the.
Speaker Change: Ah rapidity with I want to emphasize to all of our.
Speaker Change: Stakeholders lenders analysts we've only been in this business practically.
Speaker Change: Year and a half we're not even at the two year Mark since we assembled this team and officially launched at the beginning of 2020 for the digital Health Division and I think what we've done in that relatively short period of time rivals people that have been in this industry and <unk>.
Speaker Change: <unk> products.
Speaker Change: For 10 to 15 years, sometimes so.
Speaker Change: The efforts of my entire team both in the services Division as well as the digital Health Division and I take very seriously the responsibility that I believe we have to improve and we'd radiology and diagnostic imaging into this.
Speaker Change: Future and that future is here today and Thats something that we have to wait for us to hit us like a bolt of lightning.
Speaker Change: I appreciate that maybe Mark just two quick follow ups just on Howard's point right. So as I think about your guidance today, if not for the storms and the step up in investment here, you guided to roughly $320 million of EBIT.
Speaker Change: So 15% ish growth is that the right <unk>.
Speaker Change: Growth rate as we think about 2026 and beyond and then my second quick follow up is just the <unk>.
Speaker Change: Clinical AI revenues, if you could share that with us for the quarter for Q4. Thanks.
Speaker Change: Yes.
Speaker Change: On the first part of your question if you add.
Speaker Change: $15 million of EBITDA to our guidance levels for both digital health and.
Speaker Change:
Speaker Change: Imaging services together, we're at about $300 million of EBITDA, which is which is where we were which is where our original budget was.
Speaker Change: For this particular year.
Speaker Change: And then what was the second part of your.
Speaker Change: Clinical AI revenue for Q4.
Speaker Change: Yes, so clinical AI revenues.
Speaker Change: The digital Health Division for Q4 was about six months.
Speaker Change: Hold on.
Speaker Change: We just looked at a report that I've got here.
Speaker Change: We can take it offline market, it's about six it's either six five or $6 7 million of the digital health in fourth quarter.
Awesome. Thank you congrats again.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks, Brian.
Speaker Change: The next question comes from John Ransom with Raymond James. Please go ahead.
John Ransom: Hey, good morning, everybody I'm asking.
Speaker Change: A few for me here.
Speaker Change: Mark if we think about the detail I'm sorry, the digital health.
Speaker Change: <unk> guide for 'twenty.
Speaker Change: So from 25 can you kind of help us think about that.
Speaker Change: Different components to that including detail.
Speaker Change: Do you mean detail.
Speaker Change: Yes.
Speaker Change: Hamilton depot versus what's coming from all the other stuff.
Speaker Change: Yes sure.
Speaker Change: So total revenue.
Speaker Change: Expect to be in the range of.
Speaker Change: <unk>.
Speaker Change: 80%.
Speaker Change: At about $80 million to $90 million.
Speaker Change: And then I'll.
All of that.
Speaker Change: We're expecting that the.
Speaker Change: AI component.
Speaker Change: We will be in the range.
Speaker Change: $25 million to $30 million mhm.
Speaker Change: Uh-huh.
Speaker Change: And then the remainder will be software.
Speaker Change: As well as our other technologies such as smart ma'am.
Speaker Change: Five.
Speaker Change: So do you expect to convert all of your legacy software clients see deep health over time.
John Ransom: Hi, John.
John Ransom: Yes, yes, we do.
John Ransom: Hey.
John Ransom: We will sunset.
John Ransom: The older platform.
John Ransom: For two reasons number one.
It's an on Prem service that we are still doing and we will be migrating.
John Ransom: Tire company to the cloud.
And not only for storage, but it will be cloud native so that all of our applications will be in our cloud network and we hope to have that entire all of the 400 centers on that cloud platform.
John Ransom: Including our legacy system by the end of this year, so all of our legacy customers.
John Ransom: We will be transitioned over to this new service.
John Ransom: The second part of this is.
John Ransom: That.
John Ransom: When we talk about the.
John Ransom: <unk> digital health <unk>.
John Ransom: Division, we really have to focus on three things.
Speaker Change: One is clinical AI.
Speaker Change: Second is the generative AI, which are the processes that we're going to.
Speaker Change: Used to change the way our centers operate almost from the very beginning of calling in for an appointment.
Speaker Change: The.
Speaker Change: Final Bill and scheduling excuse me and reporting.
Speaker Change: But the other piece of this.
Speaker Change: Are ways that we believe uniquely that we can.
Speaker Change: Potentially accelerate this growth through the efforts.
Perhaps looking at other companies that we could acquire so as opposed to what we've done.
Speaker Change: In the past.
Speaker Change: Where much of our.
Speaker Change: Capital has been invested in the imaging services side, and we will continue to be that.
Speaker Change: We will look for opportunistic.
Speaker Change: Businesses that are synergistic with our platform too.
Speaker Change: Further develop.
Speaker Change: Those tools that we think.
Speaker Change: <unk> will help drive not only new revenue, but efficiencies in running our business.
Speaker Change: And allow us to become the leader in the development of auto artificial intelligence for mammography.
Speaker Change: Altra sound and X-ray, So I think.
Speaker Change: The example that I gave and the importance of that was in the example, with our latest.
Speaker Change: Efforts with in the Ob Gyn space.
Speaker Change: And I had mentioned in other areas that we will pursue we were all of these tools will be transformative and as opposed to perhaps a lot of the focus which is of the.
Speaker Change: Of the Oems and their development of the more advanced imaging tools.
Speaker Change: Meaning MRI Cte <unk> areas in mammography and ultrasound and X-ray has been much slower to adopt a lot of the artificial intelligence that now almost all of the Oems that we're talking to are looking for us to take our clinical.
Speaker Change: Expertise and help lead the development of some newer tools in that area because they all see the opportunities now and the need to be transformative in the use of this technology throughout the entire range of clinical services that we provide.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I just wanted to clarify something with.
Speaker Change: Or reiterate with something I, just got the numbers in front of me with what Brian asked with regards to the AI portion of the digital health revenue. So the digital health rather revenue in the quarter was $18 9 million and indeed, the AI piece was $6 $7 million of that $18 9 million and that was a 31, 9% growth.
Speaker Change: Just the AIP from last year's fourth quarter.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: I think we I think we lost you John.
Speaker Change: Oh.
Speaker Change: We can't hear you can you hear me now.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: I forget Apple Airpods.
Speaker Change: You guys have done a couple of nice capital raises but obviously the money's NIM kind of thing there what.
Speaker Change: What are the odds that you write a check out of that cash this year.
Speaker Change: Well I think the odds are very very high that we will be using some of that capital within 2025 and as <unk>.
Howard Berger: Howard said in his closing remarks.
Howard Berger: That some of that capital could be used within the digital health.
Howard Berger: Segment for acquisitions.
Howard Berger: Acquisitions that.
Howard Berger: Could either bring us new products and services or new <unk>, new clinical AI tools that will be important not only for our own business, but for external customer customers or for acquiring businesses that already have a significant customer base that we can.
Howard Berger: Then further penetrate by selling our portfolio, a deep health products and services into.
Howard Berger: And then there will be.
Speaker Change: I'm sorry, John there will be also acquisitions on of course.
Speaker Change: The normal course of business on the imaging center side.
Speaker Change: Have you been a little surprised.
Speaker Change: Nothing really has materialized in the core business.
Speaker Change: Interest to you in terms of bid ask or size or multiple or what have you.
Speaker Change: Yeah.
Speaker Change: Your communication here is a little unclear, sometimes John So I think I understand.
Speaker Change: We're not.
Speaker Change: Not your communication, but an ounce.
Speaker Change: Communications.
Speaker Change: I don't think we're surprised.
Speaker Change: As you are.
Speaker Change: Where a number of larger.
Speaker Change: Consolidators are private equity backed and.
Speaker Change: Their idea to say they are all for sale at the right price. The question is what's the right price and if it doesn't fit in with the with the metrics that we think are important to maintain.
Speaker Change: Appropriate leverage and.
Speaker Change: And synergies that we traditionally expect from.
Speaker Change: Our.
Speaker Change: Acquisitions.
Speaker Change: We just pass on them, so, but we're actively working on a number of opportunities both in the digital health.
Speaker Change: And in the.
Speaker Change: Imaging services Division, which I believe will be able to talk about later in the year.
Speaker Change: And but we want to be very strategic and we want to be good stewards of how we use this cash and it's better for us to keep a good cash balance and ready to move on those deals that we think are.
Speaker Change: Accretive not only from a financial standpoint, but from a long term future and growth standpoint.
Speaker Change: And I think you'll be hearing more about that.
Speaker Change: Us.
Speaker Change: Alright.
Speaker Change: Coming quarters.
Speaker Change: Alright, thanks, so much.
Speaker Change: Thanks, Jonathan take care.
Speaker Change: Okay.
Speaker Change: And the next question comes from Andrew Mok with Barclays. Please go ahead.
Andrew Mok: Hi, Good morning wanted to follow up on the labor remarks that you've made I think you said it was unlikely to abate.
Andrew Mok: In the future can you provide a bit more color on inflation trends youre seeing in the market. When did you see the acceleration of inflation to help for far along or do you think we are in this cycle.
Andrew Mok: Thanks, Andrew.
Andrew Mok: I think we started seeing this two years ago I mean, it was really the big right.
Andrew Mok: In Covid or right. After after Covid. So this is not something that were.
Andrew Mok: That's unexpected I think what happened in Covid, though to drive.
Andrew Mok: Some of the.
Andrew Mok: Challenges that we and everybody are facing in health care, particularly.
Andrew Mok: Imaging is the fact that some people are just throwing in the towel and they're either.
Andrew Mok: Retiring earlier or they're being very more specific about where they want to work and how much work that they wanted to do it's really created a different mindset. All together here and it was probably something that was already simmering and brewing, but the challenges that we've had from the.
Andrew Mok: The labor market are really reflected.
Andrew Mok: Cause of the demand that we have for imaging and so that's where the problem has manifest itself because as we have come out of the Covid period. The demand has accelerated either because of delayed services like has been reported so much particularly for routine screening procedure.
Andrew Mok: Yours.
Andrew Mok: Or just the continuing demand that the technology that we are providing has created in the way of better quality medicine and the driver for the App.
Andrew Mok: Is something that I think has caught everybody by surprise so it's a combination of.
Andrew Mok: Supply and demand.
Andrew Mok: The supply of the Labor force, not growing and maybe shrinking and the demand accelerating.
Andrew Mok: I think our recognition of this two plus years ago was really what drove us into the digital health opportunity, we may not have gotten there.
Andrew Mok: Not for this is our solution for that matter everybody solution to deal with the labor issue from a cost standpoint, we are analyzing this and.
Andrew Mok: Although the industry as a whole probably is low single digits over the last couple of years and growth of salaries, maybe even more than that I'm getting it signed.
Andrew Mok: Sign from Mark.
Andrew Mok: Peter.
Speaker Change: Our internal numbers are that we're managing control of that.
Speaker Change: And so the more we're in the low single digits, we mean industry.
The mid to higher single digits, particularly within the hospitals, who tend to be.
Speaker Change: Sometimes a little less <unk>.
Speaker Change: Economically focused particularly the non for profit community based hospitals, which are the majority of the health systems out there. So I think we've had a better experience around labor than most in the industries.
Overall in the industry, partly because I think radnet as we've done.
Speaker Change: A concerted effort towards making radnet, a place where people want to work, particularly radiologists, who come here because the lifestyle is significantly better than in the hospital. The hours are more predictable theyre not on call and we have a tremendous amount of pathology that allows our radiology.
Speaker Change: As to sub specialize in the.
Speaker Change: Types of of scans.
Speaker Change: And modalities that not only their best.
Speaker Change: Equipped to handle but also that they most enjoy practicing with so I think we've had a better experience than most but.
Speaker Change: Having said that within our guidance.
Speaker Change: We've Inc.
Speaker Change: In 2025, we're going to be absorbing about $45 million of salary benefits and wage increase within our guidance. So we're.
Speaker Change: <unk> 25 that this trend that we've been facing over the last several years will continue but I think the real opportunity for us in the entire industry.
Speaker Change: Is adopting the types of solutions that digital solutions that we're developing and have developed and thats going to have an impact in our business really in 2006 and beyond once we get that fully implemented with inside of Radnet and that's also what's giving us such great confidence that we're.
Speaker Change: To be successful in selling in licensing these digital solutions to others, because we're all facing the same.
Speaker Change: Same issues around labor.
Speaker Change: Got it and is the radiology labor pressures that all current rate in the market or do you also have exposure to physician subsidies that are common and hospital systems.
Speaker Change: No.
Speaker Change: The subsidies that you're hearing about our.
Speaker Change: Hospital based radiology groups only agreeing to work for the hospitals, if the hospital subsidize them because they simply can't make enough money by billing for the professional only components with inside of the hospital because remember the hospital as billing and collecting for the technical component in our business.
Speaker Change: Yes.
Speaker Change: For the most part that we make our money on the tactical component and the physician.
Speaker Change: The physicians are paid out of the global Bill that are receiving essentially the lion's share if not all of the professional component of the global Bill. So we're not you subsidy is really aren't applicable to the outpatient industry.
Speaker Change: Got it that's helpful. And then maybe just finally can you talk maybe about the switching costs of packs and brands as it relates to deep health.
Speaker Change: A lot of attention is on the AI side and rightfully, so, but I just want to understand how this part of the sales cycle works works, how much of a barrier that to switch onto deep health toxin risk systems for a new customer.
Speaker Change: Even if that customer really likes those products. Thanks.
Speaker Change: Well.
Speaker Change: The <unk> business like a lot of software businesses, if you will.
Speaker Change: Goes through cycles, if you will if you will and.
Speaker Change: The cycle that we're in now are that most people are using pack systems that are perhaps 10, plus years old and don't support the kind of productivity and other tools that can improve the efficiency of the <unk>.
Speaker Change: Outages and so our systems are designed to actually be the next generation of packs, we don't like using the term tax because I think thats, an old term and a lot of the benefit that we're talking about will be using newer software.
Speaker Change: We're engineered tools that can reside in the cloud and therefore create better use of the radiologists time both too.
Speaker Change: Read this study as well as utilize artificial intelligence to.
Speaker Change: Kind of aid if you will in the diagnostic work of what they do maybe with something as simple as triaging.
What artificial intelligence would call normals to not normals, and allowing more time to be spent.
Speaker Change: Doing the work of those cases that need more evaluation. If you will in less time for those at our normal and remember the majority of what we do is normal so even a triaging tool where the radiologist can trust the AI to be.
Speaker Change: Accurate and that will allow a lot of improvement and that's what's perhaps a little bit different about the hospital space versus the outpatient space. We can bring these tools and truly make a radiologist more productive and they will earn more.
Speaker Change: Reading more whereas in the hospital, while you would think some of this would be applicable and it will be the cases in the pathology that they see in a hospital are far more complicated.
Speaker Change: <unk>.
Speaker Change: In terms of evaluating why.
Speaker Change: <unk> is in the hospital and a much greater percentage are abnormal than in the outpatient space. So.
Speaker Change: I think the.
Speaker Change: The real opportunity here for the new technology to utilize newer.
Speaker Change: Computer science to develop better and faster.
Speaker Change: <unk> software for doing these same functions. If you will and then bringing it into the cloud to make that functionality.
Speaker Change: Or what Theyre looking at for looking at Pryor's, comparing priors with.
Speaker Change: More targeted.
Speaker Change: Software one of the best examples I can give is that the newer technology is generating in some cases hundreds of images that used to be.
Speaker Change: Just a handful of images and it's very difficult.
Speaker Change: The average radiologist to be looking at that many images.
Speaker Change: A lot of the artificial intelligence and work that we'll do cone down the relevant images.
Speaker Change: By applying the artificial intelligence to that which they were looking for given why the patient was referred but also.
Speaker Change: Perhaps looking at other things that Werent order that may be opportunistic.
Speaker Change: In the way of evaluating early diseases. So.
Speaker Change: That's why this whole evolution of tax is not just about reading, it's about what you're providing for the read Additionally that helps make it more.
Speaker Change: More efficient more accurate and more trustworthy than the prior Pac systems, and one thing I want to emphasize Andrew going back to your question about.
Speaker Change: How likely what are those.
Speaker Change: The impediments to switching.
Speaker Change: <unk> systems from a radiologist standpoint.
Speaker Change: The when you look at the overall industry for packs today, a very small percentage I believe the last report I saw was about 15% of all the Pac systems out there are cloud based systems today. So the vast majority of people out there radiologists are using.
Speaker Change: On premises software and when you look at the benefits of cloud based in terms of the ability to compress datasets the ability to do cloud based storage cloud based retrieval the speed at which you can look through prior images and call up prior studies.
Speaker Change: Viewer technology, that's there today that allows for visualization tools, it's so far superior in the cloud versus on premise software that is as dark as Howard said.
Speaker Change: There's going to be a cycle in this industry over the next in the.
Speaker Change: The coming years, where the radiologists are going to switch from these on premises systems to cloud based solutions like they have within other industries in other areas of software development and and that's.
Speaker Change: The this cycle that that deep health is preparing for it.
Speaker Change: Alright, thanks for the color.
Speaker Change: The next question comes from Larry Solow with CJS Securities. Please go ahead.
Speaker Change: Great.
Good morning, guys.
Speaker Change: My question's been answered thanks for a lot of call here I just had a couple of follow ups I guess on the.
Speaker Change: You mentioned mark that the $45 million increase in <unk>.
Speaker Change: Wages and benefits is that it sounds like the biggest driver but.
Speaker Change: Just overall it looks like EBITDA margin you actually have.
Speaker Change: Even if you add back the one time or the 15 might impact you have segment margin actually declining about 40 to 50 bps year over year.
Speaker Change: I assume that that's just the impact of.
Speaker Change: The higher wages or what is what else is driving that because it seems like there are a lot more good guys than <unk>.
Speaker Change: Hey, guys on the imaging piece, so what else is.
Speaker Change: Driving that contraction.
Speaker Change: Sure.
Speaker Change: When we built our guidance and just to give you a little bit of color on how we build our guidance. We when we're doing in there our internal budgeting. We're building it from the bottoms up so we go to two every center level manager every regional manager we are predicting projecting volumes by site based upon the opportunities and risks.
Speaker Change: Of that particular center, we build it up to a corporate level and then we layer on all the corporate functions and then.
Speaker Change: Embedded in that then we'll go back and say well does that assume.
Speaker Change: What kind of growth does that assume in.
Speaker Change: Right in the same center performance basis, and so on.
Speaker Change: From a from a labor standpoint, when we go back and look at on a same center basis, we're assuming about a 4% increase in the same center labor rates.
Speaker Change: Which is somewhat consistent with what we've what we faced in the last few years and then also embedded in them than the overall.
Speaker Change: Margin on <unk>.
Speaker Change: EBITDA margin flows out of that same budgeting process and what it showed this year is that we're expecting to have fairly stable margins relative to last year might be a little bit up or flat.
Speaker Change: The opportunity we think for margin enhancement.
Speaker Change: Is is going to occur once we put in the detailed OS platform and adopt a number of these automation tools throughout the year. So we could see some.
Speaker Change: Upside to that margin maybe in the second half of the year, but what we're really projecting and excited about is what this could mean for the profitability and margin enhancement in 2006 and beyond once we have it fully implemented with inside of Radnet.
And is there any like temporary clearly, there's a little bit of a learning curve to get some of the upside in terms of the benefits is there any temporary actually.
Speaker Change: Negative <unk>.
Speaker Change: Yes.
Speaker Change: Oh on efficiency wise.
Speaker Change: As you implement some of these systems.
Speaker Change: Maybe super short term and it should not matter, but does that actually absolutely.
Speaker Change: Essentially happened.
Speaker Change: We don't think so Larry.
The way we're implementing this is region by region and we're starting with the implementation or have started with the implementation and some of our smaller regions. So that we can work out some of the Kinks before we get married Maryland, New York, California, where we have much more.
So they're much more complex operations and complex workflows.
Speaker Change: We've done this before with our <unk> products.
Speaker Change: Over the years.
Speaker Change: And.
Speaker Change: I think we're not concerned.
Speaker Change: About this.
Speaker Change: It's something that we've had experienced within the past.
Speaker Change: Got it Okay, and just just segway into my last question.
Speaker Change: Obviously, you mentioned the internal potential benefits on the inefficiencies from.
Speaker Change: What about just on the digital help piece itself.
Speaker Change: This year, obviously it sounds like.
Speaker Change: <unk> targeted 30% plus growth.
Speaker Change: As we look out five years I am not looking for an exact number I realize that but.
Speaker Change: This business is this sort of growth sustainable you can grow this business started to sign up the next five years, maybe it can grow faster it feels like we're sort of.
Speaker Change: But in the infancy, but.
Speaker Change: It could be several hundred $300 million business.
Speaker Change: Is that like Farfetch in I guess at that level.
Speaker Change: <unk> margins would be.
Speaker Change: Over 30%, maybe even higher than that so just any any way to kind of.
Speaker Change: Okay ballpark that as you look out maybe five years plus.
Speaker Change: Plus or minus.
Speaker Change: Thanks.
Speaker Change: Well without giving multi year guidance because I don't think we're in a position to do that I don't think thats, what youre, saying is farfetched at all in fact, we're making substantial investments today as Dr. Berger mentioned over $20 million worth of investments in deep health to build the infrastructure to support a much.
Speaker Change: Larger business with external customers so.
Speaker Change: Yes.
Speaker Change: The opportunity that we see is that we're going after what today is about a $4 5 billion worldwide market in radiology software.
Speaker Change: Which we believe will continue to grow substantially and which will have that.
Speaker Change: Switch towards cloud based computing in the next decade and so.
Speaker Change: There is no one company out there that is the category killer in other words. This is not like an industry, where you've got a couple of operating systems like Microsoft Windows and Apple Oh asked. This is this is an industry that is highly fragmented that is.
Speaker Change: Mostly comprised of.
Speaker Change: Small developers or even Oems, who have created point solutions.
Speaker Change: <unk> that are focused on a particular modality or a particular problem or disease process.
And what we're building here is something or an underlying technology that.
Speaker Change: That could be ubiquitous and that could be.
Speaker Change: Very substantial.
Speaker Change: If we're if we're successful and which which would create a kernel of technology that could underlie.
Speaker Change: A lot of these point solutions, which can run on top of it that will develop and there'll be other people in the industry that will develop those point solutions, but but yes. We think that this is a big opportunity and which is why we are spending a lot of resources, both financial and otherwise to build the infrastructure to go after.
Speaker Change: Great. Thanks.
Speaker Change: Thanks, Mark I appreciate all the color.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Again, if you have a question. Please press Star then one our next question comes from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Jim Sidoti: Hi, good morning, Thanks for taking the questions.
Speaker Change: Two quick ones one.
Speaker Change: How long do you think it'll take for the sales and marketing team that you are bringing in for food.
Speaker Change: For the AI business to get trained and to actually start to contribute to revenue.
Speaker Change: Well, we hope to be able to complete that in this calendar year.
Speaker Change: There is more than one way to accomplish that so we'll be looking at various alternatives that we have to scaling up quickly for this but of.
Speaker Change: The process itself.
Speaker Change: I would hope one way or the other will be substantially complete by the end of the year.
Speaker Change: Okay, and then just a modeling question.
Speaker Change: <unk> revenue is down in the quarter and the year.
Speaker Change: Is that a trend going forward do you think that people are not.
Speaker Change: Not opting for that model going forward or was there something specific in.
Speaker Change: The back half of this year that drove that.
Speaker Change: Yes, no. Thanks, Thanks for the question and a good observation our capitation revenue this quarter was about six 6% at the height of our capitation, we were north of 10% and this is intentional.
Speaker Change: As you can see our overall revenue is going up and what what we've done as part of our efforts that we've that we've focused on several years ago.
Speaker Change: And going back to our pay ores in general to get price increases we've been highly.
Speaker Change: Highly successful with some commercial payers some capitate it.
Speaker Change: Payors.
Speaker Change: Others on the capitation side to have.
Speaker Change: We haven't reached agreement with and from our perspective, when we benchmark each capitation contract relative to the other books of business that we have we.
Speaker Change: We need to be paid fairly for the services that we're providing and in several cases over the last let's say 24 months.
Speaker Change: We have flipped a number of these capitation contracts to fee for service arrangements, where they are no longer obligated and sending us 100% of their patients.
Speaker Change: But.
Speaker Change: That which they do send us we're now enjoying at significantly higher fee for service rates and given the fact that our centers are so busy many of them have backlogs.
Speaker Change: Doesn't make sense in us seeing capitation patients if if the rates are not on par with the other books of business that we have so.
Speaker Change: We've actually benefited from flipping these contracts to fee for service, so youll see the capitation.
Speaker Change: Revenue has declined but our overall revenue has gone up I believe and we've gone through some of these cycles before I believe that some of these contracts will end up coming back to us.
Speaker Change: In the future when they recognize that holding the risk themselves and doling out the business on a fee for service basis to Radnet and others out there that might be able to service them.
Has cost them more money than if they would have initially agreed to the.
Speaker Change: Increases that we're requesting so we'll see how it plays out in the coming years.
Speaker Change: Thank you for explaining that.
Speaker Change: My pleasure.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Dr. Berger for any additional closing remarks.
Speaker Change:
Howard Berger: Thank you operator.
Howard Berger: Again, I would like to take the opportunity to thank all of our shareholders for their continued support and the employees of Radnet for their dedication and hard work man.
Howard Berger: Management will continue its endeavor to be a market leader or the market leader there.
Howard Berger: And 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.
Howard Berger: Good day.
Howard Berger: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.