Full Press Release Details
C O R P O R A T E P A R T I C I P A N T S
Mark Stolper, Executive Vice President
and Chief Financial Officer
Howard Berger, M.D., President and Chief
C O N F E R E N C E C A L L P A R T I C I P
Brian Tanquilut, Jefferies
Sarah James, Barclays
Mitra Ramgopal, Sidoti & Co.
P R E S E N T A T I O N
Good day ladies and gentlemen. Welcome to the
RadNet, Inc. Second Quarter 2022 Financial Results Conference Call. This conference is being recorded.
At this time, I would like to turn the conference
over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, sir
Good morning, ladies and gentlemen. Thank you
for joining Dr. Howard Berger and me today to discuss RadNet's second quarter 2022 financial results.
Before we begin today, we'd like to remind everyone
of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements
within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future
financial and operating performance, RadNet's ability to continue to grow the business by generating patient referrals and contracts with
radiology practices, recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully
integrating acquired operations, generating revenue and Adjusted EBITDA for the acquired operations as estimated, among others are forward-looking
statements within the meaning of the Safe Harbor.
Forward-looking statements are based on Management's
current preliminary expectations and are subject to risks and uncertainties which may cause RadNet's actual results to differ materially
from the statements contained herein. These risks and uncertainties include those risks set forth in RadNet's reports filed with the SEC
from time to time, including RadNet's Annual Report on Form 10K for the year ended December 31, 2021. Undue reliance should not be placed
on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RadNet
undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances after
the date they were made or to reflect the occurrence of unanticipated events.
With that, I'd like to turn the call over to Dr.
Thank you, Mark. Good morning everyone and thank
you for joining us today.
On today's call, Mark and I plan to provide you
with highlights from our second quarter 2022 results, give you more insight into factors which affected this performance, and discuss
our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest
in our Company and for dedicating a portion of your day to participate in our conference call this morning.
Before I start, I would like to say on behalf
of myself and the entire team at RadNet, we hope all of you and your loved ones are healthy and staying safe. We are extremely grateful
for all our stakeholders, including our employees, business partners, lenders, and shareholders, and wish you all well during this challenging
I am pleased that our performance in the second
quarter is tracking towards our full year guidance, which we released in conjunction with our 2021 fourth quarter earnings and then subsequently
raised in May after the strong first quarter 2022 results. When we set the guidance levels, we anticipated a number of challenges for
2022, including significant inflationary pressures, particularly around the cost of our labor force, certain Medicare reimbursement reductions,
and the ongoing impact of COVID-19.
I am pleased that our team is rising to the occasion
to meet these challenges. During the second quarter, revenue increased 6.1% relative to last year's second quarter on aggregate procedural
volume growth of 4.5% and same-center procedural volume growth of 2.2%. Adjusted EBITDA, excluding the losses of our AI segment, was $55.5
million. This was slightly behind last year's second quarter Adjusted EBITDA as anticipated in our internal projections. Our growth and
expansion has been able to mitigate much of the financial impact of the rising cost of labor and supplies, as well as the $7.4 million
we estimated in 2022 for Medicare reimbursement reductions.
While far from its impact in 2020, COVID-19 is
still impacting our business in several ways. First, we have our own employee base impacted by COVID. Employee COVID leave has at times
resulted in our use of more expensive temporary labor and overtime charges, as well as in some cases caused us to reschedule or cancel
patient exams, while we also continue to see that the procedures we perform that are the most elective in nature, particularly mammography,
remain impacted by patients delaying or postponing services.
Despite these challenges, we continue to make
progress on all fronts related to our long-term operating and growth plans. First, we are focused on driving growth in our core imaging
center business through creating same-center performance, and through a more recent initiative to build de novo facilities in target and
local markets. As I discussed on our last financial results call, we have 15 new sites in various stages of construction and development,
with almost half of this expansion occurring within existing health system joint ventures.
These new sites are focused in areas where we
currently are unable to meet the demand for services due to capacity constraints or because we simply do not have locations overlapping
significant patient populations that we, or in certain cases our hospital partners, have identified. We believe these de novo sites should
be major contributors to our performance in the latter part of 2022 and throughout 2023.
Second, we continue to expand our hospital and
joint venture offerings. During the second quarter, we established two new joint ventures. The first in Frederick, Maryland, with Frederick
Health Hospitals, established the joint venture with six centers, two of which were contributed to the venture by Frederick Hospital.
The joint venture became operational in April and is our second joint venture with Frederick Hospital.
The second joint venture established in June is
with Dimension Health, an affiliate of The University of Maryland Medical System. Under this JV, RadNet and Dimension Health have each
made a capital commitment to build two new locations in the Largo and Laurel regions of Maryland. We anticipate these centers to begin
servicing patients some time in the second or third quarter of next year. This is the fourth joint venture in partnership with the University
of Maryland Medical System and its affiliates.
We now have 102 of our 353 facilities, or 29%
of our centers held within partnerships with hospitals and regional health systems. We believe that within the next three to four years,
we could have over 50% of our facilities held in joint venture structures. We continue to enjoy the benefits from these partnerships which
include increased patient volumes, expanded breadth of services, improved patient access, and closer relationships with regional insurance
companies and health plans.
Third, we continue to seek tuck-in acquisitions
in our core markets. We seek to acquire individual centers or small groups of centers that strategically fit with our existing regional
networks, which can offer more capacity, more access, and enhanced geographic reach to our patient communities. We endeavor to acquire
these businesses for 4-6 times EBITDA and look for businesses where we can create efficiencies and synergies to enhance their financial
profile once part of RadNet. We are opportunistic in our approach and attempt to remain disciplined about the types of assets we purchase
and the prices we pay.
An example, in the first two quarters of 2022,
we purchased a group of three centers in Maryland called IFRC or Fairfax Radiology, as the centers are more commonly known. These three
centers enhanced our geographic access and capacity to provide effective population health and network solutions to the patient populations
of Southern Maryland, a state where we are the primary alternative to more expensive hospital-based imaging.
Lastly, we continue to drive our AI initiatives.
As many of you are aware, on January 20 this year, we completed the acquisition of Aidence Holding BV and Quantib BV to address opportunities
in lung and prostate diagnosis and screening with artificial intelligence. When combined with RadNet's existing deep health demography
AI operations, these artificial intelligence businesses provide RadNet with the basis for future offerings for widespread cancer screening
programs for three of the most prevalent cancers: breast, prostate, and lung. Aidence AI for Chest and Lung CT scanning is currently used
by customers in seven countries, and its leading products is pending FDA approval for use in the United States.
With customers in 20 countries worldwide, Quantib
Solutions for Prostate and Brain MRI already have FDA 510(K) clearance in the United States and CE Mark in Europe. Currently, we have
one algorithm submitted to the FDA pending its review and approval. This submission for Aidence's Veye lung nodule detection solution
was submitted to the FDA in December of last year and we anticipate getting clearance towards the end of this year or in early 2023.
We currently have the detailed diagnostic mammography
in use in the vast majority of our centers which provide mammograms, currently over 200 centers. We are also in the process of distributing