Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Milch. I'm the Facilities and Managed Care Analyst here at Barclays, and we're pleased to welcome on stage Lumexa Imaging CEO, Caitlin Zulla, as well as Tony Martin, CFO. Welcome.
Thank you.
Thank you.
Caitlin, Tony, seeing that you just took Lumexa public just a few months ago, recently announced preliminary fourth quarter results and issued guidance, why don't you start with an overview of the business, growth strategy, and recent results?
Sure. Thank you so much, Andrew. Honored to be here. Yes, we went public three months tomorrow, so almost our anniversary. What Lumexa Imaging is, we are one of the largest national-scale platforms of outpatient imaging. We have 189 centers located in 13 states, in great MSAs like Dallas, Charlotte, Atlanta, Denver, markets that are growing 2 x the average population growth rate affords us a really strong commercial payer mix. As I said, we run outpatient imaging centers. They're called IDTFs, Independent Diagnostic Testing Facilities. They are at a different price rate, lower price point than HOPDs, so in every case, we're the value-oriented provider in the market at 60% lower cost than hospital outpatient departments. As you think about how we've gotten to be our size, we've grown through de novos and acquisitions.
De novos, we completed nine this past year. We did a tuck-in acquisition, and then we've already opened our first de novo of 2026.
Great. Let's turn to the industry backdrop. You've emphasized advanced imaging as the key demand tailwind, and it's a disproportionate driver of revenue and margin relative to routine modalities. What are you seeing today in referral patterns and clinical indications that give you confidence this remains a multi-year trend?
Yeah. In our outpatient centers, we do advanced imaging, which is defined as MRI, CT, and PET scan, and we also do routine, which is characterized as diagnostic and screening mammo, our ultrasounds, and our X-rays. When we think about what is driving the industry, so outpatient imaging is a dynamic industry. Radiology writ large is maybe starting from the top, radiology is a $140 billion TAM growing at a 3% CAGR, outpatient imaging, $33 billion TAM growing at a 7% CAGR. A lot of that's fueled by the site of service shifts that you've heard from ambulatory surgery center companies as well. Advanced imaging is the biggest driver of that growth. Advanced imaging is growing 2x the rate of routine, and it has about a 3.3x revenue premium.
What's driving that advanced imaging are our aging population, increasing chronic conditions, complex care, increased screening mandates, and then, of course, novel treatment paradigms. Our Alzheimer's and cancer treatments often require advanced imaging to start the treatment and then throughout it. You know, Andrew, in your initial question, you asked us a little bit about kind of guidance and results, and so last year was a strong year for advanced imaging. You know, our pre-release from last Monday shared that advanced imaging has grown 11% quarter-over-quarter for fourth quarter, 7.7% year-over-year, further illustrating that strong demand.
Great. Routine volumes, particularly in X-ray, has been a bit softer in recent quarters with limited impact to financials. How are you thinking about managing that mixed noise in your results, and how do you communicate your volume growth?
Sure. Tony, you wanna talk a little bit about routine?
Sure. Yeah, as Caitlin described, advanced is growing much faster, twice as fast as the other modalities, and the higher reimbursement means we're very happy, you know, that this trend is happening. That said, on the routine side, there's important modalities for us too. There's mammography, ultrasound, X-ray, but not all of those are kind of created equally. I think, one of the things we'll do more as we, you know, get our disclosures updated for public company life is make sure we kind of describe the distinctions between the two. You know, for example, X-ray, that's not a high reimbursement or high margin business. So to the degree that doesn't grow very much, that's fine with us. It's not economically significant to us.
You know, that's an example of something we're kind of digging into a little bit more detail about our modalities and how they work. I think will be helpful. Also, you know, X-ray not performing doesn't mean anything about the other modalities. It's not a harbinger that we're going to have trouble getting MRI business or anything. They're different referral patterns. That's something we look forward to sharing a little bit more about with people so they can understand the real drivers and what to worry about and what not to.
Great. Within that growth algorithm, same-store revenue growth is split roughly two-thirds volume and one-third rate.
Yes.
With rate being, driven in part by the acuity mix. What are the most important operational actions you're taking to drive the volume component, whether through sales efforts, deeper referral relationships, AI, or anything else?
Yeah. Completely agree. Same-site growth is very important to the business. You know, maybe I'll highlight two things we're doing. You know, first on the sales and marketing component. We have 120 amazing sales reps that are deeply embedded in the communities we serve, and they're focused every day on highlighting the value we provide to our referring physicians. You know, namely, our patients love the care they receive. We have a patient NPS of 91. We do everything we can to get patients in same day, next day. We have an incredible network of sub-specialized radiologists who are reading at an incredibly high quality. Of course, we've invested in the best machines that provide the best images. An example would be in Q4, we know that it's orthopedics' busy season.
You know, we're able to work with our sales team and make sure that they're focusing on our orthopedic relationships and, you know, kinda the output of that was we had a 400 basis point improvement in orthopedic referrals compared to the rest of the year. We have that targeted focus. Then, you know, technology is one of the most exciting parts of our industry. You know, as we like to say, if you need an MRI, you need to go to a place that's got an expensive machine behind a magnetic safe wall that has a tech who's certified to take care of you. AI makes every part of that better. An example would be how we can improve the efficiency and the volume throughput of our sites.
There's technology called FastScan technology that truncates the amount of time it takes to do an MRI exam. For an example, for a Siemens MRI on your ankle, it reduces it from 22 minutes to 8 minutes. Better for the patients. They're in the tube, obviously a meaningfully less period of time. It's a better image for a radiologist, and then it unlocks incremental 40% capacity as we think through our scheduling throughput. Through the end of last year, we had about 50% of our machines with FastScan technology, and then we're continuing to deploy throughout this year. We'll get up to 66%, by the end of 2026. There's other things like Virtual MRI, which extends the ability for a tech who's not in the facility to support running the machine.
We are early days in a pilot in one of our markets, and we've seen a meaningful improvement in the amount of downtime we'd have from, like, a tech call-out and an opportunity to extend hours from our site. Fun, exciting stuff on the technology side as well.
Great. We'll definitely dig more into that later. First, I wanted to touch on some of the commercial employment trends. Last Friday, the BLS released a pretty weak jobs report with negative February headline numbers and downward revisions to prior months. Commercial mix is an important part of your business, which supports, you know, not only the higher pricing, but also the, you know, higher modalities and, but it also introduces cyclical volume dynamics. Have you seen any impact from changes in consumer confidence or employment trends on commercial mix or utilization? How are you positioning the business in the event of a broader slowdown?
Sure. You know, as I referenced, we're in strong markets that have, you know, a high commercial payer mix. The exact amount is 63% of our revenue is from commercial payers. In comparison, 19% is from Medicare. That's both your fee for service and your MA, all in that 19%. MA obviously reimburses us on a fee for service basis and then 3% Medicaid. You know, as we think through what we've seen at the start of the year, continued strength. There's the standard deductible reset that always happens with healthcare services business, but continued strength. As we think through, you know, any additional possible dislocation, I mean, we are the value-oriented operator for imaging in every market.
There's an opportunity for us to continue to highlight the lower cost care we provide, compared to certainly inpatient departments, but then also the hospital outpatient departments, which I referenced, are about 60% higher.
Right. Between advanced and routine imaging, do you view one as being more economically sensitive versus the other?
Yeah. Good question. I mean, certainly for your advanced imaging, right? Your MRI, your CT, your PET scan. If you are looking at a surgery or you are, you know, facing a cancer diagnosis or cancer treatment or Alzheimer's, I mean, those are certainly not elective procedures. I mean, very similar to the surgery center business. A lot of what we saw had consistent demand because it was not elective. You know, compare that to potentially X-ray, you know, it'll be interesting to see how that begins to, you know, change, if at all. As Tony said, that's something that we do. It's just kind of a part of being part of the community. It's not a real driver of our financial performance at all.
Great. Let's move on to the joint venture strategy. JVs can be strategically powerful, but they also introduce complexity and reduce the visibility into underlying performance if they're not consolidated. What's the best way for investors and analysts to track system-wide performance and cash generation tied to JV activity?
Yes, Andrew. We've received that question a bit over our last three months. Tony, I know you've spent a lot of time thinking through this.
Sure. Yes, you know, our business is fundamentally the same, whether in either model. You know, in a joint venture model, the health system takes a bigger role in managed care contracting and where the business is sourced. We have fundamentally the same role, similar economics. You know, first and foremost, there's nothing mysterious about that business, and we're really eager to pull the curtain back on anything of a financial nature about it.
Have taken some steps recently with a deck we posted to our IR site in the last few days to kind of clear up some of those points and provide a little bit of a roadmap on where some of this data can be found in our S-1 and, you know, in our forthcoming 10-Q, 10-K reporting because it will be available and it will be transparent. Just, you know, as an example, to kind of describe how the business is doing, we'll show a combination of consolidated metrics, which are, you know, the majority of our sites, the ones that we consolidate, and then we'll show system-wide metrics that additionally pick up all the JV sites, which is really the full, you know, full scope of what we operate.
You'll see both, so you can have a good idea about how the whole company's functioning. As an example of just the transparency we'll have on the joint ventures themselves, the amount of debt they have is explicitly disclosed. Just as an example, if our pro rata share of their $70 million or so of debt were on our books, it would affect our leverage ratio by 0.1 x. You know, it's not a big difference, but the number will always be there for people to see.
Other metrics like revenues and expenses will be disclosed in aggregate at a minimum for those joint ventures. There's also a clear path to seeing the earnings we accrue from them as compared to the cash we receive from them quarter to quarter and year- to- year so that people can see the correlation of that. There's no mystery behind that either. Perhaps a lengthy explanation to show our commitment to you know having transparency around that because there's really nothing mysterious.
Right. Sticking with the growth and partnerships, de novo center development also remains a core pillar of the growth algorithm with a target of roughly 8-10 openings per year. Can you comment on the development pipeline for 2026, and how much de novo contribution do you currently have embedded in 2026 guidance?
Sure. De novos are a core part of our growth algorithm. As we think through it, same site plus de novo M&A is incremental and not embedded in the external guidance we've shared. De novos, we finished nine last year. We've and we did a tuck-in as well. Already this year we've opened up our first. We've got confidence in hitting that 8-10 range. Great line of sight through the full year and starting 2027. You know, in terms of guidance, our de novo engine is newer to the company. Well, we've always done it, but in terms of getting this 8-10, we did 4 at the end of 2024. We had nine last year, of course, in the 8-10.
You know, Andrew, as we think through the compounding impact, we're in the early days of seeing the benefit of that. If anything, this is one of the years we've got a little bit more of the de novo headwinds, as last year's are just getting to breakeven. Takes about one year to get to breakeven and then 3-4 years to get to terminal margin. You know, obviously the investments. It'll be exciting to see as we get to 30, 40 de novos ramping, the impact that has on our overall same-site growth.
Great. With that step up in de novo acceleration and development, what have you learned around site selection, construction, staffing, and what gives you confidence to sustain that pace going forward?
Sure. We have a dedicated team who is focused on making our de novos happen. We do a lot of research. We have analytics that help us understand in any market what is the supply of imaging versus the demand. Then we go into market and actually do the assessments and speak with the referral coordinators for orthopedic practices. You might say, who might be willing to talk to you all? The answer is everybody. If your job is to make sure that the surgeon has the information they need to do the surgery, you care very much about access. You can learn a lot about backlogs, price points, all that other good stuff. That allows us to get confident in the location.
One of the benefits we have at Lumexa in our centers, you know, potentially compared to ambulatory surgery centers, is that we do not have a physician on the cap table, right? We own 49% in a JV partner, health system owns 51%, or we own 100%. That allows us to put the center where it is best for the patient. We don't need to put it across the street from the orthopedics offices. We can be really thoughtful about the right commercial location with parking and ease of access. Patients can walk right in. As I said, you know, typically it's about a year from agreeing on the de novo pro forma to opening it up, and then it's about a year to get it up and running to breakeven.
Great. Capacity expansion doesn't have to take the form of de novos. It can also add-
Yes.
-machinery to existing centers that drive an attractive ROI. Can you walk us through that thought process? What levels of utilization do you need to start to see to say, "I need to add a new MRI machine," for instance?
Sure. A standard de novo facility, 6,500 sq ft. It's about $4 million in CapEx. Half of that are equipment capital leases. That's if we wholly own. We'd obviously share that pro rata with a joint venture partner. When we look at the blueprint for that 6,500 sq ft, it is typically two MRI suites. One we will fully build out, the other one we'll shell, and then a CT, an ultrasound, and an X-ray. Again, we wanna make sure we are our referring physicians' one-stop shop. They can send us everything. As we begin to look at MRI volumes and backlogs, once we get to the point where maybe a patient is looking at a two to three-day backlog, we'll already start to build out that second MRI suite, which allows us to obviously drive incremental same-site growth.
As we look at capacity, you know, we're very thoughtful around what is that capacity threshold. You know, we are not at a place right now where anybody's over 100%, and that is just because we will continue to think about how do we either open that second site, implement new technology, whether it be FastScan or if the machine is ready for a refresh the machine, and then see the de novo in the geography. Again, one of the benefits we have is that there aren't physicians on the cap table. So where in the ambulatory surgery center space, I used to have to think about, "Oh my goodness, to seed another location, I'm gonna have a drag on physician distributions for a quarter." We don't have that.
We can be really thoughtful about what the right coverage for the geography looks like for the patients, and then to make sure we're meeting all of our referring physicians' needs.
Great. Related to this, PET volumes have grown rapidly across the industry, but the machines require significant investment. Can you walk us through what your current PET capabilities are today and how you think about the capacity expansion for that modality specifically over the next few years?
Absolutely. During our roadshow, we talked a lot about how we are gonna improve visibility to all modalities, including PET, and so excited in our pre-release beyond talking through our financial performance and setting 2026 guidance, we were able to share PET volumes. PET grew 17% on a consolidated basis year-over-year, 13.5% on a system-wide basis. We have a relatively small end. We have eight PET machines across our fleet, and we're on track to add three more this year. As we think about growth, we think about new geographies and our current geographies. Two of those three will be in existing geographies, and one will be net new with a health system partner. A big part of this is making sure we've got the space. Again, we're very custom-built in that 6,500 sq ft.
PET, you need to make sure you've got room for the wet lab and got a space for our patients to uptake the isotope. We want to make sure we've got the right reimbursement landscape. Those isotopes are expensive. We want to make sure we've got the referring volume, referring physician connectivity, that we're meeting the needs of the market. Excited for the three, and then a significant focus for the company as we think through 2027 beyond how can we continue to meet the needs. PET's an example where you go into many markets, and there's backlogs of patients that are waiting, oftentimes even longer than four weeks for a PET scan, which is heartbreaking.
Right. Moving on to the expense side of things. Radiologist supply remains structurally constrained, and you operate both an outpatient model but also a professional fee hospital support model. How do you think about radiologist recruiting and balancing the growth between the two?
Sure. Within our outpatient centers, we do not need a radiologist in most of the facilities. Certainly, there's exceptions, and with remote contrast supervision being blessed last year, we have the ability to continue to support that. What that means is that the radiologists can support our centers through a teleradiology structure. They can read remotely, support the contrast provision remotely. As we think through sort of our growth of our Connexia unit, that ability to read remotely, be supported by a great tech stack, not doing nights, weekends, that's a significant opportunity for us to highlight the benefit and continue to recruit. We finished last year at 37 physicians in Connexia. We have a 95% retention rate. Of course, we work with physicians in various ways, like you said.
We have our aligned physician groups that continue to do well and recruit into, and then we work with third-party physicians in contracted arrangements across all of our geographies.
Great. Let's move on to AI and technology. You've discussed workflow innovation and potential efficiency levers that are not fully embedded in guidance. You know, can you expand on what the strategy is around AI and what the measurable throughput or labor productivity benefits you might see over the next few years?
Yes. As I mentioned, AI makes every part of our business better. We've already talked about FastScan, so I won't talk about that. You know, Virtual MRI, I referenced that. That's the ability to have tech support the machines remotely, which has already showing a reduction in tech downtime. Maybe I'll talk a little bit about where we see AI in a clinical applications that's driving value. We, in our pre-release, referenced our pilot in New Jersey for breast arterial calcification scoring. That is for mammography patients who are coming in. It is a net new addition to the scan, so it's something that they choose to opt into. If they do not opt in, obviously, we do not provide the service. It's a patient self-pay rate.
As we were thinking through it, first it was, you know, clinically, is this appropriate? Do our radiologists believe that it provides an advantage to the patients? Two, is there demand? You know, three, does it fit within our workflow and our systems? Does it not add complexity? Then four, obviously, is there a financial return for the effort? As we were coming up with a framework of what great would look like for the breast arterial calcification scoring, we were expecting a 10% opt-in rate. Already, early days, we're seeing 12%, which is higher than expected. Feedback from the patients has been remarkable. Our teams are thrilled by the ability to support women in new ways with their cardiac health in addition to their breast health. Then our radiologists are pleased with the performance of the algorithm.
Great. Let's finish up here with capital deployment. You meaningfully delevered post-IPO, improved free cash flow. What are the near-term priorities for that free cash flow deployment across growth CapEx, technology investments, and tuck-in M&A?
Perfect. Tony, all you.
Sure. Our CapEx will predominantly continue to be growth-oriented. De novos take up, you know, $30 million-$40 million of it per year, that's maybe a third. We'll have plenty of room to continue to invest in growth capital in the existing sites and maintaining the equipment we have, so that it is in good operating order as well as meeting the needs of the referring physicians, which can evolve. The IPO was all about reducing leverage. We went from 5.5x- 3.5 x. In refinancing our debt, we've freed up over $50 million of operating cash flow per year.
All these things will allow us to delever faster, get down from that 3.5x to maybe something in a 2x handle at some point. Importantly, you know, we're able to carry out all of this strategy while delevering significantly, which means we have an opportunity to participate in M&A. At 4x-5 x EBITDA for, you know, some one- and two-center operators, of which there are a lot out there, that's a very attractive use of capital. While respecting our need for our balance sheet to continue to strengthen, we do think that M&A will be a meaningful part of our growth as well, although not something in our guidance.
Great. With that, we're out of time. Thank you so much for joining today, and please enjoy the rest of the conference.
Thank you so much, Andrew.
Thank you.
We'll take the applause.