All right. Thanks everyone for joining us today. We're very pleased to have Lumexa with us. Lumexa is one of the largest providers of diagnostic imaging services in the United States. With us from the company are Caitlin Zulla, CEO, and Tony Martin, CFO. Also have Sue Dooley here from Investor Relations. Thank you all very much for coming to the conference, really appreciate it. First, want to give you an opportunity to make, I guess, first any introductory commentary if you want to. If not, happy to just jump right into the Q&A as well.
Sure. Very happy to be here. Thank you for having us, Stephen.
Yeah. Okay. Well, great. You are a very recently new public company, just last December, so some investors are still getting to know the story a little bit. Maybe you could provide a quick summary, I guess first, just the type of services you provide, maybe a quick overview of your JV strategy, which we'll certainly touch on more throughout the discussion, and any kind of differences versus maybe public market competitor strategies that people should be aware of.
Sure. Lumexa Imaging, we are the second-largest scaled provider of outpatient imaging services. We provide our services in centers called IDTFs, independent diagnostic testing facilities. We have 190 centers located in strong MSAs that have above-average population growth. Think great markets like Dallas, Denver, Atlanta, and Charlotte. We have grown by both acquisitions and de novos over time. We've had a recent focus on our de novo strategy. Last year, we opened up nine de novos, a record in company history, on track to do another eight to 10 this year, and see that as a meaningful source of growth as we look to the future. As you referenced, we have a joint venture focus. About 50% of our sites are in joint ventures with leading health systems, think Baylor Scott & White, Integris. We just announced Hospital for Special Surgery on our Q2 call, UPMC.
Why we love working with health systems is that in any market, we're always looking for what is our enduring value proposition. Working with a health system allows us to think through our rate strategy as well as utilization of our centers within their network. In terms of referenced public company comps, we are honored to have RadNet as a public company comp. Very much focused in the same space. They are admittedly a little further down the path than we are. We're early innings of our public company journey. We went public in December. Most meaningful differentiator is just how we approach technology, which I'm sure we'll talk about in a little bit. We have more of a partnership approach, using best-of-breed partners, while they have a build-or-buy strategy.
Okay. Yeah, fantastic. Just we think about the underlying market that you participate in. I think in the past you've sized outpatient imaging as a $33 billion subset of the radiology market growing at 7%. What are the key factors that support that growth? I guess when we think about the growth, how would you contrast the growth in what you would describe as kind of routine imaging versus advanced imaging inside that?
Yes. Imaging is an exciting industry to be in. Radiology writ large is a $120 billion TAM growing at a 4% CAGR. As you said, Stephen, outpatient imaging is a $33 billion TAM growing at a 7% CAGR. What is driving that? First, you have the overall drivers of healthcare utilization writ large. You have an aging population, and you have a migration to lower-cost sites of care. I referenced we provide our services in IDTFs, independent diagnostic testing facilities. They are outpatient entities that are reimbursed on the Physician Fee Schedule, so we are not on the HOPD rates and about 60% lower cost. So that site of service trend you have to high-quality, lower-cost sites of service modalities, that is benefiting outpatient imaging. When you think about imaging itself, imaging contains both advanced imaging and routine. We focus on both.
Advanced would be your MRI, your CT, your PET scan. Your routine would be more of your diagnostic and screening mammogram, ultrasound, X-ray. Advanced imaging is growing as a percentage of our total scans. On our Q2 call, we mentioned that now we're up to 37.4% of our overall imaging volume through advanced. It's 111 basis point improvement year- over- year. What's driving that is increased screening mandates, you have more chronic complex conditions, and you have novel treatment paradigms. Things like your PET diagnostics, your new radiopharmaceutical tracers, and even future things like theranostics all driving and accelerating the growth of advanced. When we think about why we focus on advanced have about a 3 x revenue premium compared to routine. Certainly it's a significant driver of our overall revenue and margin growth.
Okay. Got it. I guess how do we think about the company's aspirations for organic top-line growth, I guess in contrast to a market growing 7%? Do you aspire to grow in line with that? Do you think there are opportunities to do better over time? As we think about how that is going to show up in the P&L, I guess how should we think about the components between same store volume growth, kind of same center mix or rate? I guess how much is coming from really opening de novos on an annual basis?
Sure.
Yeah. On an outpatient basis, which is 85%+ of what we do, we have been growing revenues same site at about 6%. So 6%-7% is a place we feel comfortable in as a baseline for what this company can do. That has largely been achieved without much in the way of de novos the last few years, and that has really changed a lot as we started re-emphasizing that in late 2024 and into 2025. That baseline of 6%-7% revenue is about two-thirds from volume and about one-third price. When I say price, I mean a couple of things. About half of it is just an escalator in our commercial book, maybe 1% or 2%. The other half is an increase in revenue per unit that we see based on the advanced imaging growing faster than the rest of our business, as Caitlin described.
It reached a record high in Q2, and it continues to be a bigger piece of the pie. So that pulls up our revenue per unit. So that revenue growth drives about a 7% EBITDA margin plus in our current state. There are opportunities to overdrive that with the de novos that we talked about, opening four in late 2024, and then nine in 2025, on track for 8 - 10 this year. As those mature, those will, we believe, drive higher growth rates while they are ramping, because that is a two or three-year time span where they ramp toward maturity. With all that as our organic, there is also a great M&A opportunity in this space, because it is very fragmented. Reminds me a lot of the ASC space 10 or 15 years ago.
The main reason we went public was to strengthen our balance sheet, improve our cash flows, so that we could put some of that money to work selectively and strategically adding sites through M&A. So you will feel really good about that overall long-term algorithm.
Okay, great. We think about the faster growth that we've seen in advanced imaging. I guess, maybe talk about some of the factors in the background that you think make that durable, whether it's changes in how medicine is practiced, scientific advancement. What gives you confidence in this being something that we're not going to see real moderation in, and there's just going to be continued durable trends in that part of the algorithm?
Yeah. When I think about how do we continue to focus on advance, first, there are really exciting treatment advancements in advanced imaging. Again, I reference PET. Lumexa has historically focused on MRI and CT. That's been our core bread and butter. We have eight PET machines and throughout this year, we've talked about the goal to add three on a basis of eight. Significant growth rate. We have already opened two, as we shared in our Q2 call. One in Arizona and then one in South Carolina. On track to add the third. As part of that, we're expanding the tracers that we're supporting. Announced that we're now doing fluoroestradiol for breast cancer estrogen-receptive patients. There's so much coming down the path around PET advancements, radiotracers, and then again, the next wave of theranostics that we're in the early days of talking to our physician partners about.
Yeah.
The other exciting part of this industry is the advancements in improving the capacity within our existing machines. So within MRI, we've talked a bit about fast scan. That truncates the amount of time it takes to do an exam. For an ankle MRI in a Siemens machine, it's 22 minutes down to eight, so you get about 40% incremental capacity on a machine.
Then there's also really exciting things around virtual MRI, how we're able to run a machine without a tech on site, working in a virtual cockpit, ensuring that if we have a tech who has a family issue or can't show up for the day, we can still make sure that the machine's operational. So all of that is how we're driving the continued growth of advanced. Just continue to be excited to see what else comes down. I think there's going to be further advancements in AI algorithms that improve access as well.
Great. No, that's really helpful. I guess as the company thinks about, for example, the pace of the PET rollout, what keeps that from happening more quickly? When you see the progress you've made already, it almost seems like you could have one of these in every center. I'm sure there's reasons why you don't. What are those reasons, and what do you think about the pacing of that opportunity?
Yeah. When we think about PET, first is always we want to make sure that we've got the reimbursement structure to do it and to get paid appropriately. The isotopes are expensive, often more expensive than the technical component of the exam. Very simply, when you're working with the commercial payers, you want to make sure that the isotope is paid separately. The other piece is, it may sound silly, but it's about space. We are really purpose-built. Each of our centers is about 6,000 sq ft. Really built out to have two MRIs, a CT, an ultrasound, and an X-ray. Where we have a second MRI room that's shelled out but not fully built with the machine yet, we'll look to see which would be more accretive, adding the second MRI or adding the PET.
Oftentimes, it's actually the second MRI, because we can leverage the scale that already exists around the techs, the sales force in the market. We want to make sure we've got space. As always, we need to make sure we've got the appropriate connectivity to referrers in the market. As we're doing new de novos, especially with our health system partners, we are absolutely bringing PET into the conversation much earlier, so we can decide, okay, would this be a PET site? In every site that we open, you do not need a one-for-one MRI to PET. There is not that much demand in the market. Being very intentional around, here's our strategy for the MSA, how many PETs we should have, and where do we build them?
Okay. That's helpful. When we think about reimbursement in this part of the business, one of the things that's been notable is just that advanced imaging reimbursement, I believe, is around three times higher than routine imaging reimbursement. I guess, just big picture, how should we think about how reimbursement is determined in this market, and what makes that level of reimbursement durable in your perspective and in the eyes of the payers as well?
Yes. So advanced imaging, as you said, is about three times the rate of reimbursement of routine. That is structural. It is intentional due to increased cost and complexity to do an advanced scan. It's not arbitrary. Things that add the cost or complexity would be, one, just the cost of the machine, often a multiple more expensive. Two, you need space, as I was just talking about for PET. Three, you need more experienced technologists, you need oftentimes longer scanning protocols, and you often need contrast or PET isotopes, supplies that have an increased cost. So it really comes down to what is the structural nature. When we think about payers, and happy to talk a little bit about the reimbursement landscape, payers have already really enacted strict utilization protocols in imaging. They have authorization requirements and so we're not in a place where there's over-utilization.
I should've said, even as we think about the market, in many of our centers, we have backlogs. Many markets we walk into, they do not have an advanced imaging strategy yet. They're operating at a two to three-week backlog from an MRI or PET. So it's not a place of over-utilization, but the real savings opportunity comes from site of service.
Yeah.
Moving from that higher cost hospital or outpatient department down to an IDTF, which we see the initial stripes at when you look at the Hospital Outpatient Prospective Payment System (OPPS) proposed rule.
Okay. Fantastic. I understand why a lot of the focus anyway is on the advanced imaging side of the business. I guess when we think about what you characterize more as the routine part of the business, I guess, what are the key trends to be mindful of? Are you still generally looking to grow and invest in this business despite the reimbursement being maybe less attractive in the advanced imaging side and just generally, how you think about this business as part of the overall strategy?
Yeah. Our whole strategy is we want to be a referring provider's one-stop shop. We want you to send us all of your imaging. We don't want you to have to pick or choose or think about it. We offer routine imaging, especially things like X-ray, because it serves the needs of referring providers. It is not something we intentionally incentivize our sales team to go get. We have over 120 sales reps in the market really focused on selling our value differential against other providers. Obviously, our amazing patient satisfaction scores, our lower price point, our quick patient access, and then our sub-specialized radiologists who provide exceptional reads at a good turnaround time. When we think about routine, we are incredibly intentional about which markets do we need to add additional routine modalities as we're continuing to do our de novo growth.
You will see us continue to grow routine, but it doesn't have that incremental incentive or focus. The one thing I'll call out is maybe mammography. Mammography, we've got areas of focus where we have incredible women's health brands, thinking Charlotte, South Jersey, Arizona, up in Buffalo, and there we'll always make sure that we're continuing to grow and serve our patients. We talked about in Q1 a little bit of delay in our mammal volume due to some of the weather. Really excited to see the return of that in Q2. Had a 2.6% quarter-over-quarter growth rate and about 6% sequential growth rate from Q1 to Q2 in our mammal volume.
Yeah, that's good to hear. Let me come back to the JV strategy a little bit. Partnering with hospitals through these JVs is a core part of your strategy. When you think about it from the hospital perspective, I guess help us understand the hospital's thought process as you start to engage in these conversations. What makes this an attractive proposition for them? How do the economics of these partnerships work, and how it kind of compares to or interacts with opening just de novo clinics as an alternative to that in those markets if you don't have JV partners?
Sure. I said about half of our centers today are with joint venture partners, and we're having exciting conversations with a large number of systems, all in a different variety of stages. How the conversation usually starts is around access. They know that they are struggling to get patients quick access to imaging, and imaging is often the front door to downstream care, things like oncology or neurology or orthopedics. They're worried about patient leakage. Once they leave to go somewhere else for the imaging, they might not come for the rest of their care. You also hear the stories of just it taking two to three weeks to get an MRI. In some markets, it's over a month to get a PET. It starts with that patient care and access.
For us, when we come in, we talk through our joint venture strategy and the fact that we've got this best-of-breed operating model. For better or worse, we're a focus factory. This is all we do. We know how to open up a center for about $4 million in CapEx. Half of that is equipment leases. Our standard model is they have 51%, so they can lead managed care contracting. We have 49%. We have our proof points of our joint venture partners that are happy to talk about the success they've had with us.
I think Tony referenced coming from the ASC industry. We both have an ASC background. I was at SCA Surgical Care Affiliates, SCA Health, Tony at USPI. I also think health systems have seen the benefits of a proactive outpatient ancillary strategy, whether it's in ASCs or urgent cares. We're able to say it's very much a similar playbook, just in outpatient imaging. I think you also have that pattern recognition as well, and nice economic returns.
Yeah. That's good to hear. You announced HSS recently as your most recent JV partner, and obviously it's an interesting one given their position in all of the orthopedist rankings.
Yeah.
I think it seems to make sense we're the top provider in the U.S., and I think often the world. Maybe talk about how that partnership came about. Obviously, it's a little bit unique given the surgical focus of that provider, and just how to think about, I guess, the scope of it and the timeline to when you might start seeing some of the development related to that actually impacting the financial results.
Yes. HSS, we are incredibly honored to have been selected by them to be their joint venture partner. This is our second JV partner in 12 months. The one we announced previously was UPMC. As I mentioned, we're having health system conversations in multiple different ways. HSS was looking for an answer to extend imaging closer to their patients' homes and not have to come to the West Side of Man- East Side of Manhattan? East Side of Manhattan-
Yeah
for all their imaging care. Through, again, Tony's and my background working in ASCs, we also are private equity sponsors, Welsh, Carson, long relationship working with health systems in productive joint ventures, and then we have a remarkable board of directors, including Brett Brodnax, former Chief Development Officer of USPI, and I think maybe chairman today. So, we have the reputation of being able to work successfully in joint ventures and creating true win-win structures.
For HSS, it was a great discussion around the clinical quality, how we measure it, our care protocols, our intentional measurement around adverse events, things of that first got them comfortable in working with us, because obviously, their clinical brand is paramount. As we think about growth, this will also be a de novo strategy, at least to start. We are working on sites in New York City Metro, outside of the core island of New York City, for obvious space reasons. In terms of contribution, this will be a little bit longer of a burn, mostly because New York has CON requirements that
Okay
we need to make sure we are working through. But team started the moment the contract has been signed, and excited, really excited and honored to be able to work with them.
Yeah, that is great. When you think about the pacing of de novos, I guess when you have these large JV partnerships that you have announced more recently, just how does that influence that? Does that maybe to some degree, replace JVs that you might have done without these JV agreements in place? Are they additives that the total number of JVs is higher than the 8 to 10? How do you think about that as impacting the de novo cadence?
Yeah. Maybe I will start kind of big picture, and Tony
All right.
I'll turn it about how we select joint ventures or how we select our de novos and where we choose to invest our capital. When we think about Lumexa and what we've promised the public market, we know we can continue to grow our same site growth at 6%-7% revenue growth, and we committed to opening 8 to 10 de novos. Joint ventures are part of creating that enduring value proposition in any market. The business is pretty simple. We need rates, and we need volume. We can certainly get that on our own. There's some markets like Georgia, where we are very comfortable operating independently and have a strong value prop. Then, there's certain markets, like I wouldn't enter New York without a health system partner.
Sure.
for obvious reasons. Tony, maybe I'll talk about how you think about capital allocation between the two.
Sure. Well, about half our sites are in these health system joint ventures. We obviously have a lot of success and a lot invested in both types of model. As Caitlin mentioned, we come from a background of knowing that these partnerships work very well over time. They're a proven structure that we believe in very much. It is a market-by-market analysis. Where do we need help on the contracting side or with additional referral sources over and above what our professional sales team can generate on their own? That looks very different from market to market. As we look at opening 8 to 10 a year, that will continue to be a mix based on.
Excuse me.
where we find the best projects. Signing health system partners like UPMC and HSS probably gets a bit of a tilt toward more of them being in joint ventures.
But that will take time to play in our financial results, because it takes a year from when you decide you are going to open a site to get it open, and then it takes a year after that to break even, and then you are ramping pretty steeply for two or three years after that. So it is a bit of a slow burn, in terms of signing a deal and having it turn into financial upside. But it is something we really believe in and the compounding power of over time.
No, it makes sense. I think you have spoken before to some of the ramp-up dynamics. I guess when you think about the return profile and maybe the time it takes to fully optimize financially a JV de novo versus maybe just a wholly-owned de novo, hypothetically in a market like Georgia, I guess, what does that look like? How different do those centers ultimately look like once they are mature?
Yeah. I'd say on balance, on average, our joint venture centers have a bit higher margin. Part of that is that contracting can be quite good in some markets compared to what we could get on our own. A lot of it is just that our joint venture structures happen to be focused more on advanced modalities from the start. They have a bigger piece of their business coming from that, which really helps with reimbursement as well as margin. We don't see necessarily any hard fast rules on which ones ramp fastest. It really depends on the market, where the business is coming from. As an example, UPMC has had three or four-week backlogs to see patients, and that's not unusual for a health system partner.
Yeah.
It can even happen without a partner. When a hospital is unable to handle the demand for service, you can see quite a quick ramp as that business finds a home. We have had very fast ramps in a wholly owned business too, but that's an example of how it can work really well with a partner.
Got it. Okay. Obviously the lower cost site of service is a natural advantage with at least commercial payers in particular. More recently on the Medicare front, we've seen some proposed policy that would impact imaging reimbursement for health systems, potentially strengthen the rationale for them to consider expanding or partnering on the freestanding capacity front. I guess, how do you think about what this rule could mean? To the extent that you've started to maybe start to have conversations around more inbound interest coming out of this rule, I guess just broadly, how do you think this type of decision, if finalized, could impact the business over the next few years?
Yes. The Hospital Outpatient Prospective Payment System (OPPS) proposed rule introduced the concept of site neutrality for non-contrast based imaging, which is a lot of imaging.
Mm-hmm.
One, we are excited to see this. First, you referenced it before, we're credentialed as IDTFs. We're under the Physician Fee Schedule, not the hospital fee schedule. It's not a risk to the business. We think it's really validating of a lot of the conversations we're having with health systems. First, as we said, they need access and increasingly building expensive facilities at assuming HOPD rates is becoming a harder decision calculus for a hospital. Our model allows them to create access, make sure that they're retaining the patients in their network, and participate in the economics.
That is obviously incredibly validating. When we think about our overall strategy, we don't depend on site neutrality. Our value proposition was certainly resonating, and I think this certainly amplifies the opportunity. Even as we think through what might happen, I think this is something that it drives value to Lumexa over years, not necessarily quarters. I think hospitals have to process the final rule.
Yeah.
Think through their strategy around imaging and we're excited about the conversations we're already having.
Okay, great. Yeah, maybe it's a good time to come back to some of the AI strategy points that we touched on earlier a little bit. You mentioned your focus is really more best-of-breed partnerships. I guess first, maybe talk a little bit about how you came to that strategic perspective and what are some of the key things that you're using AI for inside the business today?
Yes. So very intentionally, we have had a partnership approach. We want to use best-in-breed partners to drive our technology platform writ large, and then certainly with AI contrasting to-
Mm-hmm.
and maybe buying, building, and maintaining. Part of the reason why is that it allows us to preserve our balance sheet for what we do best. We know we know how to open facilities, buy facilities, and run facilities really well, and that's where we want to deploy our capital. The other part is the world is changing so incredibly fast, and it allows us to just be a lot more agile and nimble as new capabilities come. In our earnings call, we introduced the concept of Lumexa Connect. This is really how we connect all of the different applications we're using today, really focused on kind of the user workflow, the data integration, creation of our data lake monetization, and then analytics creation, and then of course, AI. Where we are seeing the AI focus in the company, it's really in three channels.
First is how do we improve the operations of our center? This is how do we serve more patients within our four walls. That's where things like fast scan or virtual MRI come in. We certainly are also thinking about how do we take costs out of the business. That's through working through whether it's automating coding or working with agentic call agents. On the clinical side, we are thinking through how do we continue to support our radiologists, and support their productivity. It is probably where there's been the most advancement.
It's been, even in my tenure at the company, things that we thought only one vendor was doing in November of 2025, there are now 11 opportunities to work with. We're seeing a lot of democratization of the models, which is amazing because it allows us to continue to figure out how do we drive the most value for our radiologists and of course, our patients.
Yeah, it's a good segue. I mean, how do you see, I guess, the radiology function that you need inside your centers as evolving? How does this impact maybe the amount of labor that you need? Does all your labor need to be in the center the way that maybe it's been in the past? I guess, how do you think about how this is changing?
Yeah. On the radiologist front, again, the core of our business is outpatient imaging, and that means the radiologist reads can be done through teleradiology. Very often they don't need to be on site. They can do their work remotely, living at home, typically not nights and weekends. We're not doing stat 3:00 A.M. CT seats that obviously require a different model. Once we think through radiologist capacity, we want to make sure we're continuing to support them. We bill globally for the technical and the professional side of the scan, and then we contract with radiologists to do the read, and we'll work with radiologists in one of three ways. We have our own teleradiology group called Connexia. We work with physicians in our affiliated MSO model, and then we work with third-party radiologists.
Our whole goal is to make sure that they enjoy working with us, and a big part of that is the seamlessness of our technology platform.
Okay. No, that's great. Then maybe one for Tony Martin, just on the guidance. I think coming out of the first half, you had a bit of a flatter year-over-year EBITDA performance. I think the second half of the year, you're implied to have about a 4% year-over-year EBITDA growth. So you're seeing a bit of a steeper required EBITDA growth throughout the balance of the year than what you saw last year. As we think about the factors that might be influencing that, I mean, a few things that stand out might be the pace of de novo ramping as you have more de novos in the P&L this year. Maybe there's some seasonality and calendar considerations, but maybe just walk us through the thought process on guidance and what gives you comfort getting to the guidance range that you've provided.
Sure. Sure. Yeah, as we discussed on our Q2 call, for anybody who missed it or would like a reminder, we narrowed the range of guidance for the year. Same midpoint, but narrowed the range, which good part of the way into the year, more confidence in the numbers and in carrying out the plan. And in being on target for other goals we have had, like opening the 8-10 de novos. These are things we discussed on the call. I think we also discussed the natural seasonality of the business. I think this year's ramp is perhaps slightly more in the back half than usual, maybe 100 basis points or something, but nothing major that is different.
That will be driven by the natural seasonality of the business, the ramping of the de novos in the second half of the year, and continued strong momentum in the advanced modalities, that have a better margin. Particularly with the de novos, those are reaching a point of anniversarying in many cases. The best is yet to come in terms of what they mean to us economically.
Okay, great. Just as we think about cash flow generation over the next couple of years and the ways that you will look to deploy capital, I guess, help us think about where you want to see leverage over the next few years. It seems pretty obvious where you are going to want to put the rest of your capital to work, but just thinking about how far you need to delever before you have fulsome available cash flow to use.
Sure. Sure.
Yeah.
Yeah. During our IPO process, we talked about maybe something in a two handle.
The IPO brought us down two turns to about 3.5. We expect to gradually decrease that by growing EBITDA rather than paying down debt.
We really want to deploy the added cash flow we got from the debt reduction to growth. This is a great moment in time for this industry. We will focus on being disciplined in what opportunities we take, but not be hesitant to put some money out there to do it.
Yeah.
We'll delever gradually over time, but we don't want to hem ourselves in with a specific date or anything just because doing so would disadvantage the growth prospects and value creation opportunities for the company.
Okay. In terms of the opportunity for M&A, obviously there are some tuck-in opportunities that are going to be out there. I guess, what is an attractive use of capital for the company from an M&A point of view, and what kind of assets make sense and have been the most fruitful in the past?
Yeah. So excited to have revved up our M&A engine this year. We have a new Chief Growth Officer that we announced on our Q1 call, Kyle Lynch. We have done two tuck-ins already this year. The company hasn't really done acquisitions since 2023 or maybe even before. So nice to see kind of the engine start. As we look through acquisitions, there is opportunity for both tuck-ins in our existing markets, where we have a clear value prop, existing rates, existing management chassis, sales team, and market. Then we are also thinking through how do we open up new markets. So there are some interesting multi-sites out there that open up markets we either do not work in today or markets we might work in, but creates an opportunity to bring in a joint venture partner as well.
Okay. Well, fantastic. I think that is about all we have time for today. So thanks so much for being here and appreciate the discussion.
Yeah. Thank you so much, Stephen, for having us .
Yeah. Thank you for having us.