...As always, thanks, Mark. I appreciate Mark always coming to our Leveraged Finance Conference , coming to our equity conference over the years and so forth. So I appreciate his participation. You have a lot to talk about. I think the stock has doubled year-over-year, if I was looking at it earlier today. So-
Excellent.
I'll turn over the stage to Mark. He's gonna run through a presentation, then we'll do some Q&A.
Terrific. Well, thank you for joining me this afternoon. In the presentation, I'll just go through. I'll give you an introduction to who we are, what we do. Later on in the presentation, I'll talk a little bit about the industry and the opportunity that presents itself by the industry, and then I'll finish talking a little bit about the financials of the company and where we're going from here. So for those of you who are a little less familiar with RadNet, we are the largest owner/operator of fixed-site diagnostic imaging centers in the United States. We own 375 locations in eight states. It's a highly fragmented industry. We'll talk more about that later on in the presentation.
We were founded over 40 years ago by our CEO, Dr. Howard Berger. So we're not exactly an overnight success, although some of us, some of you may not have heard of us until more recently. We have about 36% of our centers are held within joint ventures with some of the largest health systems in the United States. I'll talk a little bit more about later on in the presentation about the benefits of the joint venture model and where we're gonna take that from here.
We also, in more recently, have gotten into a number of other areas within radiology, including artificial intelligence, where we think we're the leading the industry into a transformational period, as well as radiology software, which is a platform that we use and then sell to the rest of the industry, as well as some other opportunities. We've been a fast-growing company. We've quadrupled the size of the business since 2006. We roughly doing $1.7-$1.8 billion of revenue. This year, we're expecting to do in the range of $274 million of EBITDA, and we've got over 10,000 employees. We're based in Los Angeles, a hop, skip, and a jump away from here.
We'll talk in the presentation about our geographic concentration strategy. 371 of our 375 centers are within 6 markets: California, Maryland, Delaware, which we call our Mid-Atlantic market, New York, New Jersey, Texas, and Arizona. There's significant benefits of scale. There's lots of opportunity for growth and consolidation in all the markets in which we currently operate. Another big core operating tenet of the company is that we are a multimodality company, meaning that the vast majority of our centers are large centers of excellence, where we provide the full breadth of capabilities of both the routine studies as well as the more advanced studies. We've also been a pretty active acquirer of businesses.
Part of our growth is through the consolidation of smaller operators who are looking to join a larger network and looking to provide just good medical services while putting the burden and responsibility of operating the business on someone who does this for a living every day. We are also the only company in our industry that does capitation, so we take full risk on roughly about 8% of our revenue, where we get paid a per-member-per-month fee for providing services to about 2 million patient lives, and I'll talk more about that later on in the presentation.
Then lastly, before we jump in, we've got a big initiative around digital health, both in terms of radiology software, which is the platform that we use within RadNet, as well as providing that to other customers. We have over 200 customers outside of RadNet who use our software. And then more recently, we've gotten into artificial intelligence and are driving applications for large-scale population health screening programs, particularly around breast cancer, prostate cancer, and lung cancer. We are expecting to grow our digital health platform very significantly, and we'll talk more about that later on in the presentation. So what do we do? As I mentioned, we're a multimodality company. We do both advanced imaging and routine imaging at the vast majority of our centers.
80% of what a normal population needs with respect to its imaging is actually routine imaging. However, you'll see that later on in the presentation, that revenue and margin is really driven by the MRIs, CTs, and PET/CTs. We found it important to be able to do everything because we wanna have a one-stop shop where we can put one prescription pad on the table at our referring physician locations, and no matter what their imaging needs are, they can send their patients to our sites. Often, patients are sent to our sites for very routine studies, and based upon the results of those studies, they'll be sent back to us for more advanced big-ticket items. I'll spend a couple minutes going through the industry.
If you believe the research out there, it's an enormous industry, believed to be north of $100 billion of annual services revenue here in the United States. Today, it's believed that the hospitals do about 40%-50% of this imaging. That has changed from many years ago when I first became CFO of the business about 20 years ago. The hospitals were doing close to 70% of all the diagnostic imaging. The payers these days are trying to move as much of this business out of the hospitals into the freestanding centers, because there's a tremendous pricing differential between what the hospitals charge for these services versus what we charge for these services. Today, in our markets, hospitals charge anywhere between 2x and 5x the cost or the pricing that we charge in the outpatient centers.
So more and more, the payers are getting more aggressive as they, as they're trying to control their costs and trying to move this business out of the hospitals into the freestanding centers. They're doing this through changing plan design to have lower co-pays and co-insurance for patients who get their imaging outside of the hospitals, as well as installing pre-authorization departments, where most of the advanced imaging has to get pre-authorized. When they get pre-authorized, the insurance company is trying to direct you to a freestanding outpatient center. The business remains highly fragmented. RadNet is the largest player. If you took the five largest players and put them all together, we'd be only about 10% of the entire industry. So this is one of the last frontiers of healthcare that has yet to be consolidated in any meaningful way.
Industry grows nicely every year. It grows because of a number of demographic reasons, which is driving the growth of healthcare in general, but it's also growing because of technology. So as the population grows, you see more imaging. As the population ages, older people utilize imaging far more frequently than commercial lives. The Medicare lives utilize imaging three times more frequently than all of us here in this room who are commercial lives. From a technology standpoint, each year, there are advances in technology that are driving new applications. These technology advances are not only happening with equipment, they're happening with contrast materials, radioactive pharmaceuticals, post-processing software, AI. All of these advances are creating new medical indications for doctors to order these diagnostic tests.
Most importantly, it's proven that when patients get diagnostic imaging early on in the disease process, that ultimately, early detection and early diagnosis of disease leads to better patient outcomes and lower costs in terms of treatment. Industry has been consolidating over the years. RadNet's been one of the chief consolidators of the industry, at least in the markets in which we currently operate. We spent over $250 million over the last 4 years in terms of acquisitions, most of which have been tuck-in acquisitions in the markets in which we currently operate. Many of these smaller players are not well-capitalized. Many of them are physician-owned practices.
Many of them aren't particularly efficient operators or simply don't have the benefits of scale that we do, and they're looking for long-term stability in a dynamically changing market, a market that requires capital investment, a market that requires staying up on advances in technology, advances in medicine, and we're able to provide that to some of these smaller players. So I'll give you a little bit of a deeper dive into RadNet. As I mentioned, we're based in Los Angeles, but we operate in eight states. We just most recently entered the state of Texas, which should be red there, but it isn't, where we did two acquisitions, or we completed one acquisition, and we're about to complete another acquisition in the Houston marketplace.
But our strategy has been around being concentrated for a number of reasons. One is we found early on in our history that having concentration in a market provides you the opportunity to centralize a number of the back-office functions and provide them at scale in a way that allows us to be a low-cost provider. So we can centralize scheduling, pre-authorization, insurance verification, revenue cycle functions, marketing. We can have roving technologists and employees. We can create local brands that have value, and this will continue to be our strategy going forward and allows us to absorb reimbursement changes, you know, or have absorbed reimbursement changes of the past and continue to drive margin in what's now a very inflationary environment.
The second major benefit from being geographically concentrated comes from our ability to contract favorably with the large insurance companies. Even the large national health plans, the Uniteds, the Aetnas, the Cignas of the world, they all contract on a regional basis. And what we found is, having the scale that we have in these markets gives us a seat at the table to maintain a long-standing fair and equitable rates into the future. And as we get into inflationary times like this, where costs are rising, we've been very effective in being able to go back to the insurance companies and getting the pricing increases that we need to remain profitable and sustainable.
They also recognize that we're on the correct side of the cost curve, meaning that we're their partners in trying to get this business out of the much more expensive hospitals and into the lower-cost freestanding centers. So our revenue. On the left side of this page, you'll see a pie chart that shows you our procedure volume. If you notice, about 24.5% of our procedure volume comes from the advanced imaging modalities of MRI, CT, and PET/ CT. But on the right side of the page, you'll see that those three modalities that from a procedural standpoint are only 24.5% of our volume provide about 60% of our revenue. So clearly, the revenue and the margin is being driven by advanced imaging modalities.
From a payer standpoint, we have a very diverse payer mix. Our biggest payer is commercial insurance. These are HMOs, PPOs. That represents about 58% of our payer mix. You've got Medicare, which is about 21-22% of our payer mix. Capitation, which I'll talk about on the next slide in more detail, is an important part of the business, representing about 8% of our mix, and then we've got some smaller books of business like workers' comp, personal injury, Medicaid, and other programs. Capitation. So, as I mentioned in my opening remarks, this is unique to RadNet. We're at full risk for about 2 million patient lives, over 30 medical groups with whom we contract.
The majority of these lives are in California, where the risk for HMO patient care is passed from the various managed care providers to these large medical groups. These medical groups take full risk for providing the full breadth of patient care. These medical groups approach RadNet, or we approach them, and we take the risk of providing outpatient imaging off of their plate for a small piece of the per-member per month fee that they're aggregating from the various HMOs. It's been a great book of business. We've been doing it for almost 30 years. We've got a great stable group of contracts. We have high level of renewal rates. We generally have price escalation clauses in these contracts in the range of 1%-3% per year.
There are a number of cost savings we get on this book of business that we don't have in all of our other payer classes, including no cost of billing and collecting, 'cause we're not billing per procedure. We're just getting an enrollment check from the various HMO contracts that we have with the capitated payers. We've got no bad debt or very little bad debt associated with these contracts. These are all HMO patients with very little or no copays. And then we also have no cost of carrying receivables 'cause we get paid in the month that we render these services. And then, and that also helps us with what we think is an industry-low DSO of around 34 days.
In addition, we get a lot of pull-through business from these capitated doctors who are obligated to send us the HMO patients, but because we have the relationship with them on the capitated side, they tend to send us their fee-for-service business as well. Talk a little bit about joint ventures. As I mentioned, we have about 26 joint ventures with some of the largest health systems in our markets, which include the RWJBarnabas System, Dignity Health, Adventist Health, University of Maryland, Providence, MemorialCare, and among others. It's been a great structure for us and the hospitals.
Frankly, it's a win-win, as a lot of these hospitals have seen their outpatient imaging volumes challenged and dwindled, and seeing more and more of this business being lost to the outpatient players as the insurance companies are aggressively trying to move this out of the hospitals. They're looking for long-term strategies around diagnostic imaging, and our joint venture structure allows them to participate in the trend as opposed to try to follow, continue to fight the trends. And we give them the ability to own ownership in our centers. We manage the centers on their behalf, so they're simply a silent equity partner. The quid pro quo is we ask them to use their relationships with community-based physicians to try to direct those referrals for outpatient imaging into our centers as opposed to the hospital.
We do see a nice uplift in terms of our volumes in many of these cases where we partner with these hospitals. From their standpoint, it gives them the ability to buy into an existing book of business that we currently have and participate in the trend of the growth of outpatient imaging, and recapture some of the revenue that they're ultimately gonna lose. The other thing that this does for us is it gives us a bigger seat at the table with the commercial payers, in terms of establishing long-term and fair and equitable pricing. I'll spend a few minutes talking about our digital health strategy. We do own our own IT backbone. It used to be called eRAD, which is a radiology information system and a back-end image management system.
We use it in our in the entirety of our business. We also sell it to over 200 customers outside of RadNet. We are in the process of rebranding and reworking that product into a cloud-native solution that includes a number of generative AI solutions that will automate a lot of the functions that we and others perform on behalf of our centers that today rely on human capital, which, in this environment, is inflationary, number one, and number two, is constraining in terms of the availability of capital, availability of human capital. So, we are testing some of these generative AI modules around scheduling, pre-authorization, insurance verification.
revenue cycle, and we should have a fully commercialized product that we can now sell and license to our existing installed base of eRAD users, as well as the rest of the industry, and that should be in place somewhere early in 2025. From an AI standpoint, I mentioned we've gotten into AI in breast, lung, and prostate cancer. We've started rolling out or actually close to completion of rolling out a program that we call EBCD, Enhanced Breast Cancer Detection program, where, when a woman comes in for her annual mammography screening, we're offering, for $40 out of pocket, the ability for AI to read her exam.
And, it's been proven in a number of tests and written in a number of medical journals that our AI algorithm could find cancer up to two years sooner than the human eye can. So we've had a great response to that. We started rolling it out in the fourth quarter or at the end of 2022. We're fully rolled out on the East Coast. We have almost 40% of all of our women choosing to pay $40 out of pocket to have the exam read by AI on the East Coast. We started rolling it out last quarter on the West Coast.
We're already at a 30% adoption rate, and by the end of the second quarter here this year, we should be fully rolled out within all of our mammography centers nationwide. The Aidence product, we, we have yet to get FDA approval, but we have CE mark in Europe. We are selling it very successfully and licensing it in Europe, particularly in the U.K., where we're rolling out a program with the National Health Service of the U.K., called the Targeted Lung Health Check program, where they're mandating all high-risk lung cancer patients, these are people who are current smokers or have smoked in the past, to come in for an annual screening exam.
They've mandated the use of AI in reading these exams, and our Aidence software has over 80% market share in the rollout of this program. Then Quantib, which is our prostate AI product, which does have FDA approval, we're formulating and devising a program, which we should launch later this year or potentially early next year, called EPS, Enhanced Prostate Screening, where we're going to—like, like we're doing with women in mammography, we're gonna offer men an annual screening program that is a replacement for the PSA test, which is fraught with a whole bunch of inaccuracies, with a much better, more fulsome test around MRI prostate imaging. So we're very excited about that.
Not only have these been revenue generators for the company, but they're also making our radiologists more accurate and more productive. So more to be said for this as this continues to transform our industry. I'll leave you with a few final remarks about financials, and then we'll get into some question and answer with Larry. Performance has been strong. First quarter revenue growth was over 10%. We grew EBITDA by over 20% during the quarter. Same aggregate procedure volumes were up 5 and 5.7%. Same center performance was up over 3.7% on the procedure basis.
We have been expanding our margins as we continue to grow the business and scale the business, but also as we continue to aggressively seek price increases from a lot of the commercial payers, and as we continue to see a shift from routine imaging to some of the more advanced imaging, which we think is a shift that will continue in the coming quarters. Digital health has been growing faster. It grew. It over doubled from last year's first quarter. We expect digital health, or at least the AI part of digital health, to potentially double this year in 2024 relative to 2023.
As we launch the software product, the DeepHealth OS, in early 2025, we continue to think that the digital health platform will grow faster than the core imaging business. We announced recently a new joint venture with the Providence Health system, with seven centers in the Los Angeles San Fernando Valley area. We expanded another relationship in Phoenix, excuse me, with the Dignity Health health system, where we, through that joint venture, acquired seven centers that were owned by one of Cigna's medical groups there called Evernorth. And we've also, in the last couple of years, launched a strategy to grow the business through de novo centers.
We've been facing capacity constraints at a number of our regional operations, where we have heavy volumes that we can't perform because of constraints around capacity. So we're building that capacity, and we've been spending extraordinarily over the last couple of years to do that. So this is just a graphical representation of our performance over the last 14 years. We're a pretty steady, growing company. We've been accelerating that growth in more recent years, particularly in the profitability and the EBITDA side, and we think that there's no reason to think that these types of metrics won't be sustainable, and we think that there's actually a lot of upside in terms of growing the company more quickly.
Partly because we've got a capital structure today that allows for that type of growth, and I'll move to that slide. Today, we've got, as I stand here today, we're sitting here with over $650 million of cash on the balance sheet. Our net leverage is about 1.1 net debt to EBITDA. We've got a fully available revolving credit facility of $282 million that's undrawn upon. We're in a consolidated industry that we think is gonna heat up in terms of M& A, so we think that there's a lot of room to grow this business.
And then also, we have a pretty substantial net operating loss carryforward that shields or will shield in the coming years, our substantially all of our federal tax, taxes. So with that, I didn't leave a whole lot of time. There's a lot to get through for questions.
I just thought— Thank you. Thank you for the presentation. I thought just, you had highlighted in your most recent call, kind of some of the organic drivers of the quarter. Obviously, a very good quarter, margin and raise your guide and so forth. But just organically, what you had referenced pricing, modal- I'm sorry, modality mix, so on and so forth. And you seem to have kind of catapulted yourself into a higher growth paradigm here. I mean, does that— Do you expect that to continue? Is there anything that was unique to the first quarter that drove that or?
Yeah, nothing really was unique to the first quarter that drove the performance. I think we're seeing just the continuing trends that we've been experiencing over the last couple of years that we think, you know, has a long runway ahead of us. And that is, there is a slow shift to more advanced imaging, which is obviously more revenue, more higher margin business for us. We are seeing the benefits of us aggressively going after price with the commercial insurance companies who recognize our value in trying to move this business with them out of the hospitals into the freestanding centers. We've been, you know, going back to our capitation contracts. We actually canceled a couple of our capitation contracts and flipped them to fee-for-service because we couldn't get the rates that we felt we deserved.
It's a combination of the pricing increases, the shift to advanced imaging, and then the heavy demand that we have. I mean, we have backlogs at virtually all of our regional operations. We're trying to desperately build capacity to service that backlog. We've got these 12 de novo centers that should go into operation by the end of the year. We've got eight other projects behind them that will be accomplished in 2025. You know, every year, the industry grows, and then this market share shift that we're seeing from the hospitals into freestanding centers is also a big part of what we're doing.
Then all the investments that we're making around technology, in terms of faster throughputs in our centers, which is helping us with our capacity constraints, technologies around doing remote MRI techs, that has helped us with labor. Some of the automation that we're gonna be putting into place in terms of the generative AI to help with scheduling, pre-authorization, insurance verification, all that is contributing to, to our better margins and better performance.
Okay. And to that end, the digital health side, I know you framed the kind of the 60 and the 20. What... How do we think about that opportunity going forward? How, you know, you said it will grow, you know, ahead of your organic growth, if you will, so to speak.
Sure. Well-
What is that kind of addressable market? Is there a way to look at that in that context at this point?
Yeah. Our core business is growing in the neighborhood of 10%-
Right
... you know, per year, which is nothing to sneeze at, and we're proud of that. But our digital health platform, our guidance implies a 30%-40% growth this year, and within that is that AI business that's growing, could grow at 100% this year. So you know, there really, even though it's a much smaller business than our core imaging center business, it is, one, it's doesn't have the capital intensity of our core business. And two, particularly in the area of AI, once you meet the fixed costs, you know, a lot of the incremental revenue drops-
Right
... down to the bottom line. And so, you know, we're, we're expecting to break even in that AI business within the digital health platform. We're running $24-$25 million of expenses in that business. Once that business hits that revenue threshold, virtually all of that-
Sure, sure
... revenue falls down to the bottom line. So, it's, you know, we're subscale. We believe we're subscale in digital health right now, but once we launch, once we continue to grow the AI business and then launch that DeepHealth OS platform and can get the benefits of those generative AI solutions that are embedded in that DeepHealth platform for our own business, and then start selling and licensing that to the rest of the industry, we have a lot of people who are pretty excited about the prospects for that product.
Great. A little bit of time. Carrying a fairly substantial cash balance, I would say. I'll play a credit analyst here. What deployment of capital do you know, acquisitions come into play in a business development? Kind of what's the thought around?
Sure. Well, we've been spending the last couple of years extraordinarily on growth CapEx, which will accelerate growth, which is really funding the de novo centers, but that we've been funding out of our own cash flow, and we don't need external capital to do that. We have this, you know, $650 million-$700 million of cash on our balance sheet, really to prepare ourselves to accelerate growth. We think that there's gonna be more consolidation, and the M&A market is going to heat up in our industry. Not to say that we'll be a part of that. I mean, we're obviously gonna evaluate transactions, but we think it changes the dynamic in those discussions when you actually have the cash on the balance sheet, and you don't have to go out and raise it or finance it.
So, you know, and if we're sitting here with a war chest of cash two years from now and don't feel like we have a better use of cash, we'll just use it to pay down our debt.
Great. Thank you, Mark.
Thank you.
Thank you, everyone, for joining.