RadNet, Inc. (RDNT) Q3 2012 Earnings Report, Transcript and Summary

Good day, everyone and welcome to today's RadNet Inc. Third Quarter Earnings Conference. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to your host for today, Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet.

Good morning, ladies and gentlemen, and thank you for joining us today to discuss RadNet's Third Quarter 2012 Earnings 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 10-K for the year ended December 31, 2011, and RadNet's quarterly report on Form 10-Q for the 3-month period ended September 30, 2012. 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. And with that, I'd like to turn the call over to Dr. Howard Berger, Chairman and Chief Executive Officer of RadNet.

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 third quarter 2012 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. To sum up our performance in the third quarter, I would use the terms steady and consistent. Despite being in year 3 of a recession -- recessionary health care environment that has been characterized by lower utilization, RadNet has been very effective in keeping its centers busy by taking share from local competitors and consolidating small operators at attractive acquisition multiples. The result is that we are financially stronger and more efficient from an operating perspective than ever before. And our relative strength, with respect to our competitors and regional payers in our markets has increased substantially. With this quarter's results, our trailing 12-month revenue has increased to $681 million, and our trailing 12-month EBITDA has increased to $121.4 million of adjusted EBITDA. Profitability has also significantly been enhanced during this difficult time period with our trailing 12-month net income reaching $12.1 million. There has been one thing I can point out -- excuse me, there has not been one thing I can point out that has been the secret of this success. It's simply been achieved through evaluating and assessing all parts of our business for opportunities to cut costs, operate more efficiently and drive more revenue and procedural volume. This process is perpetual. I constantly challenge my team to improve, and…

Thank you, Howard. I'm now going to briefly review our third quarter 2012 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements, as well as provide some insights into some of the metrics that drove our third quarter performance. Lastly, I will discuss Medicare's final rule, which was released last week, which will govern our reimbursement for the Medicare portion of our business in 2013. In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization each from continuing operations and excludes losses or gains on the sale of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains and noncash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interest in subsidiaries and is adjusted for noncash or extraordinary and onetime events that have taken place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet Inc. common shareholders is included in our earnings release. With that said, I'd now like to review our third quarter 2012 results. Our third quarter is a continuation of the stable and steady performance we have exhibited throughout this recessionary period. For the 3 months ended September 30, 2012, RadNet reported revenue and adjusted EBITDA of $167 million and $28.6 million, respectively. Revenue increased $18.4 million or 12.4% over the prior year same quarter, and adjusted EBITDA increased $1.6 million or 6% over the prior year's same quarter. The increase in revenue and adjusted EBITDA from the third quarter of last year was driven by procedural volume increases from…

Thank you, Mark. We remain excited about the future for our business. RadNet remains a very small part of $100 billion industry. However, we continue to distance ourselves from our competitors in our chosen core markets, where we have been building scale and prominence over several decades. We are beginning to benefit from the scale with respect to pricing increases we've recently achieved on the East Coast from private payors, and I believe there is more to come on that front. Despite extremely difficult operating conditions, I believe we are demonstrating the strength of our operating model and our performance continues to diverge from that of many of our industry competitors. We will continue to organically grow our core imaging center business through marketing, contracting, targeted capital investment and equipment and information technology. We will capitalize on being advantaged relative to our local competitors with respect to size, access to capital and business acumen. And we will continue to consummate leverage neutral or deleveraging transactions, as we are mindful of protecting RadNet's overall leverage ratio and balance sheet profile. We will continue to build our ancillary business such as Breastlink, teleradiology and information technology platforms. We believe these businesses will feed off each other and drive core imaging volume to our outpatient facilities, where we have high operating leverage and incremental profitability. These ancillary businesses along with our core competency in owning and operating outpatient centers will continue to drive partnership strategies, like that we are demonstrating with Barnabas Health, where RadNet will be the diversified radiology partner of choice bringing our comprehensive suite of services to bear. In summary, we remain optimistic about RadNet's prospects and business opportunities for growth and look forward to updating you about our progress in all these endeavors. Operator, we are now ready for the question-and-answer portion of the call.

[Operator Instructions] Our first from Jefferies, we'll go to Brian Tanquilut.

Howard, it seems like you guys are pretty happy with how you're doing with CML on the integration front of that. And I know that it was a -- almost like a fixer upper. So just wondering where we are today on realizing the synergies and how much more we have to squeeze -- that we can squeeze out of CML, obviously taking away the Hurricane Sandy impact on that one.

Thanks, Brian. Well, there was really 2 facets of the CML integration. The first one, which was the easier of the 2, was really to look at opportunities more at the corporate savings level with things like purchasing service contracts and other aspects of how RadNet operates its core businesses, along with some redundancy in corporate functions that allowed us cost savings with reduction in employees. That part of it is pretty well complete at this point in time, and that probably took us a good 6 months to integrate that into the operation. The second part of it is integrating the operation of centers, which were directly competitive with some of the Maryland centers that we both operated in similar geographic regions. That part of it really was begun in the latter part of the third quarter and is continuing here through the fourth quarter and the first quarter of next year. We expect that most of that will be finished by the end of the first quarter of next year. And by then, we will probably have achieved virtually all of the benefits from the integration in full. So if I had to quantitate this, I would say that we are about 2/3 of the way through this process and have about another 1/3 to go. I would only caution though that these get implemented and only then get realized on an LTM basis once something's been in place for a year. So I think our expectations are very much being met and maybe in some cases exceeded. But it is a complicated process given the amount of centers that existed and the amount of integration that was necessary.

Okay. And then Mark, to your comment on the Medicare rates and Howard, I guess, you can answer this question to me. The industry has basically been hit by Medicare cuts, gosh, like almost every year since 2006. So just wondering like where you guys stand today as an industry? What are you seeing -- like at what point does it stop?

Well, the one thing I'll mention is, back in 2009, Medicare communicated that they were on a plan with respect to imaging to phase in a 4-year program to lower the practice expense or the technical portion of the RVU calculation as it relates to imaging. And they targeted variables such as the utilization factor, as well as things like the malpractice factor and other areas of the formula. So 2013 does represent the fourth year of a 4-year phase. And so I guess we're not surprised, and I think we've been consistent in communicating over the few past years that we thought that there'd be continuing whittling down in Medicare reimbursements. So we're not surprised to see an incremental hit in 2013. We would hope and expect that after 2013, maybe they would focus their time and attention on other industries. But we'll have to see about that. So we were planning and preparing for additional cuts throughout these last 3 or 4 years, and that's why we've been focused on, diligently, on initiatives that will try to pull costs out of our business and make our business more efficient and then preparing ourselves or positioning ourselves to be in a place where we could go back to some of the private payors in our regional markets with strength and with leverage based upon our scale and try to get some concessions from them to essentially mitigate the pain and the pressure that we're feeling on the Medicare side. So this isn't really unexpected to us. How they've done it has been somewhat of a mystery in 2013. As I mentioned, they're focused on a couple of MRI codes related to MRIs of the joints of both the upper and lower extremities, as well as one particular ultrasound code. So it's always been a mystery. It almost seems like they were trying to backsolve for a particular overall savings within the industry, and then they just try to find a way to achieve those savings. And there isn't always a rhyme or reason or logic behind what they do.

And Mark, last question for you. So in your prepared remarks, you mentioned something about potential private payor follow-through and how you can mitigate that. Just -- and I know on one hand private pay is basically negotiated and you guys have the leverage there. But are you seeing some of these private payors say, hey, you're just -- basically, your Medicare rate was cut back and we need to take the same cut on those same CPT codes?

No. When I use the term private payor follow-on, we have a very small percentage, it's not that material, of contracts that are actually tied to Medicare. So it adds an additional hit to the Medicare, but it's not very material. So the point I was trying to make in the prepared remarks was that the pricing increases along with some of the cost savings related to our IT and voice recognition initiatives together mitigate both the Medicare impact and the non-Medicare impact of these changes in the RVU formulas.

We'll go next with Darren Lehrich of Deutsche Bank.

I wanted to just follow-up a little bit more on the Medicare discussion. Mark, if we think about sequestration in the context of the $7 million to $8 million that you're referring to, is that essentially another $2 million or $3 million impact potentially if that 2% would be included in the Medicare rates for next year? Just want to confirm what the $7 million to $8 million includes.

Sure. If you look at the Medicare book of business that we have, it roughly equates to about $140 billion [ph] on an annual basis. And what sequestration would do is to add an incremental 2% hit to our Medicare book of business. So that equates to roughly $2.5 million to $3 million additional hit.

Got it. Okay. That's what I thought. All right. I guess, as it relates to your comment about the CT of the abdomen and the fact that you've been able to I guess validate essentially what your original assumptions were, can you just confirm to us that, that didn't result in any slippage of your collections and how you've been estimating it? Maybe just a thought on how you guys approach that.

Sure. I talked about it a little in my prepared remarks in relation to talking about working capital and how our DSOs have gone down from the beginning of the year and in particular how our operating cash flow of $55 million is so much greater for the 9-month period versus our cash flow from operations last year. And the comparison is so pronounced because during the 9-month period of last year, we were building AR and building working capital due to holding back billings related to payors with whom we were in negotiations about fair pricing for the combined code of the CT abdomen and pelvis. Because if you recall, at the beginning of last year, this change took the whole industry by surprise not only the operators but also the payors, where Medicare created a brand-new CPT code that was now a combined code for when we perform both the CT of the abdomen and CT of the pelvis on the same patient during the same visit. So each private payor now had to ascribe a value to that or a price to that CPT code, and many of them picked a price that was more in line with a single CT exam as opposed to 2 CT exams. So we pushed back significantly, particularly in regions where we had scale and leverage on the East Coast and we entered into negotiations with these private payors that started at the beginning of last year. Many of those negotiations weren't completed until the third quarter and some even towards the end of last year. The result in our negotiations with these payors is that many of them asked us to hold back billing for these codes. And as you recall, these are very common procedures, I think the most common CT procedures that we do as a company. And so we built up AR by holding back these billings. And then finally when the negotiations were resolved, we released the billings and ultimately got paid based upon our normal DSOs with them based upon the result of those negotiations. So we were building AR in the first 9 months. Since that 9-month period, we've now collected the vast majority of those monies. And that's why you've seen our cash flow from operation increase so dramatically from the 9-month period of last year.

Okay. That's a helpful explanation. And as we're thinking about some of the other risks out there potentially for 2013 on the rate side, is there anything specific in some of the changes that took place with California Workers' Compensation that would impact you -- I know it's a small part of your business, just want to be sure that we're thinking about that correctly.

Darren, it's Howard. It is as you said a very small part of our business and a lot of the workers' comp business in California is also controlled through a broker network of people like One Call Medical where our rates are fixed regardless of what the reimbursement from the workers' comp payors is concerned. So we don't believe there's going to be any real impact at all that's worth discussing relative to the Workers' Compensation side of our business here in California.

Fair enough. Okay. Obviously, you're not in a position to really have a good answer on Sandy. But just as we think about the onetime effects of this, obviously, a lot of East Coast operations, being a New Jersey resident I can speak to what probably will impact your New Jersey centers for a couple of weeks at least. But maybe just remind us, East Coast, as a percentage of total company revenue and if you could give us a sense for New York, New Jersey as a percentage of total company revenue just to help us start framing that.

Sure. The East Coast is roughly 60% of our revenue, with California being the remaining amount. New Jersey represents -- by itself, represents a $40-ish million book of business for us on an annualized basis.

Between 5% and 6.5% -- 5.5% to 6% of our revenue is New Jersey. New York is in that same ballpark.

Okay. That's real helpful. Last thing for me just be curious to maybe have you size for us or give us some commentary on run rate of the non-imaging side of the business at this point. You've obviously had a lot of business development activity and would be curious to get a handle on where some of those business stands from a revenue standpoint?

Well, those businesses are probably pretty much static in terms of their revenue contribution to overall revenue because the focus on those businesses really has been more for internal benefit than it has been for external sales. So things like our teleradiology business and the IT business with outside customers, is not that much different than it was at the beginning of the year. So the 2 of those together are approximately 2% or so of our overall revenue.

Yes. If you add Imaging On Call to eRad; Imaging On Call is roughly a $15 million business, eRad's about a $4 million or $5 million business. So together they're about $20 million annualized business. And because they're so immaterial from the standpoint of the overall RadNet, we're not required to do segment reporting at this point.

And next from RBC, we'll hear from Miles Highsmith.

I know it'd be hard to give a specific percentage on this, but I'm just wondering pro forma or considering the 2013 cuts the last year, the phase in. Would it be directionally right to think about Medicare physician fee payments being probably 80%, 85% of the HOPPS payments and again adjusting for sequestration as well, is that the right zip code or anything you can say along those lines?

Yes. It's been an interesting phenomenon to watch over the last few years because what -- going back to 2007, Miles, if you recall, the reason why the Deficit Reduction Act created such a large reimbursement hit to the industry is because when they introduced the HOPPS schedule and now said imaging -- outpatient imaging is subject to the lower of the physician fee schedule and the HOPPS schedule. The HOPPS reimbursement for MRIs, CTs and PET/CTs were substantial discounts or were set at a substantial discount to the Medicare fee schedule and the hit to MRI was in the 25% to 30% range, the hit to CT was in the 20% range and the hit to PET/CT was in and around 40%. So we started in 2007 with a HOPPS schedule that was substantially lower than the physician fee schedule on the more advanced imaging modalities. What's taken place since 2007 has been that HOPPS, on an annualized basis, on average has gone up about 1.9% per year since 2007 and the physician fee schedule has been substantially decreased in the neighborhood of anywhere between roughly 2% and 5% per year. So that when the HOPPS schedule was introduced in 2007, the vast majority of our advanced imaging was then being reimbursed under the HOPPS schedule. Today, about 80% of our advanced imaging modalities are now being governed by the Medicare fee schedule because the Medicare fee schedule has now been lowered to a point where most of the codes are lower than the HOPPS schedule.

Henry Reukauf of Deutsche Bank.

Yes. I was just curious, I was looking at the same-store volume growth and noticing, I guess, that you have pretty good uptake in MRI and CT and PET. And it looks like the routine procedures were actually off more than the rest of the business that might have pulled it down. Another kind of competitor, same business but slightly different has been seeing better MRI. Have you seen any rebound in the MRI and the nonroutine segments of the business with more slowdown in the routine. Is there any developed -- any kind of development there that you could talk about?

Well, I think the reason for the slowdown in the routine side of it is directly related to lower patient visits to doctor's offices. As you would imagine since, roughly speaking, about 80% maybe a little less than that of our total businesses is routine imaging. To the extent that there are fewer visits to the physician offices for routine checkups or just even minor illnesses, the place that you would expect to be impacted first would be on the routine imaging. That's different than -- somewhat from -- than more advanced imaging that are generally more diagnosis-specific related. In other words if somebody needs an MRI it's usually because they've got some kind of a pain or other condition that they don't electively put off going to the doctor for. So I think that's probably as a good an explanation for the departure of the routine imaging from the advanced imaging, if that's -- I think what you were asking there Henry.

No, that is what I was asking. But also are you seeing any sort of kind of acceleration in some of the more advanced stuff, advanced imaging vis-à-vis where it had been in the past?

No. I don't think there is really acceleration. I think if you look at most of the data that is being produced, utilization for imaging, in general, is down. I think one of the reasons that we have been a little bit more successful in avoiding that is because we're technologically improving our centers with more competitive scanning capabilities, as well as capabilities to do other procedures that older technology couldn't. And I think you are beginning to see an erosion of the small operators, not just through acquisition, but who are kind of folding up their businesses, and that business has to go elsewhere. But overall, I would be very surprised to find somebody who if they had increased their business in MRI or PET scanning, they're claiming it's a result of increasing utilization as opposed to kind of rearranging the chairs on the deck of the Titanic.

Okay. And then I don't think you mentioned guidance. Is that confirmed, same guidance that you had out there before for the full year?

We didn't confirm guidance. When we look at it, I can discuss it now. At this point, we're towards the high end of our revenue guidance. Our guidance is $648 million to $688 million date on an LTM basis. We're right at 681. We're above the range of our EBITDA guidance. Our adjusted EBITDA guidance was $120 million to $130 million, and we're at 121 and change through the 3 quarters. Our CapEx guidance is between $35 million and $40 million, we're at $32 million right now. And our cash interest expense is between $46 million and $51 million, I think we'll be towards the low end of that, which is great. And then our free cash flow generation is between $30 million and $40 million of free cash flow, which we think that we'll be somewhere in that range. So we feel pretty good about the guidance. The only thing that -- what we don't know is where the fourth quarter numbers are going to come in relative to Hurricane Sandy. And so the only -- of those 6 -- of those 5 metrics I went through in terms of our guidance, the only guidance that we might have some jeopardy meeting is the EBITDA because right now, we're at $121 million and change, and the low end of our guidance as $120 million. So it just all depends upon where our EBITDA in the fourth quarter comes in relative to the fourth quarter of last year, which was where we produced EBITDA of about $32 million last year.

We'll move on to Kyle Smith of Jefferies.

Just 2 quick questions for me. Mark, thanks for that commentary earlier on that cash flow from operations. That was helpful. As we think about 2013, should we be expecting a more neutral cash contribution from working capital, maybe a little bit of scaling as the top line grows or is there anything unusual that we should be expecting as we go forward?

Yes, A. good question. No, I don't think that there will be anything unusual that we would see in 2013 relative to 2012. What we saw between 2011 and 2012 was certainly extraordinary with those negotiations that were going on. And it was -- it pained us to pull back billings because it affected our cash flow, it increased our DSOs, it made our balance sheet, from our perspective, not look as attractive. So we don't see anything like that going on in 2013. So I would expect our working capital to be much more neutral in 2013 and, to the extent that we do grow the business, we build slightly.

Great. And then the other question is, now that you've got a more flexible covenant structure in place and you're seeing historically low acquisition multiples out there, what do you view as the gating factors that affect your ability to execute on transactions, and should we be seeing any material change in pace as we go forward?

Sure. Before I address that, I wanted to say one other thing as I was thinking about our cash flow from operations. It will be improved next year based upon the expiration of our swaps, which will give us between that and slightly lower interest cost an additional $7 million of cash flow from operations. So that's the one caveat to what I said earlier. But to address your second question, from the standpoint of the flexibility in our credit agreement, we do have "an unlimited acquisition basket", which we had before, frankly. So the gating item in terms of doing acquisitions is really just the availability and attractiveness of acquisitions that fit our criteria, which is multi-modality operations in existing markets that can be bought between 3x trailing EBITDA to the low-4s. We're very focused on our balance sheet in making sure that we don't do any acquisitions that will ultimately create more leverage to our balance sheet. So everything has to be leverage neutral to deleveraging from our perspective. And we do have a robust pipeline at this point, mostly of smaller operators in our existing markets, none of which would take a second amount of capital or would require us to raise additional dollars. And we don't really see an end to this. This is a trend we've been seeing over, really, the last 5 years since the Deficit Reduction Act of 2007 -- which was implemented in 2007. And we get calls and inquiries through our website and through our operations teams on a weekly basis from smaller operators, who are looking for more certainty in their future. And they recognize that scale, operating efficiency and clout with the regional payors is becoming more and more important, particularly in this recessionary environment. And they look at the RadNet network and the RadNet model as something that's attractive to them and gives them the ability to potentially take a few dollars off the table today, but then gives them long-term stability for their operations, for their employees and if they're radiologists for their ability to continue to be a practicing physician. So I would expect us to do a mixture as we go forward of taking our free cash flow and continuing to do these tuck-in transactions, as well as taking some of that free cash flow and actually paying down some of our debt.

Omar Vaishnavi of Capital has our next question.

I have 3 main questions. One on Sandy, I know you guys don't have specifics but couple of questions around it. One, were any centers actually damaged in the hurricane?

No. None were damaged to the point where it would keep the center or any piece of equipment in the center from being operational.

Okay. Great. And then second question is do you guys have business interruption insurance? And if so, can you quantify how it works?

Well, that's probably a question that a lot of people are asking themselves. The answer is yes, we have business interruptions insurance. The way that we've been able to assess it is that, while we have a deductible like all business interruption insurances that this is -- because it's designated by a single act, in this case one storm, meaning Sandy, all of the operations will fall under that single claim with the single deductible. And I believe our deductible is $50,000. So from that standpoint, we have what we believe is very good insurance for this, as well as excess insurance if the claims go above the amount of our base business interruption insurance. Part of the issue that we face is that just like the conditions that continue to exist in the Manhattan or New York City area and Northern New Jersey, this is an ongoing problem because while our centers are operational, there are many businesses that are nonoperational, as all of you I'm sure are aware watching the news, there is rationing of gas, which means that people cannot even do the routine things that they need to do let alone to get to doctor's offices if indeed those doctor offices are open. So the fact that we've returned, if you will, to normal operations doesn't mean that the level of referrals that we're able to see are indeed coming in through our phone centers. So there's a good news with this as far as it relates to RadNet. There's a bad news in terms of it being really a disaster -- it's not a catastrophe -- for the northeastern United States. And I believe the effects of this will be ongoing as they are today, perhaps for another couple of weeks based on the response of the various governmental agencies.

That's helpful. My second question was, when you guys did the refinancing, you guys gave an EBITDA number which was per your credit agreement, which was as of Q2, quite a bit higher than where it is on an LTM basis today. Can you guys provide that same credit agreement figure for the third quarter period?

No. We don't provide that publicly. We did it as an 8-K relative -- in conjunction with the financing. And that's the only time that we've provided that pro forma number that has been a number that's been private and only shared with the private lenders.

Okay. And the last question is just around acquisition. So you guys say you've been buying these acquisition at 3x to 4x trailing EBITDA. Last year, you did $27 million in your Q3 quarter. Since that quarter you spent about $50 million on just imaging center acquisitions excluding your teleradiology businesses. So if you take that $50 million and you assume -- if you divide it by 4 you get $12.5 million of annual EBITDA contribution. If you divide that by 4 for its quarterly impact, you should have realized over $3 million in EBITDA contribution. So your $27 million should have gotten to $30 million instead of this $28.5 million. Are these acquisitions really being done on 4x trailing or are there a lot of synergy assumptions over time that are being baked in? And the reason I'm asking this is your own stock trades between 5x and 5x EBITDA depending on what range you're using for the year. And I'm just wondering whether these acquisitions are really that attractive given, you, as the best player in the industry have same-store volumes and pricings basically flat to down year-on-year, and your competitors must be doing a lot worse.

Yes. If you look at our -- let me address it by saying that it's difficult to look at any one particular quarter because there's a lot going on in any one quarter, but if you look at a time period, you can see the benefits here. If you look at the first 9 months of 2012, year-to-date, we're at $89.1 million of EBITDA, relative to last year we were at $83.2 million of EBITDA. So we essentially have $6 million of additional EBITDA in the first 9 months and that's even taking into account the fact that this quarter, we had challenged or negative growth on the existing business. So we are seeing it come through, you can't just -- and because of the normal cycles of our business with respect to the cyclicality of the quarters, you can't just look at one quarter and do that type of division. But we are significantly ahead of our 9-month EBITDA last year.

Let me make one other comment on that, Mark. The $50 million that you mentioned is heavily weighted towards CML. Now that's about $40 million of the -- it's actually a little bit more than, it was $41 million, right, Mark?

$41 million.

Yes, $41 million of the $50 million. And that $41 million of the CML acquisition, basically, has all pro forma EBITDA built-in to us, which we will realize and are realizing over time. So that was not bought, if you will, with the same kind of LTM EBITDA multiple that our typical acquisitions afford us. So that's one that we have to realize through the quarters. We're doing a very good job of it and it will indeed give us the same kind of metrics, if not even better, but it will not be something that you could just take and parse it out perhaps with the math that you've used, given the fact that it is a ramping EBITDA that's primarily coming through synergies in the case of about 80% of that spend.

Got it. That's helpful. I did the math, by the way, from Q3 10 to Q3 '11 and got the same result without using the CML acquisition. But maybe looking at it on a quarterly basis isn't the right way to do it. Last clarifying question, when you guys say the savings on the M*Modal voice recognition in conjunction with your private payor increases are going to offset the lower Medicare reimbursement, are you including all the savings and efficiencies from the eRad implementation in that or is that separate?

That would be separate.

[Operator Instructions] From Robotti & Company, we'll go to Alan Weber.

Kind of a follow-up to the previous question, when you talk about the decline in reimbursement rates, you'll offset from a -- from your private pay you'll get a better rate and in speech recognition. And then you mentioned that you're going to get benefits from the eRad you just said, from the Barnabas and the phone integration of CML for all of 2013 and of course, the interest savings. Can you quantify what that theoretically would be?

Well, at this point, we're not comfortable in doing that because that will go -- I think that will be spoken to in the guidance that we release for 2013. That's how we build our guidance. We take our core business from the prior year and then we do all the ins and outs. The ins being acquisitions that will have greater contribution in 2013, it will be cost savings from our IT, from -- both from eRAD, from speech recognition. And then the outs would be any other things such as reimbursement, kits and the like. So I think what you're getting to or what might be implied in your question is that the benefits will likely outweigh the negative so that our 2013, barring anything else that we find out over the next few months, should be higher than our 2012 levels. I can say that fairly confidently right now, but I don't want to quantify all that, one, because we haven't done the work and two, essentially it'd be giving guidance several months ahead of where we're normally comfortable in doing so.

Okay. I was just kind of wondering, even like the Barnabas, kind of just more than just conceptual, what that really means financially next year for the company?

I'll answer that. I think we really are uncertain right now because we're in the process of substantial negotiations with payors regarding new centers, existing centers and opportunities within the Barnabas relationship which are probably going to take us another 60 days -- at least until the end of the year to get very comfortable with. What I can safely say is that wherever our New Jersey operations are outside of the impact from the storm, will be enhanced by the relationship with Barnabas for next year in a number of ways. But this is a rather lengthy and laborious process to deal with a number of payors and a number of particular situations within the Barnabas Health System that we're aggressively working at.

But long term, you're still very positive about this?

Extremely positive.

Okay. And I guess my final question is, for this year or even next year -- in the past you talked about the CapEx being I think $35 million or $40 million. How much of that this year is growth CapEx and what is your expectation for next year?

Again, that will be kind of a guidance question or comment that we'll make in next quarter's earnings call. But this year, it was probably about half and half and next year, I think, it might be a little bit weighted more towards growth CapEx than it was this year. And I think it will be in the same ballpark that we experienced this year.

And it appears we have no further questions at this time. Gentlemen, I will turn the conference back over to you for any final closing remarks.

Again, I would like to take the opportunity to thank all of our shareholders for their continued support and the employees of RadNet for their dedication and hard work. Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you for your time today and look forward to our next call.

Thank you.