Good day everyone and welcome to the RadNet, Inc. fourth quarter 2015 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. And thank you for joining Dr. Howard Berger and me today to discuss RadNet's fourth quarter and full year 2015 financial results. Before we begin today, we would 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 and our ability to complete any future successful refinancing amongst 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, 2015 to be filed shortly. 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 results. And with that, I would like to turn the call over to Dr. Berger.

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 fourth quarter and full year 2015 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 would 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. 2015 was an important year in our company's development .We accomplished many things during the year which are essential to our company's future growth and success. To affect many of these accomplishments, we sacrificed some short-term performance, the reasons for which I will discuss a little later in my prepared remarks. So let's start with the accomplishments. First, we completed several highly strategic acquisitions, both on the West and East Coast. On the West Coast, we completed the acquisition of California Radiology in May, an operator of six multimodality locations. This acquisition gave us important locations in local markets where we needed access points for new capitation business we began servicing in the latter part of 2014 and the early part of 2015. Because we had no facilities in certain local markets, we began subcontracting on a fee-for-service basis some of the patient volumes to non-RadNet owned facilities in these geographies. This was costly to us and not sustainable for the long run. The California Radiology acquisition provided us the locations needed to service new capitative lives and is saving us closer to $2 million of outsourced imaging cost on an annualized basis. On the East Coast, we completed two larger strategic acquisitions during 2015. In April, we completed…

Thank you, Howard. I am now going to briefly review our fourth quarter and full year 2015 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 fourth quarter performance. I will also provide 2016 financial guidance levels, which were released in this morning's financial results press release. 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 disposal of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interest in subsidiaries and is adjusted for non-cash or extraordinary and one-time events 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 would now like to review our fourth quarter and full year 2015 results. For the three months ended December 31, 2015, RadNet reported revenue and adjusted EBITDA of $215.7 million and $32.6 million, respectively. Revenue increased $30.2 million or 16.3% over the prior year same quarter and adjusted EBITDA increased $608,000 or 1.9% over the prior year same quarter. For the fourth quarter of 2015, as compared with the prior year's fourth quarter, aggregate MRI volume increased 14.2%, CT volume increased 12% and PET/CT volume increased 12.7%. Overall volume, taking into account routine imaging exams inclusive of x-ray, ultrasound, mammography and all…

Thank you, Mark. Before the question-and-answer period, I would like to simply emphasize my optimism about the future. We are hopeful for a breakout year in 2016. We are starting the year out nicely. During this first quarter, we have experienced significantly more mild weather conditions in our Eastern operations as compared to last year's first quarter when we were impacted greatly by severe weather in New York tri-state area and the mid-Atlantic. Furthermore, we have experienced mid-single digit procedural volume growth in January and February in California, perhaps a result of continued participation in the state and private run healthcare exchanges. So in my optimism relative to the first quarter of 2015, about a strong start to 2016, which hopefully will create momentum for the remaining quarters of the year. I don't see completing any significant acquisitions in the coming quarters and I am looking forward to focusing the management team on optimizing and improving existing operations throughout the year. Operator, we are now ready for the question-and-answer portion of the call.

[Operator Instructions]. We will take our first question from Juan Molta of B. Riley.

Hi guys. Good morning. Thank you for taking the question. My first question is on the guidance. If you take the midpoint, you are guiding to about 15% EBITDA margin on 10% revenue growth on the midpoint of your 2016 guidance? In the past, you have done more than that, a couple of percentage points more. So, are you being extra conservative with the EBITDA guidance? Or there is more cost there that we need to take into account?

Hi Juan. Good morning. I think we are being conservative. I think we are starting, we are optimistic about the first quarter here relative to last year's first quarter with respect to looking at some real nice volume trends here on the West Coast and then we are really not affected by the severe weather conditions that we experienced in 2015. So I think we are being conservative particularly as we start off the year, while here in the first quarter relative to 2015, which was with a very difficult quarter for us. I think that we are expecting the increase in the revenue and the EBITDA to come mainly from annualizing the acquired operations of Diagnostic Imaging Group and New York Radiology Partners, which we bought in October and April of last year, respectively. But we are also being conservative in the sense that we think that there is some more integration, time and attention that needs to be put towards those assets, whereby we are not going to be optimizing the contribution of those assets rally more towards the latter part of this year. So as we start tracking towards this guidance, we will update it throughout the year and if we see that we are beating guidance, we are happy to increase it throughout the year. But I think our assumption here is, we have built very little same center performance increases into the budget. We now have seven quarters in a row of same center growth, partly being driven by a better economy, partly being driven by the growth in all of these state run and privately run healthcare exchanges that were set up through the Affordable Care Act. So I think there is upside to the budget but we want to cautiously optimistic here.

So when we model out your profitability, can you go back to a 17%, 18% EBITDA margin level? Or should we model 15% for the next few years?

We are hopeful that we can achieve some margin expansion. It's historically been very difficult to achieve in this business because as we mentioned in our prepared remarks, we have now had about eight or nine years of consistent pricing cuts on the Medicare side of our business, which approaches about 20% of our business. 2016 is the first year where we don't face that type of pricing pressure. So I am hesitant to say that we can increase our margins. Although we absolutely would be increasing our margins but for the pricing pressure that we receive on the topline. But we have always felt in this business that if we can keep margins constant and stay in the mid-teens, 15% to 17% margins, we have done a pretty good job in operating this business.

Just to maybe get a little more detail on the contribution from the initiatives, that $7 million to $10 million, would that be incremental to your 2016 guidance? Or is that included in your 2016 guidance?

That's included in the 2016 guidance.

Already included. Okay. Yes. I will hop back in the queue. I will come back.

Okay. Thank you, Juan.

Thank you.

We will take our next question from Bill Bonello with Craig-Hallum.

Hi. A couple of things here. First of all, you mentioned probably not anticipating any significant acquisitions in 2016. Just thoughts on what you would do with the free cash flow? Is the intention to pay down some of the debt? Are there other extraordinary capital expenditures that you have to make? How should we be thinking about that?

It's Dr. Berger. Our goal would be to pay down debt. As you saw from 2015 performance, where we paid down $33 million of debt, we anticipate that amount of debt pay down in 2016 given the amortization that we have on capital leases and in our credit facility where we pay down approximately $26 million a year on our first term loan B. In addition, our capital expenditures, as we indicated, will be consistent with what we have done in past years, somewhere in the neighborhood of $45 million to $50 million. So all-in-all I would expect that the free cash flow would be used both to invest in the business and pay down debt primarily.

Okay. And then you mentioned that you have been seeing strong volume growth on the West Coast. I just want to confirm that that's the way you are paid that that is actually a positive, just thinking back to the first quarter of last year where you had expectedly strong utilization and had to make a bunch of investments to handle that. Should we be thinking of that strong volume as a positive?

Yes. I think that the strong volume is positive. What we learned late in 2015 is that a lot of the additional lives that came into our centers, particularly those from some of our new Medicaid or what's called here in California, Medi-Cal, contracts have had a very different utilization pattern than what we have seen in the past. And what we learnt from our medical groups is that these lives are broken into several different categories and moving of the utilization patterns for the newer lives function more like typical commercial lives and maybe even because there is a larger senior population within the Medi-Cal grouping like Medicare lives. As a result, that's where the additional volume that we are seeing is coming from in many of our West Coast regions and has caused us to go back to all of our Medi-Cal contracted parties and renegotiate the rates. We are not having resistance from these groups as I believe a lot of this experience was unexpected for them also and we all had the year now of dealing with this and experiencing the impact of this to go back and reset. So the volume that we are seeing, if it continues to come from increased lives in the covered California health plan here, whether it's in Medi-Cal or within the other groupings here, it will come with, I think increased reimbursement that we now better understand. So I believe that all of that will be helpful and beneficial for West Coast operations. It's also taking business away from our competitors, which puts more pressure on them. So I think it's a very strong net positive that we will primarily see here in 2016.

Excellent. And then if I can just two more quick ones. You mentioned that you have got Medicare not as a pressure point for the first time since 2006. On the commercial side, when is the last time that you think you have seen these kinds of rate increases that you are looking towards for this year?

Well, I am not sure if we can talk about rate increases as it relates to Medicare. What we have been successful in doing more on the East Coast than on the West, where we are now starting to focus more than on the West Coast also, is decoupling the rates that we get from the commercial payors from the Medicare fee schedule. I believe that we started that process more on the East Coast a couple of years ago and have had successful negotiations, which are continuing through this year and which will contribute to some of the revenue increases that that I spoke about. And so I believe that the general feeling in the marketplace here is that while Medicare can be used as a benchmark for a number of physician fee schedules, there is really a departure as to its value in the imaging space and as a result, I think in the markets where we create the strong leverage that we have by our presence there, we are getting far more receptivity with our commercial payor contracts. That's also a reflection, if you will, on some of the increase we expect to come, as I mentioned, from 3D tomography, which we will more heavily invested in on the East Coast than on the West as there has been a very substantial adoption of this by patients and the referring physicians, which has allowed us to be more aggressive about the deployment of that technology, both for business but more importantly, good clinical reasons. So I think if you take that into account here, I think the stabilization of Medicare pricing will help us in conversations on both the East Coast and West Coast and will allow us to more further uncouple some of the payor relationships with the Medicare fee schedules.

Sure. Thanks. And maybe I didn't ask the question as clearly as I could have, but just simply, on the commercial side, are the rate increases that you are getting consistent with what you have seen in prior years? Or is this an incremental positive, is what I am trying to understand?

Well, I think it's an incremental positive, mainly because the Medicare rates we have chosen not to accept from the commercial payors are having to not only stay with the base from prior years but work on increasing their base what we might have seen in 2015 and with the 2016 fee schedule.

Okay. Excellent. Thanks a lot.

And we will go next to Brian Tanquilut with Jefferies.

Hi guys. Jason Plagman, on for Brian. Just wanted a quick follow-up on the balance sheet discussion. Is there a two to three year target for leverage that you are trying to work towards? Or how are you thinking about leverage on more of a medium term basis?

Sure. On a pro forma basis, if you annualize the contribution of our acquisitions which we do for the purposes of our credit agreement, we are in the 4.75 times total debt to EBITDA. We would like to see that leverage go down below four times. That's our goal. We would like to do that within the next 24 months. From a balance sheet perspective, we don't face any near-term maturities. Our first lien term loan is due in October 2018. Our second lien term loan is due in 2021. Having said that, we are going to be thinking about doing a refinancing of our first lien somewhere in the next 24 months, clearly, so that debt in 2018 doesn't become current on our balance sheet. And we feel like if we can be leveraged to be below four times, that will ensure a very successful refinancing transaction. So I think when Dr. Berger was talking about no real significant acquisitions on the horizon over the coming quarters, part of that is, we would like to deleverage a little bit, use some of this free cash flow to pay down our facilities to position ourselves for a successful refinancing.

Great. That makes sense.

Yes. And right now we have to $101 million revolver, which was untapped at year-end.

Thanks for the questions.

And we have no further questions in the queue at this time.

Again, I would like to take this opportunity to thank all of our shareholders for their continued support and the employees of RadNet for their dedication and hard work. The 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 and I look forward to our next call.

Again, that does conclude today's presentation. We thank you for your participation.