Good day and welcome to the RadNet Inc. Second Quarter 2018 Earnings Call. Today's conference is being recorded. 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 second quarter 2018 financial 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, 2017, and RadNet's quarterly report on Form 10-Q 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'd 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 second quarter 2018 results, give you more insight into the 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. Overall, I am very pleased with how our performance bounce back from the first quarter when we were significantly negatively impacted by adverse weather in our Northeastern operations. Our second quarter performance is a return to more consistent and steady growth and improvement we have been able to demonstrate over the last couple of years. During the second quarter we experienced revenue and EBITDA growth as well as aggregate in the same-center procedural growth. Our revenue increased 6.3% and our adjusted EBITDA increased 3% over last year's second quarter, procedural volumes increased 3.7% on an aggregate basis and 1% on a same standard basis relative to the second quarter of last year. In the first half of this year, we have made substantial investments which I believe are important to the continued growth of our business. Although these investments may not be contributing financially to our current results I believe they are important positioning RadNet as the continued leader in our industry for years to come. First we have made investment in new technologies. In April we invested $2 million in a company called [indiscernible] to develop radiology based artificial intelligence products and applications. The focus initially will be on applications for financial and revenue cycle management utilization review for use with…

Thank You Howard. I'm now going to briefly review our second quarter 2018 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 insight into some of the metrics that drove our second quarter performance. Lastly, I will reaffirm 2018 financial guidance levels. 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 extinguishment, bargain purchase gains and non-equity compensation, 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 taking 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 like to review our second quarter 2018 results. For the three months ended June 30, 2018 RadNet reported revenue and adjusted EBITDA of $244.4 million and $38.2 million respectively. Revenue increased $14.4 million or 6.3% over the prior year’s same quarter and adjusted EBITDA increased $1.1 million or 3% over the prior year’s same quarter. In the second quarter 2018 as compared to the prior year's second quarter MRI volume increased 6.4%, CT volume increased 8.7% and PET CT volume increased 13.3%. Overall volume taking into account routine imaging exams inclusive of X-ray, ultrasound, mammography and all other exams increased 3.7% over the prior year’s second quarter. I will now discuss procedure volumes. Note…

Thank you mark. Before we move on to the question-and-answer portion of our call I would like to underscore at key tenant of our operating strategy. One of our most important operating principles is geographic concentration and density. We have always believed that healthcare is a regional or local market business. Private payers even the large national insurance companies are organized, managed and contract on a regional basis. Patients identify with individual physician groups and local branding and from a cost structure standpoint it is more effective to manage densely organized clusters of operations. Many of you asked us whether we would ever with a random would ever enter into new markets outside of our core five markets of California, Maryland, Delaware, New Jersey, and New York my answer is a qualified yes. We are very interesting growing our business geographically and believe there will be opportunities to do so. The best example I can give you is what we've accomplished in New York. Prior to 2013 with the acquisition of Lenox Hill Radiology we had no presence in Manhattan or any of the surrounding boroughs of New York City. Lenox Hill at that time was the largest non-hospital operator in Manhattan. We saw a path to buying Lenox Hill and then expanding our presence significantly through the acquisition of New York Radiology Partners and Diagnostic Imaging Group in 2015 and subsequent [truck-in] acquisitions and newly constructed facilities. It was the breadth of our capabilities reputation for quality service and scale of the access we created through this market density strategy which uniquely positioned us for the EmblemHealth partnership. As we further grow in this market I'm certain that other opportunities will surface for further consolidation and additional partnerships. With the addition of the EmblemHealth facilities in five years we've acquired and built a business in all five boroughs of New York City with approximately 70 facilities and over $225 million of annual revenue. This is the kind of impact that we want to make when entering a new market. New York City although and obviously populous metropolitan area is not unique in how imaging is provided for or managed. This can be replicated in other metropolitan areas. We will – we have built an infrastructure and management team that is able to reproduce the strategy and should other opportunities like New York City arise we will evaluate them. And I believe more of these opportunities exist today in our current markets as well as others. Operator we are now ready for the question-and-answer portion of the call.

Thank you. [Operator Instructions] We'll go first to Brian Tanquilut at Jefferies.

Hey good morning guys. Congrats on a good quarter. Howard let me start you talk about AI and the investments you're making there. Don't mind just walking us through how you're thinking that will play out near-term if I wanted two year horizon and how that investment your returns will be realized and where do you see that shifting and how did your business change and what does it really do in terms of costs were revenue opportunities going forward.

Thank you Brian and good morning. We believed that the direction of Artificial Intelligence at least as it relates to radiology was primarily been directed by largely academic institutions and others radiology participants that are looking more at the overall use of speeding up image interpretation and accuracy of diagnosis and while we believe this will have material impact on radiology productivity and accuracy. What we were concerned about was the opportunity that we felt that our Artificial Intelligence would happen would help us from overall operations related more to the financial part of our business rather than the professional part. As a result we identified a group that we have had long-term relationships with and where our investment allowed us they have a substantial influence on the development of their Artificial Intelligence and deep learning programs. We have asked them and are participating in looking at various aspects related to as I mentioned revenue cycle management, including denial reporting, utilization management; tools that we can use more effectively in the somewhat more unique way that RadNet has evolved as an enterprise rather than worrying or dealing with the professional component. So we expect the investment to start paying dividends to us in terms of helping improve our collections, reduce our bad debt expense, improve the efficiency of the overall processes that we're currently, mostly manual for to have some impact us later this year beginning in 2019. So our results we believe will start reflecting that later this year and we believe that the benefit of that will be a very short term value that we are eagerly looking forward to and actively working on. Some of the longer-term benefits which by technology standards are probably only two to three years in cycle will help us in terms of overall IT performance and I think improving our radiology productivity and accuracy. Some of those programs we expect to implement in 2019. We are also looking for Artificial Intelligence and other avenues that we see in terms of a data market repository which RadNet is in a unique position to potentially offer up to the industry, and I'll probably be talking about that in quarters to come. So to summarize a little bit of a [mono tribe] here, we expect to see some early results from our investment more on the operation side and in the longer term on the professional side. The ones that we are very confident will materialized into identifiable value for the company.

Brian, I'll give you a specific example of something that we're working on here right as we speak; a project around patient eligibility and going and collecting. As I think, I’d mentioned in the past, we have licensed a couple of tools or APIs that allow us to query in real time many of the insurance companies with whom we do business, both at the time of scheduling and at the time of service to check the eligibility of a patient under his or her plan, and then understand where that patient is with respect to his or her co-payment or deductible. Well, what we've realized as good as these tools are that we've licensed they're not foolproof. We sometimes get incorrect data or incomplete data from some of our insurance companies or in some cases we don't get a response at all. And one of the things that we're working on with some artificial intelligence tools is to be able to -- in those cases to be able to predict or estimate what that patient portion responsibilities might be based upon querying all of the data in the past from customers and patients in similar plans or the same plan, and being able to collect more of our money upfront, which is kind of a Holy Grail right now in healthcare, because it has become so difficult to collect money on the back end once a patient leaves a facility to understand what more, what the patient may owe upfront and collect that money upfront.

That makes sense. Mark, shifting gears, as I think about your geographic footprint and you obviously have very good concentrations in the East and West Coast where is management's mindset now in terms of potentially planting new flags where you can build scale pretty quickly?

Well, I think our mindset continues to focus in on our core market, and I'd like to point out that when we talk about the five states that we are primarily concentrated in. Those markets have sub-markets which we could identify and pursue that are not necessarily currently contributing to our revenue base. The best example of that again that I described in my closing remarks was New York. Five years ago, the New York City market was essentially untouched by RadNet and effectively is its own sub-market within New York, so like we used to say that we were in New York, our primary physicians in New York were in Rochester, New York and the Rockland County area near New York City. So we've now planted that flag if you will for the last five years, and we’ve pretty well accomplished our goal of being the largest non-hospital provider in that market. We believe that there's other markets in California like that particularly in Southern California and in other states like New Jersey and perhaps even Maryland itself. So well I'd like to say that other markets that would be geographically identified with another state are certainly something we would look at it would have to have a path forward for us to create the more dominant position like we have in the five markets that we're in right now. And I believe there are some opportunities that we might be looking at in the future for that, but right now I think we're pretty comfortable primarily staying in the markets that we're in and expanding that presence to accomplish results like what we announced with the EmblemHealth plan and bringing on large books of business that will continue to enhance our position in that market and keep our centers very busy.

Howard, just to follow up on that point you made. So as we think about EmblemHealth Mark, how should I think about the economics of that? I mean, is it comparable to your PMPM arrangements on the West Coast? How should we think about that and then just like the amount of data you have on Emblem's population, because I know you have a good RBM on the West Coast, what's your comfort level in terms of pricing it right and looking at the risk profile of that cohort?

Well I think the rates that were contracted for with EmblemHealth are reflective of slightly better pricing than what we see in California. California as you're well aware Brian is heavily managed care state and has been steeped in that for at least two decades or more now, and where the impact of that from a utilization standpoint has also been -- is very mature. And the East Coast we see higher utilization rates and higher reimbursement rates and our revenue from this contract reflect that. So, I’d say overall we have a significantly better rates than we will enjoy in the West Coast, but it will take time for us to fully read the benefits of the contract and redirect or reorganize the flow of patients that both the contracted Emblem members through their advantage care position model as well as non-Emblem patients or I should say, other Emblem products that are not capitated, can access our large network of centers here. So I think it will probably take us about perhaps up to a year to enjoy the full benefits of that. We will start realizing some of those in the first excuse me - in the last quarter of this year and then ramping up as we make our substantial investments here. So this isn't a little bit of a different model because it's also a risk sharing model with Emblem and we're all very much incented to drive as much business away from hospitals and into the outpatient imaging centers that have been identified as creating the greatest cost basis for the Emblem and release. So I think I'll have more comments on what the impact is as we bring this work on and make certain that we are benefiting from containing as much of it as possible within the RadNet and the ACP locations that we're taking over.

All right guys. Thanks Howard.

Thank you, Brian.

We will go next to Mitra Ramgopal at Sidoti.

Yes. Good morning first I was just wondering the store numbers for MRI or PET-CT looked a little light versus what we've seen in the past few quarters. I was just wondering if there was anything driving that this quarter.

No, I mean look our overall, I mean one quarter trend doesn't make, but overall we were pleased, I mean we were up 1.2% on the same center MRI basis 3.2% on CT. And we have seen a mix if you look at our overall business of more and more of the growth coming in the advanced imaging modalities MRI, CT and PET-CT, which is why for the last several quarters our same center revenue has outpaced our same center procedural growth, which is a nice trend that we're starting to see in our business. And I think that's due to the fact that advanced imaging is growing more quickly than routine imaging. Routine imaging seems to be growing and pacing the growth and population where advanced imaging the technology is improving more quickly and each year there's more and more applications for new exams. As the technology gets better, as contrast materials get better, and the efficacy of these types of exams has been proven more and more. So I don't think that there's anything to read into with respect to low single-digit same center growth. We've always felt as a company and the way we model our long-term growth is that we see – we tend to see kind of 2% to 4% same center growth on the advanced imaging modalities and I would say 1%-ish growth on the more routine imaging exams.

Okay. That's great. And just a couple of questions on the expansion plans. I was just wondering regarding EmblemHealth if as you look at your facilities in the New York metropolitan area and the capacity you have if right now that's sufficient to handle the new arrangement that starts on October 1st or do you feel you have to make some additional acquisitions to handle the volume?

Well I think that for the most part we have sufficient capacity to handle that volume. I would like to point out that the one area where we do we have some need to expand access in the Long Island marketplace is one where we will be taking over about seven or eight I think it is of the AdvantageCare physician locations, where we will actually be turning those into a Lenox Hill Radiology locations that have know -- that right now don't do advanced imaging and only to do routine imaging and we will be expanding some of those locations to advanced imaging, as well as the Staten Island market where we have no centers right now the AdvantageCare physicians have two clinics in those regions, both of which are multi-modality and which we will be taking over. So I think we will by virtue of the investment we'll make in those markets be able to add substantial capacity to take on this contract, but we were always looking at other opportunities to expand our presence in the New York marketplace and we may have more comments to make on that as the third and fourth quarters unfold.

Okay. Now, that's great. And then on the JVs, I know you sound a pretty bullish in terms at the Memorial Care and Barnabas JVs. And I just wondering if as a result of what you're seeing there it's starting to drive increased interest unless we are without a potential partners?

We do get inquiries and are looking at opportunities to expand both the existing and as well as new joint venture partners with hospitals. We think that, that is a extremely important part of RadNet strategy moving forward, and I believe hospitals are recognizing as the business shifts forces with inside the industry are looking more and more towards moving business into ambulatory care settings that there will be their focus on RadNet not only in its core markets but potentially other health systems that might look to RadNet's model to be replicated elsewhere. So it is a constant process that we're looking at both with the existing relationships and new ones that recognize the value proposition that RadNet can bring with them. Again, I want to underscore with the EmblemHealth relationship that our focus potentially could be not just hospital joint ventures, but other kind of partnership relationships with the kind of pay orders such as what the EmblemHealth partnership now has identified. And as you see more and more of these healthcare payers such as UnitedHealth, Aetna linking up with CVS and understand their particular business strategies. I believe those kind of institutions will be looking to RadNet in the markets that we're in for other kinds of access to imaging, which I think they're becoming more and more aware of the critical reports that imaging plays in healthcare delivery kind of the gatekeeper in medicine in general.

Okay. Thanks for taking the questions.

We will take our next question from Dan Scheschuk at Moab Partners.

Hey guys, just a couple quick one’s for you. Congrats on the quarter.

Thank you.

One question I had is the beginning of April had some weather; is there any impact to EBITDA that you can share with us about that?

Yes the last of the nor'easters, if you will, took a bit of a toll in our northeastern market in the beginning of April. So a ramp up for our volumes was affected by that. We have not since there was such a significant impact in the first quarter I think was relatively small, but it did I think created a little bit of a slow beginning to the second quarter, which you never completely recover from. So our volumes were significantly healthier in May and June than they were overall in April. So I think you're making a good point that we have attempted to underplay at this point rather than make an issue of.

We just wanted to keep our whining and complaining to one – contains in one quarter.

Got it. Well that's helpful. Is it like single-digit EBITDA or more than that you think?

Yes I mean we didn't quantify it. If I had you know roll out that impacts maybe it hit us to about a million dollars of revenue.

Got it. And then just quickly on the Emblem deal congrats on that. I saw obviously you brought up the CapEx guidance, but you kept free cash flow guidance neutral. Is there a reason for that?

Well we think that there will be some benefit in the fourth quarter from the Emblem and other of our growth opportunities that we are comfortable will help offset the cash flow increase CapEx expenditure. So, we as Mark was pointing out, the front loading of our CapEx was for a fair amount of growth CapEx primarily in mammography and new MRI systems, which take a while to filter through the system and which we think there will be greater revenue benefits in the third and fourth quarters disproportionately to what we experienced in first half of the year.

So you think we might be looking towards the higher end of the range then if CapEx is 10 million higher?

Higher end of the range of which?

EBITDA guidance.

No. I think what Dr. Berger is saying is that the additional CapEx that would normally hit or negatively impact our free cash flow guidance by that $10 million is going to be offset somewhat or mitigated somewhat by additional cash flow that we believe will be contributed from the contract itself.

Got it but wouldn't that [Indiscernible] to the EBITDA line?

Yes but we still believe that will be in the guidance range of our initial cash or free cash flow guidance.

Got it. Okay.

I think..

Go ahead.

I was going to say Dan, and to some level you almost have to look at the EmblemHealth deal similar to an acquisition in that while we weren't buying an ongoing carved out practice if you will. We've essentially created that inside the partnership arrangement that we have with Emblem and that our investment in equipment is akin to what we would have paid to generate or acquire a business of that scale. And I think our margins should reflect that as we get their contract fully implemented, which obviously is going to take more than just the fourth quarter. This is quite a substantial undertaking for RadNet and one that I think we're in a unique position to accomplish both because of the assets that we have to deploy as well as the operational both on the professional and technical side of this in order to be able to accomplish.

That's helpful. Thanks. And then any just guidance as to the potential revenue from the Emblem deal?

I think that the revenue potential for this is probably well in excess of $30 million on an annual basis Great, thanks so much guys. I follow up off line if I have any others, appreciate it.

Thanks, Dan.

And we’ll take a follow up question from Brian Tanquilut at Jefferies.

Howard, as I think about the Anthem rule that was ruled out earlier this year, are you seeing more adoption of that in your market. I know it's not in every Anthem market and the other NCOs haven't really adopted that, but we've seen this before where Anthem rolled something out in all the other carriers start copying it. So are there any signs of volumes starting to shift down at the hospitals in the market that you operate in?

Well I think it's -- I have talked about this before Brian. This is a big shift. It's going to turn slowly here. I think everyone of the major health players effectively has a plan to do it and they are just not as publicly visible with it as Anthem is. And if you take a look at what CVS is doing with Aetna, you can sure that when that closes there will be more and more of an effort to move away from the hospital-based relationships that have been traditional for those players. Same thing with United, as they acquire through their Optum subsidiary, more and more of these primary care physicians groups, I think they are going to working more and more to moving the business as controlled by those physicians both from the UnitedHealth Plan standpoint as well as other pay orders that those physicians may see away from hospitals and leveraging that business with alternative systems like RadNet in the imagining business, surgery centers as you are well aware Optum is in surgery center, a business itself, but through the acquisition of FCA. So I think they all have their models for doing it. They just don't necessarily need to do it with the high profile that Anthem has created. So I believe that we will be the beneficiaries of that over the long haul and it's safe to say that if those conversations will part of the dialogue we will have if not already have with some of these groups.

And a follow-up for Mark. Just a quick question, Mark on cash flow and the CapEx. But just to be clear, so you are ramping up CapEx just for Emblem, but once you get past this, there shouldn't be incremental CapEx and so as we think about your 2019 free cash flow it really shouldn't change, right as I think about that just because this is 2018 issue solely.

Correct. This is what we are estimating to be about $10 million additional investment for the purposes of ramping up the Emblem contract in those 26 facilities is a onetime expenditure, so that next year our CapEx guidance will be more normalized.

All right. Sounds good. Thank you guys.

You are welcome.

And that does conclude the question-and-answer session. At this time I will turn the conference back over to management for any closing remarks.

Thank you operator. 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. 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 I look forward to our next call.

And that does conclude today's conference. Again, thank you for your participation.