Good day everyone. Welcome to today's RadNet Incorporated First Quarter 2020 Financial Results Conference. Today's conference is being recorded. At this time, I'd like to turn things over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me, today, to discuss RadNet's first quarter 2020 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 and liquidity, our response to and the effect of the expected future impact of COVID-19, our ability to stabilize and continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining radiologists and technologists, consummating acquisitions and joint ventures, 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, 2019 and our quarterly report on Form 10-Q for the quarter ended March 31, 2020. 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. 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 first quarter 2020 results to 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. Before we start, I just want to say on behalf of myself and the entire RadNet team, we hope that all of you are safe and your families are healthy and doing well. We know this has been a difficult and challenging time for everyone around the world and we are extremely grateful for all of our stakeholders, including our employees, business partners, lenders and shareholders. We are wishing you all the best. Today's prepared remarks will be a bit of a departure from what we usually have during our financial results call. This morning, Mark and I will focus on giving you an understanding of what we have been facing under COVID-19, the actions that we have taken to reduce costs and conserve cash, our current and projected liquidity position, our thoughts on our anticipated recovery and some discussion around the post-COVID operating opportunity. I'd like to start off by giving you a status update on where our business stands and how it has been impacted by COVID-19. After having strong operating results in January and February, months that performed ahead of our original internal operating plan, we are beginning to see our volumes drop dramatically beginning the third week of March. This is when we began to take swift and…

Thank you, Howard. I'm now going to briefly review our first quarter 2020 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 first quarter 2020 performance. 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 and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments 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 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 and our current report on Form 8-K filed with the SEC. With that said, I'd now like to review our first quarter results. For the first quarter of 2020, RadNet reported revenue of $281.6 million and adjusted EBITDA of $20.4 million. Revenue increased $10 million or 3.7% as a result of the contributions from Kern Radiology and Zilkha Radiology, a slight business shift in favor of advanced modalities and increases in reimbursement from capitated and fee-for-service payors. The increase in aggregate revenue was net of a 3.3% decline in same-center volumes and a 0.6% decrease in aggregate volumes. Adjusted EBITDA decreased $12.7 million or 38.5%. This was primarily due to the impact of COVID-19, particularly on our same-center performance. We estimated that our revenue was reduced by COVID-19 by an estimated $25 million during…

Thank you, Mark. From adversity, often comes opportunity. While COVID-19 has impacted us and everybody else in a very different way, it can also be the catalyst for opportunity. I strongly feel this has been and will continue to be the case for RadNet. First, COVID-19 has caused us to analyze everything we do as a company and evaluate how we deliver our services, on what we spend money - how we spend our money and how we can improve what we do. Through this process of identifying ways to lower expenses and conserve cash, I believe we have learned things that will change the way we deliver our services and how we manage our business in the future. Without getting too specific, I believe that in a post-COVID environment, we can reduce what we have historically been spending on employee travel and other employee reimbursed expenses. I believe that we will be able to staff our centers and supporting general and administrative functions more efficiently. I believe that we will be able to procure medical supplies, equipment service and perform general and administrative functions at a lower cost. I also believe our entire executive management team will benefit from the experience of managing through this very trying period. In addition to improvements in the way we can manage RadNet in the future, I also believe that the post-COVID environment will provide us opportunities to accelerate our growth. As difficult as this period has been for the RadNet, small operators have had an even more challenging time. Most of our competitors are small radiologist-owned operators, who lack the scale, capital and human resources to emerge from the COVID-19 period with the same financial and operating strength than - that we will. As a result, we think that there will be…

[Operator Instructions] We'll hear first today from Brian Tanquilut with Jefferies.

I hope you are well. Howard, I guess my first question is for you and you kind of alluded to it, but as you think about 2021, once you get past COVID and it seems like we're starting to see a restart, sort of a reignition of hospital volumes and physician visits, so as I think about getting past this and assuming that we don't see a second wave, how are you thinking about 2021 in terms of, say, earnings power or volume trends versus where you were, let's just say, early March?

Hope you're well and safe, sounds like you are. Thank you for the question. As I mentioned in my closing remarks, I think we'll all be facing a new definition of normal and because as the - in the post-COVID period which could easily, in some respects, last into 2021, particularly, the concern about the development of vaccine, I believe a lot of the mitigation measures and safety procedures will have to be continued. In that regard, I think more and more patients will look to ambulatory outpatient providers, as opposed to going to hospitals for those services. So in that respect, the initiatives often spoken about by the healthcare insurers trying to do it with patients away from hospitals, primarily because of differential in reimbursement will now be heightened because of perceived and probably realistic additional safety measures. I think that the other thing that this crisis has really indicated is the need for better population health and management. The crisis has certainly focused on areas of the healthcare delivery system, which were inadequately prepared for the patients that very swiftly needed to be hospitalized and had shortages of PPE including ventilators and other measures along with sufficient ICU guys and isolation capabilities. But going forward, I think the ability to assess the population health and manage wellness will help reduce the burden on hospitals and make the ability to respond to crisis even easier. Where I think, interestingly enough, the outpatient imaging industry fits into this, is in the recovery process and reopening toward looking at 2021. As patients begin to get their toes back into the water, reopening the economy will better afford our patients and the population to feel comfortable than going to outpatient healthcare providers that both know how to manage the safety and mitigation risks that they will see in their office - in their offices, as well as the need to take advantage of what was delayed healthcare that can only lead to more costs and more morbidity and mortality in the future. It's interesting that just today, an article in a prestigious journal Cancer identified, in particular, that the risks of mortality for breast cancer in a study that was overseen by Russell Debarr in Sweden, one of the most respective mammographer in the world, that they saw a 41% decrease in mortality from breast cancer as a result of screening mammography. The fact that we have had a lot of delayed elective mammograms being put off will only mean that the longer that goes, the more likely that there will be increased healthcare costs and morbidity from this. And that's not just in breast cancer, all forms of the diseases in cancers. So I believe this heightened awareness will help us and will, I think, cause a refocus by everybody, whether it's healthcare insurers, physicians and public health officials to look at outpatient ambulatory services, in particular imaging, as a critical role in managing the healthcare of our population.

Now, that makes a lot of sense. Howard, one of the things that you mentioned in your prepared remarks, and kind of piggybacking off of these commentaries made a few seconds ago, [indiscernible] accelerate technology, clearly, there is a shift there that's happening and that will probably stick for physicians offices and telemedicines in some cases, right, so whether, there's a Teladoc or just doc practice using either their own platform or just using Zoom and Teletime, how are you or how do you have to change your marketing strategy or do you have to partner with someone like a Teladoc or Amwell to make sure you capture the volumes here and also not to lose the share that you have with your existing doctors who are leaving their offices to go virtual?

I think that the new role of imaging will be heightened in this period, because as doctors do more telehealth, the move to perhaps get some of these diagnostic exams sooner since they will be unable to do typical physical examination, use their stethoscopes and other tools maybe best to go ahead and send these patients to the outpatient imaging providers rather than have the patient make another visit into their offices only then to require the diagnostic imaging test. That along with the fact that radiology has been a very early adopter of telehealth by using its tech systems to be able to use the imaging in a remote way will be enhanced by things like artificial intelligence and other technologies that are evolving inside of imaging to provide more targeted and specific diagnostic capability. The other, along with, I think the emergence of some of the pharmacies, that will be looking to do some of their early patient management and visits in their pharmacies, we believe will also align us with some of these groups to help provide that kind of screening capability at a mass level that has not necessarily been part of the pattern in the past. So I think all of these changes, some of which will occur as a result of technology and some of them, which will occur simply because of change in patterns of delivery will be of enormous benefit to RadNet in the future.

Brian, to expand a little bit more on what Dr, Berger was saying, a lot of the telehealth that we're seeing today is from local physicians who have physical practices who are trying to service their patient base by - been doing appointments via technology and so those are physicians that we already have a relationship with in our local markets, who are familiar with our centers, are referrers - have been referrers of ours in the past and will continue to be in the future. And those are - from a marketing perspective, those are targets, our marketing representatives. But to your point, to the extent that medicine is going to be delivered by more centralized Teladoc's, that may not be actually physically located in our markets, then we're going to need to establish some of those relationships with those larger companies like a couple of them, the two that you mentioned, so that they're aware of the services that we provide and our quality and our access in the markets where their patients may reside which are - which could be very different from where the doctor is located. So it will ultimately require us to have relationships with some of these larger centralized physician practices.

No, that makes sense. And then the last question. The remark that you paid down your revolver after the quarter, obviously, I know you were - you didn't get off to preparing the company for the worst scenario thinking that you had enough cash, even if volumes were down, the April levels for the year. So what was the mindset that defined paying it down as soon as you did, given what could be viewed as ongoing uncertainty related to COVID?

Sure, sure. Well, some of the benefit of living through the credit crisis back in 2008, 2009, 2010 timeframe was that there was a liquidity crunch at the time and company's were extremely concerned with their bank's abilities to fund committed revolvers. And if you remember at that time, there were a number of banks that were unable to fund or unwilling to fund revolvers that were committed at the time and that created serious liquidity problems for companies during that period of time. When this - when the COVID period started, we were concerned with the stability of the banking system. We were unaware, at that time, of how effective the Federal program was going to be with providing liquidity in the banking institutions and backing up the banks that they needed further liquidity. And so we pulled down and you can see at quarter end, we were $80 million drawn on our revolver, not because we needed the money, but because we were concerned with our ability to access that capital if something were to happen in the banking system. As the Federal government has provided tremendous liquidity into the marketplace, our concerns about our ability to access our revolver went away and so we decided to pay back the remaining balance on our revolving line of credit, partially because we didn't want to pay the negative carry on the interest expense and we had confidence that we would be able to attack that liquidity, should we need it in the future, which by the way, I don't think we will.

[Operator Instructions] We'll hear next from Mitra Ramgopal with Sidoti.

I just wanted to follow up on liquidity. Clearly, the cash conservation was a primary focus as a result of COVID-19 and given the things are stabilized, I know, Howard, you have said - indicated you're seeing some M&A opportunities that might not have existed before. I Just wanted to get a sense in terms of the thinking behind the cash conservation versus maybe pursuing some M&A opportunities.

Well, I think, cash conservation and keeping our liquidity is of the foremost concern and based on our projections through the end of the year, we're quite comfortable that to have liquidity will be quite substantial and perhaps the best in the company's history. Part of that, we'll be watching the return of our volumes and making certain that we balance our costs such as salaries and other spending commensurate with the increase in volume and not just due to expression too far over the tips of our skis where we get concerned again about liquidity. So over the next - the balance of this quarter and going into the third quarter, to the extent that our liquidity maintains the levels that we projected through the end of the year, we will then be judicious in looking at acquisitions that may, in fact, help us further enhance our strategy in the markets that we're in, perhaps expand joint ventures with our hospital partners, and maybe even if they're properly acquired, do further deleveraging for that - for us. I also want to add one other comment to Mark's discussion about liquidity. We are also going to be benefiting and we have started immediately from the lower cost of borrowing our big get for our credit facility is a LIBOR-based borrowing with a 1% floor prior to the - subsequent to the first quarter, that borrowing was well above the 1% floor which caused us a much higher interest payment that we made in early April. Since then, we have elected LIBOR borrowing, which we believe, through the balance of this year, will be well below the 1% and probably would be a cash flow savings to the company of perhaps $5 million for the balance of this year. So all of those will get factored into our overall cash management, as it always does, with more of an eye on making certain that the volumes which we expect and are already seeing beginning to return are used to measure our liquidity and costs conservation. So that being said, we're always looking, and are always approached about acquisitions and new joint ventures and we will use basically our cash liquidity as the benchmark as to the wisdom of doing some of these new acquisitions and joint ventures.

Okay, that's great. Thanks for the color. Also, just on the - I think you had mentioned your about 70 locations that were temporarily closed. I just want to get a sense as to when you think you might be able to reopen all of those facilities or locations. Or do you anticipate maybe some may not be reopened?

Actually, the number of facilities, Mitra, is closer to 100, its 97 that are closed as we speak right here. We will continue - we don't anticipate at this time closing permanently any of those facilities. All those facilities were necessary before COVID-19 based on access and based on the volumes that we produce. Since we expect those volumes will eventually return and access in our markets are extremely important for the payors and our physician refers, we expect to keep virtually all of those centers open and bring back all of our furloughed employees in a very measured way over the next 90 to 180 days.

We're monitoring volumes by center and to the extent that any center or any market starts having backlogs, because the demand starts coming back for these types of diagnostic services, we'll start opening methodically, centers, one by one to try to fill that demand up to the point where there's a full recovery. So we're going to do it on a center by center basis if it's based upon the volumes that we're seeing in our imaging centers.

Okay. No, that's great. And I believe, you mentioned you'd - on the capitation and fee-for-service, you did see some price increasing in the first quarter. Just wondering if you can give us a sense of how meaningful that was for you?

Most of these increases were already contractually provided for. We had a series of renegotiations of our capitation arrangements in 2019 and throughout this year, we will be seeing increases as the anniversary dates of those contracts occur. And, going into this year, the overall increases that we've experienced so far will probably in the 5% to 6% range and through the remainder of this year, we expect another perhaps 2% or 3% increase in our capitation rates spread out through the remainder of this year.

Okay, thanks. And then finally, just back on the expansion plans, can you give us an update on the - where we are on the DeepHealth acquisition and also on the TULSA PRO installations? I assume TULSA PRO fees on deposit quota might be delayed given the environment.

Yes, I think the TULSA projects are delayed, not so much because we want to delay them but simply because until they are not an emergent work that increases, particularly as it results to prostate cancer and the urologists and other specialists that see these patients begin to ramp up. Clearly, we will have a delay in that, but we're very enthusiastic about the TULSA project and prostate cancer in general which we believe in the upcoming, perhaps 12 to 18 months may evolve into, similar to mammography, more of a screening procedure that we believe can be performed on a mass population basis rather than just waiting for individuals they have signs indicative of they might have prostate cancer. So a lot of our focus both in terms of artificial intelligence, as well as conversations with the payors to revisit prostate and perhaps transition into a screening tool along with other areas like colon cancer and lung cancer will be a major focus for us going into the latter part of this year.

And from Raymond James, we'll hear next from John Ransom.

What are you doing, if anything, on your intake? it seems like people probably don't want to be hanging around or waiting to get sent. Can you do anything to do more real-time patient sequencing so that we're not having people sit in waiting rooms? So is that something down your list you look for paid visits?

Sure. One of the things that we've instituted which is something that we are contemplating continuing into the future, potentially, permanently, are virtual waiting rooms, so that patients are able to check in, fill out the intake forms digitally, either on their phone or we can give them an iPad and then go back to their cars and sit in their cars in isolation. And then we're able to text them or call them at the time of their appointments, so that they're not waiting in the crowded waiting room with other patients and are not associated with any risk because of that. So that's been the biggest operational change that we've had in our waiting rooms and it's been met with high success and has been applauded by our patients.

In addition to that, John, other measures that we're taking once patients are in our facilities, of course, all of our employees will be masked and gowned, have gloves, we are putting in shields that are from best plastic shields to further separate the patients from our employees. In addition to the virtual waiting rooms, we're very much pursuant on remote scheduling and registration so that patients have to spend less time in our offices and I want to applaud our IT division, eRAD. This is another one of those cases where owning our own IT infrastructure allows us to make these kind of adaptations to the way we want to run our business on a real time basis, rather than having to wait for some vendor to come up with it. In addition to that, we're also going to be scheduling our patients differently so that there is more time in between patients for us to clean the rooms and make certain that there is less and less interaction between other patients. So I think all of the measures that we uniquely can do and that healthcare providers in particular should be doing, may allow outpatient imaging to be a very good barometer of the comfort level of reopening some of our communities for patients coming out and feel comfortable that it's time to get back to more normal functioning.

Great. My other question, kind of shifting gears a little bit is, at what point - I know you're not going to run out to do a big deal tomorrow, but at what point do you think you'll be able to model 2021? If you look at what systems may come to you, though you have budget centers, when do you think you'd be comfortable saying, I would think we have a handle on '21 numbers and we know what would pay for this asset?

I think we're going to be able to look at 2021 when we get deeper into the third quarter. Our projections for the balance of this quarter and the third quarter shows some relatively conservative ramping up of patient volumes and revenues and that by the fourth quarter, we hope to not be all the way back, but certainly well on the way to approaching more expected volumes. So I would think that if we either meet or exceed the projections that we have for the balance of the second quarter and then getting deeper into the third quarter, realized, it will help us in early preparation for our 2021 budget. So I think from the standpoint of monitoring the company, looking at our second quarter results will be extremely important as well as obviously when we can issue our third quarter results.

And then thinking about capital, you are heavily concentrated in a couple of States, California, New York that are probably going to be on the conservative end of opening up. Is that like - is the political risk something, if you think about it, is that a consideration when you're looking at maybe when you look at a couple of States that don't have that type of governance or not really?

Well, actually, California is leading the way, I think both on a national scale and certainly by our own numbers, in not having seen the same level of decrease in volumes and proceeding more rapidly in the recovery than the East Coast. So I think the California experience is one that has been particularly gratifying and it's also the one where we have the most - the majority, 90-plus percent of our capitation revenues. All of the medical groups that we capitate with are starting to reopen their offices, actually this month. So we expect those volumes to go up. And when we talk about capitation, I want to remind everybody that all of our medical groups see fee-for-service patients in addition to the HMO capitated lives and are very much a harbinger of where our overall volumes would be. So at least in California we expect to have a much more rapid recovery and I think the effectiveness of both the Governor of California and the Mayor have been successful in reducing the spread of the virus and certainly, the number of fatalities. New York is a little bit more - New York and Northern New Jersey are a little bit more of a wildcard, simply because of the density of the population, the requirements for public transportation but Governor Cuomo and Governor Murphy, I think, it is in New Jersey, if I'm correct, has done an excellent job of bringing that down and I'm very happy to see that our volumes, which had dipped down to almost 90% reduction in New York had begun a nice steady recovery over the last 10 to 12 days. And I suspect that as the shelter-at-home and Phase 1 get introduced here probably at the end of this week, we will expect those businesses - that business in those regions to increase. As far as our two other major markets, Delaware and Maryland, I'm happy to report that last week the Governor of Maryland opened up the non-emergent procedures, particularly mammography to be reinstituted. So we expect to see a fairly aggressive increase in screening mammography which only got further emphasized in terms of its importance with the article that came out in the journal Cancer Today, which was very - for RadNet that has over 20% of its volume in mammography, it's particularly gratifying.

And gentlemen, with no other questions, I'd like to turn things back to you all for any closing remarks.

Again, I would like to take this opportunity to thank all of our shareholders and stakeholders 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 of our stakeholders. Thank you for your time today. I look forward to our next call. Stay well and be safe.

And again that will conclude today’s conference. Thank you all for joining us.