Good day, and welcome to the RadNet, Inc. First Quarter Financial Results 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 first quarter 2021 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 included 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, 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 2021 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. Before we start, I would like to say on behalf of myself and the entire team at RadNet, we hope all of you and your loved ones are healthy and staying safe. We are extremely grateful for all of our stakeholders, including our employees, business partners, lenders and shareholders, and wish you all well during this challenging time. Let's begin. I'm extremely pleased with our performance this quarter. Our financial and operating metrics in the first quarter demonstrate continued strengthening and improvement in our business that began in the third quarter of last year and is the result of a number of factors. First, during the COVID period, we instituted a variety of cost-saving measures that have lowered operating expenses and created efficiencies and within our regionally clustered centers, cost reductions and efficiencies that will remain permanently with the business. Second, our procedural volumes have substantially recovered as the states within which we operate have loosened COVID-19 restrictions. The result of the loosening of these restrictions has been that patients are visiting their physicians with more regularity and are utilizing health care with more normalcy. Lastly, investments we made last year and during the first quarter, both with respect to capital expenditures and acquisitions, are beginning to contribute to our financial results. We…

Thank you, Howard. I'm now going to briefly review our first quarter 2021 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 quarter performance. I will also provide an update to 2021 financial guidance levels, which were released in conjunction with our 2020 year-end results in March. 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 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 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 now like to review our first quarter 2021 results. For the first quarter of 2021, RadNet reported revenue of $315.3 million, adjusted EBITDA of $45.5 million. Revenue increased $33.8 million or 12%, adjusted EBITDA increased $25.1 million or 123.4%. Subtracting the $6.2 million of grants we received under the CARES Act Provider Relief Fund, adjusted EBITDA was $39.3 million, an increase of 92.8% from last year's first quarter. As Dr. Berger discussed in his remarks, the significantly improved performance is a result of increased procedural volumes, cost reductions instituted during the COVID-19 period, additional revenue from our migration to 3D mammography and the contribution from tuck-in acquisitions we completed…

Thank you, Mark. As you likely gathered from our discussion today, the challenges created by the COVID-19 pandemic have enabled us to become a stronger business that we believe is well positioned for future growth and sustained profitability. COVID-19 required us to reevaluate every aspect of our business, a business that has grown substantially in the past through acquisitions. COVID-19 allowed us to pause and analyze all of our procedures and processes in order to achieve more optimal performance. The pandemic also gave us the opportunity to make decisions that would have proven to be more difficult in normal times. We were able to consolidate some of our centers that were in close proximity with other centers in ways that preserve patient access, convenience and our procedural volumes. As you also heard today, COVID-19 has also facilitated highly strategic acquisitions that may have otherwise not been available to us. As a result, we believe that we have created a platform with infrastructure and processes to effectively manage and support a significantly larger and more diverse business. Today, RadNet is more multifaceted than any other time in our history. We are growing our business in all of the 7 states on both coasts in which we operate, all of which have attractive demographics and a multitude of local market opportunities. We are now partnered with some of the largest and most prestigious hospital and health systems in joint ventures that encompass approximately 25% of our facilities. We also control our own IT infrastructure with our suite of eRAD products and services that we also sell and license to other industry participants. Furthermore, we have made significant investments in the development of artificial intelligence, which we believe will have a transformative impact on our business and the diagnostic imaging industry in general, particularly around the diagnostics and screening related to breast, prostate, colon and lung diseases. As we have tried to emphasize in today's report, our business is healthy and growing, and we are exceeding the expectations that we originally set forth in our initial guidance levels. Furthermore, the refinancing transaction positions us with significantly more available financial resources as a result of the over $100 million we were able to fund to our balance sheet, the lowering of our interest cost and the substantial reduction of required debt amortization. In conclusion, we are excited and enthusiastic about the opportunities that lie ahead for RadNet, and we look forward to updating you further in the upcoming quarters regarding our progress. Operator, we are now ready for the question-and-answer portion of the call.

[Operator Instructions]. And we start with Brian Tanquilut from Jefferies.

I guess, Howard, my first question for you, you talked about recovery and you mentioned mammography is one that's still kind of lagging. So just wanted to hear your thoughts and your views on the recovery pace, how much upside left do we have to volumes going forward? And then just any color you can share on mammography.

Good morning, Brian. Thank you. The majority of our modalities have returned to pre-COVID levels and actually are beginning to exceed those. The one exception to that is our mammography. And in reviewing not only our statistics but national statistics, what we saw during primarily the second quarter of the pandemic, meaning 2020, was all of our volumes decreased substantially, but the one that appeared to have the greatest impact from COVID was screening mammography. And this should not be unexpected given that all screening mammography is elective. And during that quarter, meaning the second quarter of last year, we saw in addition to other modalities, at one time, almost an 85% to 90% decrease in our volumes in the East Coast. In analyzing this further, what we have determined and I believe is not unique to RadNet, is that the annual screening mammography was essentially a disrupted cycle that, while the patients who elected not to get their screening mammography during the second quarter of last year have now completed that cycle, but later in the third and fourth quarters of 2020 and the first quarter of 2021. So as a result, the 3 months where we saw this rather dramatic drop-off, while there's been a return in other elective procedures, we believe that this disruption to the normal annual cycle will take about somewhere close to the 3 months of this quarter to fully return. So while we're very pleased with our volumes that we're experiencing here in the second quarter, with other areas such as diagnostic x-ray and MRI and CT have fully recovered and are actually exceeding some of our expectations, it will probably take us a quarter for the additional screening mammography volume to return to the same levels of growth that we have seen in the other modalities. And I believe, again, most importantly, this is not unique to RadNet. This phenomenon with other literature and reports that we see from various sources was something that was pervasive throughout the United States.

No, that makes a lot of sense. And then I guess, you mentioned something on AI, right, in the developments that you've seen there. But as you think about the eventual commercialization of AI technology and imaging and the initiatives that you've put in place there, how are you thinking about that flowing into your business, whether it's a growth rate boost or the P&L in general?

Well, I think that AI will have probably a more profound impact in radiology and imaging than any other of the subspecialties. When you stop to consider that the 4 major cancers, namely breast, colon, lung and prostate, are the cause of about 80% of total cancers, all 4 of those uniquely allow themselves to avail from various screening procedures that we are capable of doing in our imaging centers and which patients more and more are electing not to do in hospitals. So as the growth of AI occurs, I believe it's not just going to be something that looks at how you take various disease processes that are more acute as you would see in hospitals, but how do we evolve much like we have in breast mammography to screening tools that will be driven by population health management and wellness. So RadNet as a company will continue, as it has demonstrated already, to make those kind of investments which we now are not only more capable of doing given the change in our capital structure and the cash flow of the company, but where we can target these much like we have in our IT platform with eRAD to areas which we know will benefit the company rather than by just off-the-shelf products. So I think as we implement these various tools, not only will we be seeing, I think, a greater volume of business, but that business is going to have to be handled by artificial intelligence in order to be able to accommodate the type of demand which we believe is on the horizon. So I'm hopeful that RadNet, as the leader in this industry, will continue to demonstrate not just tools that perhaps make diagnosis more accurate in known disease, but really focus on the elective side of what we do for the preponderance of our business in areas where I believe we can go directly to the insurers and demonstrate the value proposition for breast and the other modalities that I've mentioned to begin to have them change plan design to allow more and more of these screening tools. Because I think the benefit from this, particularly as we are demonstrating and in conversations we're already having with some of the payers, are compelling both for cost reduction and certainly an improvement in the longevity and morbidity that these cancers create. So I think the ability for us to marry artificial intelligence with our own IT platform will allow us a more rapid implementation of these tools and a more effective way for us to demonstrate to employers, insurance companies and patients, the value of screening tools that have, other than mammography and breast cancer, not generally been available.

That makes a lot of sense. And then I guess my last question since you talked about your kind of like your expectation of volume bolus coming up, where are the payer moves now to restrict access or shift access away from hospital-based imaging to outpatient? We heard that during the pandemic, some of that was eased a little bit, so just curious if you're seeing payer efforts resume.

Yes. I think there isn't a payer out there that isn't beginning to more firmly embrace the benefits of moving volumes away from the more higher-priced hospital pricing to the outpatient imaging sector. We're in conversations regionally with virtually all of the payors to implement tools which are both, I think, a more aggressive effort on their parts through utilization management and scheduling to move away from hospitals. But also, I think the beginning of the understanding on how they need to change their plan design in order to encourage more and more people to move away from hospitals. So it doesn't matter whether you're talking about United or the Blue Cross/Blue Shields or Cigna or Aetna, I think there is an inexorable movement which might be slow, but inevitable to, I think, create a better opportunity for patients to be screened faster and better in outpatient settings, which they're also more comfortable going into given the pandemic and which I think will persist over years to come.

[Operator Instructions]. We take our next question from John Ransom from Raymond James.

A couple of questions. You guys have been talking about AI, I mean, likely so for a while. But why is it reasonable to expect that to have some material effect on your tail?

Material effect, John, on our what?

On your earnings P&L, yes. When would that show up as a kind of measurable income statement contributor?

Yes. I think it will take probably to the latter part of this year, John. Now that we have finally received the FDA approval on the first product, Saige-Q, we are beginning to do the implementation across our 346 centers, most of which perform mammography. And so not only do we have a lot of centers to ramp up in the IT infrastructure, but we have a lot of applications, both to bring our radiologists as well as technologists up to speed on the use of these tools. If we were just dealing with a handful of centers, I would tell you that we could probably get this done in 60 to 90 days. But with over 700 to 800 radiologists that are part of the RadNet family and probably triple that number of mammography test, this will be a process that we're going to do slowly and methodically because it's not just a matter of plopping our software onto their workstations, but also making certain that we have the integrity of the IT infrastructure to manage the flow of an enormous amount of data across our network. So the processes that we're looking to implement over the next 3 quarters, which we've already started, by the way, even prior to the FDA approval, will be to look at the entire infrastructure of the company, particularly with IT being a major focus to make certain that the productivity gains that we hope our radiologists will enjoy will not be limited by our ability to present them with the data on a real-time basis for interpretation. So I would say, I think these benefits towards the latter half of this year will start bleeding through into our financials.

So if we're thinking about '22, there might be some hopefully measurable impact in the cost to read a scan now that you can look at some of those costs and take a little bit of a scalpel to those costs as a result of this?

Well, I don't think it's so much taking a scalpel to the cost of what we currently do, John. I think it's more a matter of as our volume increases, which we are very confident of in mammography, it's allowing our radiologists to be more productive. And where they're capable of handling this additional volume without us necessarily needing to employ more radiologists to do that. We think that's a critical part of what we demonstrate not only just for RadNet, but for the industry as a whole. If you, like we do, subscribe to the fact that perhaps as many as 40% to 50% additional mammograms should be done annually if all of the women were complying with the current protocols for screening mammography and if we were to get all of the women who should qualify for screening annual screening mammography into the system, we're talking about an enormous increase in the amount of volume that the industry is going to have to be able to handle. And I think that is as much of a burden and a responsibility of RadNet to demonstrate the capability of doing that so that the system is not overwhelmed and we slow down the benefit of getting these results into the hands of our referring physicians as rapidly as possible. So right now, RadNet does approximately 5% of all the mammography in the United States, and we expect that to grow substantially over the next 2 to 3 years as we implement not only artificial intelligence, but other data mining tools to improve compliance and bring women into the screening mammography process faster and with greater confidence in the ability for us to read the screening mammography faster and earlier diagnosis of potential cancers.

John, just to expand on what Dr. Berger just mentioned, the data suggests out there that there's about $40 million mammography exams completed in the United States each year. And as Dr. Berger mentioned, the number of exams that should take place if all women age 40 and above were to be compliant with their annual screening, would be somewhere in the neighborhood of 60 million exams or even slightly above. So that's 20 million additional exams nationally. While we operate in states that comprise about 25% of the United States population, so if you were to apply that 25% to that 20 million of additional exams, you're talking about another 5 million of these exams that could be performed in the markets in which we operate. So that's an extraordinary amount of potential additional volume. So not only will we be more productive with this AI tool with the exams that we have in-house, but as Dr. Berger mentioned, as mammography grows in general in the industry, we'll be able to absorb some portion of this additional volume without adding to our radiology staff. And in our tests, John, we found that our radiologists are over 25% more productive using these AI tools, which essentially right now is a worklist tool and a prioritization tool. We think that, that number could and should go up sometime next year when our second product, which is the true mammo diagnostic product, should be reviewed and approved by the FDA. So it's -- this is going to have an extraordinary impact financially on the business, not only given current volumes, but as we continue to grow into the future.

And just -- I just found this so interesting, forgive me if you don't want to talk anymore, but Howard, you and I have talked about other modalities such as supplanting the current unpleasant prostate. Is there a potential for some type of technology like this to be applied to other screening such as prostate? Or are there other areas that I'm not thinking about excluding just the mammography opportunity?

Absolutely, John. And thank you for the question. I think that's something you obviously personally experienced as well as a whole lot of other men. But we are working with other companies as well as considering internally doing and making prostate MRI a screening tool which, hopefully, much like screening mammography, will be a very rapid and effective tool for managing prostate cancer. We believe the tools that currently exist are either very costly or much like the PSA, some PSA test, really not effective for identifying cancers early without going into a lot of other costly and cumbersome procedures. So we believe these tools are within the near-term horizon, not only for prostate. Another major focus will be for colon cancer and using CT screening, which is available now for that instead of conventional colonoscopies. And I believe also the area of lung cancer screening, while available, is very underutilized. I've seen statistics at only 5% to 10% of the population that would qualify for a CT scan of the lung for cancer are making themselves available to do that. So I think imaging, much like I've said before to a lot of people, I think imaging is the gateway to population health management, not only for cancers, but for cardiovascular disease. And I think these are all tools that we will be working on as well as other people in the industry. And I think it could dramatically transform the imaging industry as well as the health care industry if all of these opportunities are properly adopted.

It appears there are no further questions at this time. I'd like to turn the conference back for any additional or closing remarks.

Okay. Thank you, operator. I want to, again, thank everybody for their participation in today's call and for the support of our shareholders and 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. Stay safe, everyone.

And this concludes today's call. Thank you for your participation. You may now disconnect.