Good day, and welcome to the RadNet, Inc. Second 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 second 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 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, 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 second 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 these challenging times. Let’s begin. I’m extremely pleased with our performance this quarter. Our financial and operating metrics in the second quarter demonstrate continuing 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, the cost-saving measures that we implemented during the COVID-19 period in 2020 and further cost containment actions this year have lowered our operating expenses and created efficiencies within our regionally clustered centers. Second, our procedural volumes have substantially recovered as many of the municipalities and states in which we operate have loosened COVID-19 restrictions. We are observing that patients are returning to more regular office visits, utilizing healthcare with more normalcy. Obviously with the rise of the new Delta variant, we remain vigilant and ready to take further protective actions should new restrictions or stay-at-home orders be implemented. Lastly, investments we made last year and during the first two quarters of this year, both in respect to capital expenditures and tuck-in acquisitions, are beginning to contribute to our financial results. We discussed previously the extraordinary investments we made in upgrading our mammography systems during 2020 to 3D digital mammography or tomosynthesis. While we do not believe mammography volumes have fully recovered from the COVID-19 impact, we are experiencing enhanced reimbursement from the volumes we are now performing on these newly upgraded 3D systems. Additionally, during the first quarter this year, we acquired 10 facilities within the New York Metropolitan market, and we completed an additional five tuck-in acquisitions during the second quarter in other parts of New York, New Jersey, and California. The newly acquired facilities have unique cost savings and consolidation opportunities with existing RadNet facilities. We expect significant improvement from the results later in the year when we have completed their integration processes. As a result of all these factors, our results during the second quarter were the best of any quarter in the Company’s history. As compared with last year’s second quarter, which was impacted by COVID-19, revenue increased 75.2% and EBITDA more than 150%. I am particularly proud of the margin improvement we were able to demonstrate achieving an EBITDA margin of 17%, higher by 5.1% and 2.1% from the second quarters of 2020 and 2019 respectively. The margin improvement is the result of both the return of our procedural volumes and more normalized levels, as well as many of the cost-saving measures we have put in place, which have included consolidating underperforming sites and changing key operational processes, both at the center level and within our corporate support departments. Adjusted earnings were also very strong in the quarter. We recognized adjusted net income per share during the quarter of $0.27. This is in contrast to an adjusted net loss per share in last year’s second quarter of $0.14. As a result of the strong performance in this year’s first and second quarters and the confidence we are feeling for the remainder of the year, we have elected to again increase most of our key financial guidance levels for 2021. Mark in his prepared remarks will review the increases we made to our revenue, EBITDA, and free cash flow guidance, which were outlined in our earnings press release this morning. As many of you have seen during the second quarter, on April 26, we announced the completion of the refinancing of our term loan and revolving line of credit. Based upon current and anticipated future leverage ratios, we expect to save up to $6 million annually in interest expense. Additionally, we no longer are subject to restrictive maintenance covenants with respect to our term loan and have substantially more operating and financial flexibility under the new credit agreement. This includes lowering our annual acquired amortization payments by over $30 million and adding over $110 million to our cash balance, which will enable us to accelerate growth. The success of this refinancing can partly be attributed to our strong operating performance and the effective deleveraging of our balance sheet. As of the end of this quarter, we had $633.3 million in net debt, trailing 12-month EBITDA of $198.6 million, and a resulting leverage ratio of 3.19 times net debt to EBITDA. This is the lowest leverage we have had in our company’s history. Pro forma for recent acquisitions, this ratio was even lower, which is indicative of our further expected deleveraging in the coming quarters. While we are committed to growing and expanding our business, we will also continue to follow a methodical and disciplined approach to managing our financial leverage. Lastly, before I hand the call back over to Mark, I’d like to provide an update as to where we stand with our efforts in artificial intelligence. During the second quarter on April 19, we announced that our Artificial Intelligence subsidiary DeepHealth received FDA clearance for its AI mammography triage software, Saige-Q. Saige-Q is a screening worklist prioritization tool that enables radiologists to more efficiently manage their mammography cases with the use of artificial intelligence. DeepHealth’s powerful new AI technology identifies suspicious screening exams that may need prioritized attention, allowing radiologists to optimize their workflow for efficiency and accuracy. This technology is the first FDA-cleared triage product that supports both 3D and 2D mammography images. With over 1.5 million mammography exams we are performing annually in our markets, we are in the process of deploying this technology to our breast imagers nationwide. I am pleased to report that, as of today, our Northeast and mid-Atlantic mammographers are now utilizing Saige-Q. We expect by the end of the third quarter, our California breast imagers will also be utilizing this technology. The early feedback we’re receiving from our radiologists is excellent. While we are observing improved productivity, most importantly, we are providing our patients and payors with better accuracy, fewer patient callbacks and the possibility of detecting disease one to two years earlier than might otherwise be possible. We continue to evaluate further areas of artificial intelligence that can both decrease costs and drive new revenue streams through providing innovative cost-effective screening programs to large insurance companies who are interested in new population health models to improve patient care. At this time, I’d like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2021 performance. When he is finished, I will make some closing remarks.

Thank you, Howard. I’m now going to briefly review our second 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 second quarter performance. I will also provide an update to 2021 financial guidance levels, which were released in conjunction with our 2020 yearend results in March, and which we amended in May upon releasing our first quarter financial results. 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 and non-cash equity compensation. Adjusted EBITDA includes equity in 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 now like to review our second quarter 2021 results. For the second quarter of 2021, RadNet reported revenue of $333.9 million, adjusted EBITDA of $56.6 million. Revenue increased $143.4 million or 75.2%, and adjusted EBITDA increased $34 million or 150.7%. 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 digital mammography, and the contribution from tuck-in acquisitions we completed during the first quarters of this year. Adjusted earnings for the second quarter of 2021 was $14.2 million or $0.27 per diluted share as compared with adjusted net loss of $6.9 million or negative $0.14 per diluted share for the same period in 2020. Unadjusted for one-time items, net income for the second quarter of 2021 was $2.9 million or $0.05 per diluted share. This compares to a net loss of $10.6 million or negative $0.21 per diluted share in the second quarter of last year. These per share values are based upon weighted average number of diluted shares outstanding of 53.1 million shares in the second quarter of 2021 and 50.7 million shares outstanding in the second quarter of 2020. Affecting net income in the second quarter of 2021 were certain non-cash expenses and non-recurring items including the following: $8.9 million of non-cash employee stock compensation expense; $268,000 of severance paid in connection with headcount reductions related to cost savings initiatives; $1.6 million gain on the disposal of certain capital equipment; $1.2 million of non-cash loss from interest rate swaps; $6 million of expense from debt restructuring and extinguishment as a result of our recent refinancing transaction; and $812,000 of amortization of deferred financing costs and loan discounts related to our existing credit facilities. For the second quarter of 2021, as compared with the prior year’s second quarter, MRI volume increased 88.1%, CT volume increased 67.6% and PET/CT volume increased 28.8%. Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasound, mammography and all other exams increased 92.7% over the prior year’s second quarter. On a same center basis, including only those centers which were part of RadNet for both the second quarters of 2021 and 2020, MRI volume increased 73%, CT volume increased 54.9%, and PET/CT volume increased 26.5%. Overall same center volume, taking into account all routine imaging exams, increased 80.5% from the prior year same quarter. In the second quarter of 2021, we performed 2,191,868 total procedures. The procedures were consistent with our multi-modality approach, whereby 75.8% of all the work we did by volume was from routine imaging. Our procedures in the second quarter of 2021 were as follows: 321,779 MRIs as compared with 171,047 MRIs in the second quarter of 2020; 197,375 CTs as compared with 117,732 CTs in the second quarter of 2020; 11,508 PET/CTs as compared with 8,935 PET/CTs in the second quarter of 2020; and 1,661,206 routine imaging exams compared with 1,137,281 of all of these exams in the second quarter of 2020. Overall GAAP interest expense for the second quarter of 2021 was $12.2 million. This compares with GAAP interest expense in the second quarter of last year of $10.8 million. Cash paid for interest during the period, which excludes non-cash deferred financing expense and accrued interest, was $5.5 million as compared with $12.9 million in the second quarter of last year. The lower cash paid for interest in this year’s second quarter is the result of the timing of interest payments, mainly due to a refinancing transaction in April. With regards to our balance sheet, as of June 30, 2021, unadjusted for bond and term loan discounts, we had $633.3 million of net debt, which is our total debt at par value less our cash balance. This compares with $608.6 million of net debt at June 30, 2020. Note that this debt balance includes New Jersey Imaging Network’s debt of approximately $49.1 million, for which RadNet is neither a borrower nor guarantor. As of June 30, 2021, we were undrawn on our $195 million revolving line of credit and had a cash balance of $140.9 million. At June 30, 2021, our accounts receivable balance was $157.3 million, an increase of $27.2 million from year end 2020. The increase in accounts receivables is mainly the result of the significant increase in our procedural volumes and revenue this year relative to 2020 revenue. Our days sales outstanding or DSO remains near the lowest levels of our company’s history. Despite the increase in aggregate accounts receivable, our DSO was just 40.6 days at June 30, 2021. Through June 30, 2021, we had total capital expenditures net of asset dispositions and the sale of imaging center assets and joint venture interests of $48.3 million. At this time, I’d like to update and revise our 2021 financial guidance levels, which we released in conjunction with our fourth quarter and yearend 2020 results and amended after reporting our first quarter 2021 financial results. For revenue, our original guidance level was $1.250 billion to $1.300 billion. Our new guidance level we’ve increased both the low end and the top end of that guidance level by $50 million to $1.3 billion to $1.350 billion of revenue. For adjusted EBITDA, our original guidance level was $180 million to $190 million. We’ve increased both the low end and the high end of that range by $20 million to $200 million to $210 million of EBITDA. For capital expenditures, our original guidance range was $70 million to $75 million. We’ve increased that to $80 million to $85 million. For cash interest expense, our original guidance level was $39 million to $44 million. We’ve decreased our cash interest expense guidance to $35 million to $40 million, which is reflective of the newer lower interest costs based upon our refinancing transaction in April. And for free cash flow, our original guidance level was $60 million to $70 million. We’ve increased that to reflect our higher EBITDA projection to $75 million to $85 million. As just noted, we have increased our guidance ranges for revenue adjusted EBITDA and free cash flow. Additionally, we raised our higher capital expenditure level to reflect additional investments in growth opportunities we’ve identified in several of our core regional markets. Each quarter, we reevaluate our actual and projected performance against guidance levels. We will continue to update these levels as appropriate throughout the remainder of the year.

I’ll now take a few minutes to give you an update on 2022 reimbursement and discuss what we know with regards to 2022 anticipated Medicare rates. As a reminder, Medicare represents about 20% of our business mix. With respect to Medicare reimbursement, several weeks ago, we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about this time every year. We’ve completed an initial analysis and compared those rates to 2021 rates; we volume weighted our analysis using expected 2022 procedural volumes. As you may recall, last year, CMS moved forward with increased reimbursement for evaluation and management CPT codes, which favor certain physician specialties that regularly bill for these services, particularly primary care doctors. CMS proposed doing so with budget neutrality; meaning that it proposed to reallocate reimbursement from physicians who rarely bill for E&M codes to physicians who regularly bill for these codes. As a result, radiology and most other specialties are experiencing cuts in reimbursement during 2021. The cut that we are currently absorbing this year would have been higher if implemented as initially proposed last year, but congressional action at the very end of last year partially mitigated this cut. In this year’s proposed rule governing 2022 reimbursement, Medicare appears to effectively be phasing in the remainder of the cut avoided last year. The cut proposed for 2022 results from a decrease of the conversion factor in the Medicare fee schedule by about 3.8% along with additional decreases in technical and professional RVUs of certain radiology CPT codes, mostly focused on MRI and CT. Our initial analysis of the proposal for next year implies that RadNet on roughly $1.3 billion in revenue would face approximately a $13 million revenue hit in 2022 from its Medicare business. Because the proposed cut in the conversion factor affects all physicians, not just radiologists, there are many lobbying groups from the various medical specialties aggressively opposing the proposed cut, including radiology’s two main lobbying forces, the Association for Quality Imaging or AQI and the American College of Radiology, the ACR. At this time, our experts believe there is a possibility that the final rule to be released in November will be less severe than the current proposal. Furthermore, it remains a possibility that congressional action this December could also mitigate these proposed cuts like it did last year, particularly in light of a continuing COVID-19 and Delta variant situation. In November, during our third quarter financial results call, we hope to have more to update you on about this matter. I’d now like to turn the call back to Dr. Berger, who will make some closing remarks. Thank you, Mark. Today, RadNet is more multifaceted than at any other time in our history. We are growing our business in all of the seven states in which we operate, all of which have attractive demographics and a multitude of local market opportunities. We are now partnering on both coasts with some of the largest and most prestigious hospital and health systems and joint ventures that encompass approximately 25% of our facilities. We control our own IT infrastructure with our own suite of eRAD products and services that we sell and license to other industry participants. And we are making 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. A multifaceted business is healthy and growing and we are exceeding the expectations that we originally set forth in our initial guidance levels, which we increased after the first quarter’s results and further increased today. Growth is coming from virtually all areas of our business, with patient volume returning to more normal levels, and through implementing aggressive cost-cutting and cost containment programs, our same-store growth and performance model has returned. Investments we made in 3D digital mammography technology are paying dividends with respect to increase reimbursement and improve patient care. New advances in equipment, contrast materials, radioactive isotopes, post-processing visualization software and many others will continue to drive new applications and patient indications. Big pharma development for Alzheimer’s and other diseases in the future brings the promise of greater utilization of diagnostic imaging. Most exciting to us is that our investments in artificial intelligence have the potential for driving growth like we have never experienced. Using artificial intelligence to create cost-effective screening programs for a variety of disease processes can uniquely impact population health. We are currently making inroads with breast cancer and mammography utilizing artificial intelligence and we envision similar potential for prostate, lung, and colon cancer in the near future. We are evaluating further investments in artificial intelligence and look forward to updating you as they materialize. Furthermore, the refinancing transaction in April positions us with significantly more available financial resources as a result of the over $110 million we were able to fund to our balance sheet, the lowering of our annual interest costs, and the substantial reduction of required amortization. This liquidity, in combination with the lowest financial leverage in our company’s history and our strong free cash flow yield, positions us uniquely and gives us the ability to execute on our growth opportunities, both organic and external ones. Strategic acquisitions will also continue to be an important aspect of our growth. We routinely have a pipeline of acquisitions that we are evaluating and processing. Today, the arbitrage between RadNet’s enterprise value and the multiples for which we can purchase targets is more attractive than ever. As long as this multiple arbitrage exists, we can continue to contribute to the equity value of RadNet through an acquisition strategy. We remain able to acquire smaller operators in our core markets at three to five times EBITDA. While larger targets might cause us to stretch beyond this evaluation level, they usually afford us more operating and cross-synergies that, once achieved, serve to lower the acquisition multiples into this range over time. We will execute on these opportunities with this level of discipline when targets are available, and in instances when we have motivated sellers. 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.

Thank you. We can take our first question now from Brian Tanquilut of Jefferies. Please go ahead.

Hey, good morning, guys. Congrats on the strong quarter. I guess, Howard, my first question for you, obviously a lot of discussion recently on the Delta variant and what it’s doing to just operations for healthcare, you’re obviously in New York and California, and some of the states that have probably been more aggressive with measures against the Delta. So just curious, what are you seeing in terms of any impact on your referral flow or volume flow right now? And also, you mentioned in your prepared remarks something about preparing to make moves if lockdowns are mandated again. So just curious, how are you guys strategizing around it and what would be different this time around?

Good morning, Brian. Thank you. Well, firstly, I think we had seen in the second quarter a robust return to the pre-COVID volumes, and there was anticipation still is that the third quarter will continue this recovery. What we are seeing is that one area we’re focused on very keenly as far as the company strategy, meaning mammography and breast cancer seems to be a little slower to return. We think this is because of two primary reasons. Number one, there are people that are still reluctant to get elective procedures and visit healthcare facilities given not only the concerns that they have about vaccinations and protective measures, but also as we now see the increase in the amount of COVID positive results; there is that hesitation. Secondly, and perhaps uniquely with mammography, there have been a number of reports that women who are vaccinated do have a reaction often in the axillary region on the arm that was injected, and there have been some recommendations that they wait two to three months after the vaccination so that the potential inflammatory response that’s often seen in lymph nodes near and around the breast have a chance to subside. So, we believe that these are the primary reasons why it might be a little slow to recover. In return to the other factors, we have now mandated mask wearing for all of our employees and all patients in all of our centers across the United States. In addition to that, all of our centers have been practicing social distancing either in the waiting room itself, making certain that patients feel comfortable and are separated, as well as having barriers at our reception desks. Often with some of our unique eRAD methods for screening patients, patients often wait outside and then are reminded when they are ready to come directly into the exam room for their procedures. So those are the recommendations that we have been following now and policies for several months. So if there is a continuation of this surge, we believe that most of the measures that we put in place for safety measures and protective equipment simply can be found, and I don’t believe we should have a problem with managing the health and safety of our patients that do choose to come. That is a risk though that as the surge continues, it may influence patients to hold off on elective procedures. We also have to be mindful of the fact that in some of the states, fortunately, that we don’t have a tremendous presence, the increase of the surge has also resulted in using up the availability of hospital and ICU beds. And if that were to occur primarily in California, New Jersey, and in New York, then there might be a further shutdown of elective procedures, which quite often have imaging associated with them. So far through the months of September and early August, we have not seen that impact noticeably in any of our regions, but we’re monitoring it very closely.

Yes. Thanks for those insights, Howard. I guess, Mark, shifting gears a little bit, margins were really strong in the quarter. And I know you cited that it’s like the carryover impact of moves that you made last year, but as I think about the ability to sustain margins here going forward, and I know there’s a balancing act between utilization picks back up, or volumes picks back up, there’s a capitation side of the business on one hand, and then obviously just the flow-through to your fee-for-service business, so how are you thinking about margin going forward and your ability to drive incremental margin expansion?

Sure. Well, if you look at our newly revised guidance measures, we are assuming increased margins relative to where we were at the end of last year, thinking about 2021’s results. So, I think that given the changes that we made in our cost structure last year, the consolidation of a number of different centers, the implementation of things like what Dr. Berger mentioned, virtual waiting rooms, and other operating protocols to drive throughput in our facilities, some advances in equipment, particularly some investments we made in digital 3D mammography, that is resulting in higher reimbursement per scan on the mammography side. We have experienced a structural change in our margins and improvements of over a 100 basis points relative to where we were in 2019 and 2018, and I’m not going to compare it to last year because it was such an extraordinary year with the COVID impact. So we think that this is sustainable. Another reason for our improved results is our investments and improvements in our revenue cycle in terms of collecting more of our cash upfront, getting better yields in general from our AR. Our DSOs are at the lowest point in the company’s history at around 40 days, and our cash collections have been extremely strong, which has also helped with deleveraging the balance sheet and providing us liquidity. So, we think that we can sustain the margins that we’ve been producing so far in the first and second quarters. And with the advent of the implementation of AI, which Dr. Berger also mentioned on the mammography side, and hopefully if we get into other areas of AI along with other screening tools and modalities that can also structurally lower our cost of performing the radiology services, but also drive new revenue streams that can significantly benefit margins. So we're – at this point, we're very optimistic.

Awesome. Last question for me. I think in Dr. Berger's prepared remarks, he talked about investing more and expanding in AI into new areas. Anything you can share with us in terms of your AI strategy beyond mammography? I know you've talked about prostate and GI, but just anything you can share with us in terms of AI strategy where you can take that?

Yes, Brian. Thanks again. Yes, I think, as I have mentioned on previous calls, RadNet believes that imaging really is the gateway of population health. And within that context, we believe that there should be aggressive and active efforts on screening tools, primarily for cancer and related to the four major cancers that comprise about 80% of the diagnosed cancers on an annual basis, those being breast, prostate, lung, and colon. Given the fact that in our particular business, where we do such a large volume of mammography already, and we believe we are technologically and strategically positioned to do screening for lung cancer, colon cancer, and prostate cancer, we are exploring avenues that will ramp up the ability for us to perform these screening tools on a mass scale, not only for the regions where RadNet owns centers but the development of networks, perhaps across the country and perhaps outside of the country where we believe these tools will have the same benefits for population health. While I can't comment on any specific avenues at this moment, rest assured that we are aggressively looking at both internal as well as external ways for us to ramp up the development of these tools which we think will continue to have RadNet be the leader for this, not only in radiology but also on a national scale. I can't emphasize enough how passionately and strongly we feel about this both in terms of the benefits to society as a whole in terms of health care and managing the costs. But also the unique position that RadNet is in to both develop these internally or perhaps continue acquisitions under our DeepHealth umbrella like we did last year. So I think this will be more and more of an opportunity for us to demonstrate RadNet’s commitment to this, as well as some of the unique tools given that we also own our own IT infrastructure and enormous amounts of data which are critical for the development of these tools to leverage on. So we hope to be able to update you on the progress towards these perhaps as soon as our next quarter’s earnings call or sooner if something material is sufficient for us to announce publicly.

Awesome. Thanks again and congrats again. Thanks guys.

Thanks, Brian.

Thanks, Brian.

We can now take our next question from John Ransom with Raymond James. Please go ahead.

Hey, good morning. A couple of things for me. Mark, recent M&A, is that having any material effects on your outlook in the back half for margins?

So we've been fairly active this year in M&A. In the first quarter, we did five small tuck-in transactions, and then in the second quarter here, we did 10 additional facility acquisitions. And as we said publicly, we're purely opportunistic in how we approach our acquisition strategy. We have a defined set of criteria by which we look for targets and acquire businesses. We do not go out and knock on any doors proactively. We have a business development team that consists of one person. We only take essentially inbound calls because we’re looking for motivated sellers in our markets, where we can acquire them in the evaluation range that we’ve historically been successful in effecting these transactions, which is in the 3 to 5 times range. And we’ll stretch at times for highly strategic acquisitions or acquisitions that are a little larger, but those generally come with greater synergies. And ultimately, we can average down those multiples through time and better performance and through those synergies. So a part of why we increased our guidance level was from the increasing procedure volumes that we’re seeing both on the same center basis as well as with new centers, including those acquisitions, as well as the cost savings. So yes, those facility acquisitions will contribute to our financial profile for the portion of the year that they’re within the RadNet umbrella. Those are going to have more impact next year as we’ll get the full impact of all of those centers in next year’s results. And also, it generally takes a quarter to two depending upon the size of the acquisition and the complexity for us to integrate these acquired operations effectively into the RadNet way for lack of a better term. This includes getting them on our eRAD IT backbone, it includes operational protocols, clinical protocols, right-sizing them, given our operational expertise. And so, yes, we will see some contribution, but it will be more significant next year.

So if we’re thinking about kind of an early bridge to next year, you’ve got the $13 million headwind, you mentioned, what’s the approximate EBITDA contribution for your next year from these acquisitions versus your partial year this year? How much is that a good guy?

Yes. I mean, we haven’t – John, we haven’t disclosed the EBITDA of any of these acquisitions publicly, but if you look at our cash flow statement for the first six months, there’s a line item that says purchase of imaging facilities and other acquisitions, it’s about $65 million of enterprise value. So if you assume, let’s say, that’s done at a 5 times EBITDA, that can approximate give or take what the contribution of these acquired operations may look like next year.

So the show off my outstanding math skills, the – you’re buying about as much EBITDA as you’re losing for Medicare. I know you’ve been a partial year this year, but you’re bridging almost the full EBITDA gap from M&A from Medicare.

Yes, that's correct. Yes. I hadn't thought about that John, because that wasn’t necessarily our intent in these acquisitions. But yes, and we have other cost mitigants that from operational changes, maybe some consolidation of additional centers that we think will fully mitigate the cut next year. And we’re hopeful, as I said in my prepared remarks, that the final rule will be a little bit less severe given COVID-19 and other variants that are impacting all providers. Furthermore, there’s the opportunity potentially that Congress rolls back these cuts like they did last year, given the pressure that’s being put on them, because remember when they lower the conversion factor as is it – as is in this proposed rule, that’s not just impacting radiology; that’s impacting all medical specialties.

Got you. And then just a couple other cleanups for me. Your AI – you mentioned your AI strategy detailed. Is that going to make any difference in your per-read costs fees in the intermediate term or is that more of a longer-term efficiency tool?

Good morning, John. I think that’s more of a long-term benefit. The immediate benefits that we’re realizing now are primarily improvements in the accuracy and efficiency with which our mammographers are now able to read a mammogram. There are other developments in our pipeline or our pathway for mammography that we think will streamline that process and ultimately allow our mammographers to read a greater volume of the mammograms than they are currently capable of. So I believe some of these new tools will probably start emerging next year. And when fully integrated with our IT platform will, I believe, give us some of these efficiencies. These efficiencies by and large are not just designed to reduce our professional costs, but really to allow the shortage of mammographers that exists on a national scale to handle larger volumes of mammograms that we expect to be able to drive into our centers as a result of other compliance tools and contracting that we want to do directly with the payors in facilitating greater efforts on their parts through plan designs and other outreach programs to get somewhere between 50 to maybe as many as 100% of the women who are not getting annual mammography. So part of these efforts on artificial intelligence is not only to raise quality, but to address the demand for really well-qualified breast imagers that remain a huge shortage on a national scale, not just RadNet and its radiology partners.

And then, Mark, just your capitation contracts, and there was a smaller piece every year as you buy more fee-for-service, but are they generally helping as volumes trend a little bit lower? Are they performing more or less in line?

Yes. So I mean, capitation has remained fairly steady in the 11% to 12% of our business mix. And that has been scaling along with the rest of the company as we’ve been growing the fee-for-service business. And we continue to think that there is more opportunity within capitation both for new contracts, as well as potential increasing penetration of managed care in California and other places that will drive more risk-taking risk-based contracts, which we enjoy very much as it helps to cover a lot of the fixed costs of our facilities. It establishes relationships with many referring physicians who are obligated to send us these HMO patients that have other fee-for-service business that can be sent to our centers because of that relationship. And then also the financial benefits from capitation in terms of no DSOs in terms of low – very low, if any bad debt associated with these contracts and other financial benefits. So we think that this can continue to be a growth engine for the company. Obviously, as patients have returned to a more normal or regular way of utilizing healthcare and visiting their primary care and other specialists that they go see, we have seen utilization increase, as expected with these contracts, but they haven’t been increasing to any extraordinary levels. A lot of people have asked me, John, do we feel like we’re benefiting in our business from a pent-up demand that might’ve existed during COVID? And the best – and our answer is no, we think it’s more towards a normal use of healthcare services and the way we judge that is through our capitation contracts, where we can see all of the exams that a patient population utilizes because it’s a closed patient population. And so it’s – we have seen increased utilization, but no unusual spikes, I would say.

Great. Are they all still in California, Mark, these capitation contracts?

The vast majority of them are in California of the roughly 1.9 million lives for which we’re responsible on an exclusive basis under these capitated arrangements providing diagnostic imaging. A little over 1.7 of those exist in California, and that’s really due, John, to the structure of how managed care contracts with large primary care physicians for patient care here in California, where they’re passing on the burden and the financial responsibility for essentially non-hospital based care to these large patient populations, to these large medical groups. And then we sub-capitate with these large medical groups to where they shift the utilization responsibility for diagnostic imaging to us for a piece of the per member per month fee that they’re receiving from the various HMOs. So it’s very much a California phenomenon. There are other states in the United States that do contract under this structure with HMOs. We see it a lot in Florida. You see it a lot in New Mexico, in Nevada and that’s catching on across the country. We’re risk-taking; taking risk, sharing population health is becoming more active. And we do have a very significant contract in New York with a division of EmblemHealth for New York metropolitan lives with their advantage care physician group that has been a very successful contract for both us and Emblem.

Thanks so much. Appreciate it.

Thank you.

We’ll take our next question now from Mitra Ramgopal at Sidoti. Please go ahead.

Yes. Hi, good morning, and thanks for taking the questions. Just a couple for me. I’m just curious about the increased CapEx. If maybe you can provide some color on some of the additional growth opportunities you’re seeing there.

Good morning, Mitra. Yes, most of that comes as a result of the acquisitions we did in the first and second quarters. It’s not at all uncommon for us that in many of the acquisitions that we do, they have deferred or delayed capital investment. So given the fact that we’ve done through the year, some 16 or 17 acquisitions, we do want to invest in those sites, for example, in new mammography systems to elevate or increase their mammography capabilities, particularly with 3D mammography, which we’ve been able to demonstrate some very significant return on investment. So that’s the primary reason that you’re seeing the capital expenditure increase.

Okay, thanks. And onto procedure volume increases, I think most of it is pent-up demand from COVID. But I was just wondering if you’re maybe seeing some of that volume coming from more procedures in the outpatient setting as your United and Cigna start to – increasingly seek to shift those procedures outside of the hospital. And maybe also just from a competitive landscape, COVID probably took up the environment as it relates to some of your competitors.

Yes, I believe some of the increased volume is coming from that, Mitra. COVID seems to have really galvanized the insurers – the healthcare insurers to really focus on the shift away from the more expensive hospital-based imaging to the pre-standing facilities. But some of this is slow to adopt as it has been, but we are getting more inbound calls from our insurance companies to help them facilitate those through plan design and other scheduling and authorization tools that we’re trying to ramp up for them. So I believe that there will be a component of the increased volume that we see on a normal basis coming at the expense of some of the hospital systems. We also believe that as we implement more and more of our artificial intelligence, we will be giving the insurers additional justification for making those changes. So I think there are a number of items that I think we’ll be able to look back perhaps at the end of this year, when we look at the contribution to our fee-for-service business from the insurance companies and how that has changed. But the gut here based on the calls that we’re getting and the participation that they’re asking from us at this point indicates that we should be quite a beneficiary of that in our existing markets.

Okay, thanks. And then the final one, probably getting ahead of myself, but as it relates to the reimbursement for 2022, assuming it goes through at how comfortable you are as it relates to me being able to get that impact from improving cost measures that you – the ability to implement.

Well, I think that there will be some measures on the cost-cutting side of it that we will always look to try to implement whether or not those reimbursement cuts are affected or not. But I think given some of our unique capabilities where – as we’ve demonstrated perhaps consolidation opportunities, I believe that will certainly help us mitigate that going into 2022. Additionally, we shouldn’t – this is the fact that – this reduction in reimbursement is not unique to RadNet, and that this impact will be felt throughout the system. And we expect that while it may take a little while, some of our competitors in the markets that we’re in right now or perhaps other markets that we’ll take a look at more aggressively, we’ll feel the need to begin further serious consideration on consolidation. So perhaps, as the prior questioner was asking Mark, we believe that some of the mitigation may indeed come through the more opportunistic acquisitions that we think will ramp up actually in 2022.

Okay. Thanks again for taking the questions.

Thank you, Mitra. Take care.

We have no further questions at this time. I would now like to hand the call back to Dr. Berger for any additional or 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, and I look forward to our next call. Stay safe and good day.

This concludes today’s call. Thank you for your participation. You may now disconnect.