Good day, ladies and gentlemen, and welcome to the RadNet, Inc. Second Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's second quarter 2022 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 US 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, 2021. 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 2022 results, give you more insight into factors that 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 I 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 our stakeholders, including our employees, business partners, lenders, and shareholders, and wish you all well during this challenging time. Let's begin. I am pleased that our performance in the second quarter is tracking towards our full year guidance, which we released in conjunction with our 2021 fourth quarter earnings and then subsequently raised in May after the strong first quarter 2022 results. When we set the guidance levels, we anticipated a number of challenges for 2022, including significant inflationary pressures, particularly around the cost of our labor force, certain Medicare reimbursement reductions, and the ongoing impact of COVID-19. I am pleased that our team is rising to the occasion to meet these challenges. During the second quarter, revenue increased 6.1% relative to last year's second quarter on aggregate procedural volume growth of 4.5% and same-center procedural volume growth of 2.2%. Adjusted EBITDA, excluding the losses of our AI segment was $55.5 million. Though this was slightly behind last year's second quarter adjusted EBITDA, as anticipated in our internal projections, our growth and expansion have been able to mitigate much of the financial impact of the rising cost of labor and supplies, as well as the $7.4 million we estimated in 2022 for Medicare reimbursement reductions. While far from its impact in 2020, COVID-19 is still impacting our business in several ways. First, we have our own employee base impacted by COVID. Employee COVID leave has at times resulted in our use of more expensive temporary labor and overtime charges, as well as, in some cases, caused us to reschedule or cancel patient exams, while we also continue to see that the procedures we perform that are the most elective in nature, particularly mammography, remain impacted by patients delaying or postponing services. Despite these challenges, we continue to make progress on all fronts related to our long-term operating and growth plans. First, we are focused on driving growth in our core imaging center business through creating same-center performance and through our more recent initiatives to build new facilities in targeted local markets. As I discussed on our last financial results call, we have 15 new sites in various stages of construction and development, with almost half of this expansion occurring within existing health system joint ventures. These new sites are focused in areas where we currently are unable to meet the demand for services due to capacity constraints or because we simply do not have locations overlapping significant patient populations that we or, in certain cases, our hospital partners have identified. We believe these new sites should be major contributors to our performance in the latter part of 2022 and throughout 2023. Second, we continue to expand our hospital and joint venture offerings. During the second quarter, we established two new joint ventures. The first, in Frederick, Maryland with Frederick Health Hospital, established a joint venture with six centers, two of which were contributed to the venture by Frederick Hospital. The joint venture became operational in April and is our second joint venture with Frederick Hospital. The second joint venture, established in June, is with Dimension Health, an affiliate of the University of Maryland Medical System. Under this joint venture, RadNet and Dimension Health have each made a capital commitment to build two new locations in the Largo and Laurel regions of Maryland. We anticipate these centers to begin servicing patients sometime in the second or third quarter of next year. This is the fourth joint venture in partnership with the University of Maryland Medical System and its affiliates. We now have 102 of our 353 facilities or 29% of our centers held within partnerships with hospitals and regional health systems. We believe that within the next three to four years we could have over 50% of our facilities held in joint venture structures. We continue to enjoy the benefits from these partnerships, which include increased patient volumes, expanded breadth of services, improved patient access, and closer relationships with regional insurance companies and health plans. Third, we continue to seek tuck-in acquisitions in our core markets. We seek to acquire individual centers or small groups of centers that strategically fit with our existing regional networks, which can offer more capacity, more access, and enhanced geographic reach to our patient communities. We endeavor to acquire these businesses for 4 to 6 times EBITDA and look for businesses where we can create efficiencies and synergies to enhance their financial profile, once part of RadNet. We are opportunistic in our approach and attempt to remain disciplined about the types of assets we purchase and the prices we pay. An example, in the first two quarters of 2022, we purchased a group of three centers in Maryland called IFRC or Fairfax Radiology, as the centers are more commonly known. These three centers enhanced our geographic access and capacity to drive effective population health and network solutions to the patient populations of Southern Maryland, a state where we are the primary alternative to more expensive hospital-based imaging. Lastly, we continue to drive our AI initiatives. As many of you are aware, in January 2022, we completed the acquisition of Aidence Holding BV and Quantib BV to address opportunities in lung and prostate diagnosis and screening with artificial intelligence. When combined with RadNet's existing DeepHealth mammography AI operations, these artificial intelligence businesses provide RadNet with the basis for future offerings for widespread cancer screening programs for three of the most prevalent cancers: breast, prostate, and lung. Aidence AI for chest and lung CT scanning is currently used by customers in seven countries and its leading product is pending FDA approval for use in the United States. With customers in 20 countries worldwide, Quantib solutions for prostate and brain MRI already have FDA 510k clearance in the United States and CE mark in Europe. Currently, we have one algorithm submitted to the FDA pending its review and approval. This submission for Aidence's Veye lung nodule detection solution was submitted to the FDA in December of last year, and we anticipate getting clearance towards the end of this year or in early 2023. We currently have the DeepHealth diagnostic mammography in use in the vast majority of our centers, which provide mammograms in over 200 centers. We are also in the process of distributing Quantib's prostate AI to our facilities that currently perform prostate MRI. We continue to believe that our investments in AI will ultimately result in the improved productivity and accuracy of our contracted radiologists, and more importantly, provide significant new revenue streams for large-scale screening programs for some of the most prevalent chronic diseases and cancers. Though we expect that our AI reporting segment, consisting of DeepHealth, Aidence, and Quantib, will experience losses through 2023, we are making progress. During the second quarter of 2022, the AI segment recorded $1.6 million of revenue, a substantial increase from our first quarter AI revenue of $599,000. Much of this growth came from the success Aidence is having in licensing its technology in Europe, particularly in the United Kingdom. Consistent with our efforts throughout the pandemic, we continue to carefully manage our liquidity and financial leverage. At the end of the second quarter, unadjusted for the losses in our AI reporting segment, our leverage ratio was 3.2 times net debt to trailing 12 months EBITDA. Our liquidity also remains strong. We ended the quarter with $99.2 million of cash, and we were undrawn upon our $195 million revolving credit facility. Our days sales outstanding or DSOs at June 30, 2022, was 39.3 days, which we believe to be one of the best in the industry. The improvement in revenue cycle operations and collections has significantly contributed to our ability to manage the challenges presented by COVID-19 and to make important investments for our future. 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. At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2022 performance. When he is finished, I will make some closing remarks.

Thank you, Howard. I will now review our performance for the second quarter of 2022 and highlight some key points. I will also explain certain items in our financial statements and provide insights into the metrics that contributed to our performance this quarter. Additionally, I will give an update on our 2022 financial guidance, which was initially shared alongside our 2021 year-end results in March and amended in May after our first quarter financials. In my discussion, I will refer to adjusted EBITDA, defined as earnings before interest, taxes, depreciation, and amortization, excluding losses or gains on equipment disposal, other income or loss, debt extinguishments, and non-cash equity compensation. Adjusted EBITDA includes equity earnings from unconsolidated operations and deducts allocations of earnings to non-controlling interests in subsidiaries, while also accounting for non-cash or extraordinary events during the period. A detailed reconciliation of adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is available in our earnings release. Now, let’s look at our results for the second quarter of 2022. RadNet reported $352.8 million in revenue from its Imaging Centers segment and an adjusted EBITDA of $55.5 million, excluding losses from the AI segment. Compared to the same quarter last year, revenue increased by $18.9 million or 5.7%, while adjusted EBITDA decreased by $1.7 million or 3%, excluding the Provider Relief Funding received in 2021. Including the AI segment, revenue reached $354.4 million, up 6.1% from $333.9 million in the same quarter last year. Adjusted EBITDA, including the AI segment and the relief funding, was $51.3 million this quarter and $56.6 million for the same quarter last year. RadNet's net income was $7.9 million for the second quarter of 2022, compared to $2.9 million from the same quarter in 2021. Diluted net income per share for this quarter was $0.13, versus $0.05 in the same quarter last year, with a weighted average of 57 million diluted shares out in 2022 and 53.1 million shares in 2021. There were several unusual items affecting our second quarter, including a $6.3 million non-cash gain from interest rate swaps, a $1.2 million expense related to leases for new facilities that are not yet operational, and $5.9 million in pre-tax losses from our AI segment. Adjusting for these items, our adjusted earnings from Imaging Centers operations were $8.6 million, leading to a diluted adjusted earnings per share of $0.15 for the second quarter of 2022. The net income for this quarter was impacted by certain non-cash expenses and unusual items, such as $4.7 million for non-cash employee stock compensation due to option vesting; $99,000 in severance related to cost-cutting initiatives; $81,000 loss from the disposal of equipment; and $647,000 for non-cash amortization of loan financing costs. Compared to the same quarter last year, MRI volume grew by 7.7%, CT volume rose by 7%, and PET/CT volume increased by 10.4%. Total volume, including all routine imaging exams like x-rays, ultrasounds, and mammograms, was up 4.5% year-over-year. On a same-center basis, MRI volume rose by 4.5%, CT by 2.4%, and PET/CT by 7.9%, while overall same-center volume grew by 2.2%. In the second quarter of 2022, we conducted 2,290,176 procedures, with 75.1% being routine imaging. The procedures included 346,598 MRIs, 211,221 CTs, 12,710 PET/CTs, and 1,719,647 routine imaging exams. Our GAAP interest expense for this quarter was $11.4 million, lower than the $12.2 million recorded in the same quarter last year. Cash interest paid during the period was $12.2 million. On our balance sheet as of June 30, 2022, we had $662.1 million of net debt, which is total debt less cash, up from $633.3 million a year earlier. This debt includes $43.5 million from New Jersey Imaging Network for which RadNet is not liable. As of June 30, 2022, we had not drawn on our $195 million revolving line of credit and held $99.2 million in cash. Our accounts receivable stood at $166.4 million, an increase of $31.3 million from year-end 2021, primarily due to higher procedural volumes and increased revenue, as well as AR from acquisitions that did not include working capital. Our days sales outstanding, or DSO, remained low at 39.3 days. Through June 30, 2022, we had capital expenditures of $66.2 million, net of asset sales, not including $2.4 million from our New Jersey Imaging Network joint venture. Now, I will update our guidance for the 2022 fiscal year released alongside our fourth quarter and year-end results in 2021 and revised after our first quarter 2022 report. Our total net revenue guidance remains between $1.36 billion and $1.41 billion. For adjusted EBITDA, our range is still $208 million to $218 million. Cash interest expense guidance remains at $27 million to $32 million, and for free cash flow, we expect $80 million to $90 million. We have increased both ends of our capital expenditures guidance by $2 million, adjusting it to a range of $90 million to $95 million for the year. I will now take a moment to discuss the anticipated changes to 2023 Medicare reimbursement rates. Medicare accounts for about 22% of our business. Recently, we received a matrix of proposed rates by CPT code that is part of the annual physician fee schedule. We compared these proposed rates to those of 2022, adjusting for expected 2023 procedure volumes. The changes follow two years of increased reimbursement for evaluation and management CPT codes primarily benefiting certain physician specialties, especially primary care. To maintain budget neutrality, CMS proposed reallocating funds from lower billing specialties, like radiology, leading to cuts in reimbursement in 2021 and 2022. Fortunately, the cuts we faced in 2022 were somewhat offset by a 3% increase in the conversion factor from legislation passed last year. The current proposal for 2023 indicates a decrease of about 4.4% in the conversion factor along with minor changes to the relative value units of specific radiology CPT codes, affecting our projected revenue by approximately $8 million to $10 million on roughly $1.4 billion in revenue. This decrease impacts all physician specialties, resulting in significant lobbying efforts against the cuts, including from radiology groups. Our experts suggest that the final rule to be released in November may be less severe than the current proposal. There is optimism that the increase from last year's legislation may be extended into 2023, which would help mitigate the proposed conversion factor decrease. We anticipate further updates on this matter during our third quarter financial results call in November.

I'd now like to turn the call back over to Dr. Berger, who will make some closing remarks. Thank you, Mark. Despite some of the challenges in the overall operating and economic environment that we discussed earlier on today's call, I am very optimistic and enthusiastic about the coming quarters and the next few years for RadNet. As the largest, most sophisticated, and best capitalized operator in our industry, we are well positioned, regardless of what the greater economic or industry-specific conditions are like. Should the economy falter, access to capital be restricted or become more costly, or a global pandemic were to continue, RadNet's services will remain in high demand. RadNet is an indispensable fixture within the healthcare delivery system and particularly, in our regional markets. Our scale and breadth of capabilities, as well as our relationships with referring physicians, patients, health systems, and capitated partners, create a significant advantage over our smaller competitors. The advantage - these advantages position us to capitalize on opportunities that could arise if economic times get tougher, specifically, in such times like we experienced during the recession and credit crisis that began in the summer of 2008. Weaker imaging operators become eager and attractive acquisition candidates, and long-term, value-creating consolidation can be aggressively pursued. Today, RadNet has more growth engines than ever before. This includes our recent investment in artificial intelligence. We are advancing our AI strategy and now have algorithms to address three of the top four most prevalent cancers: breast, prostate, and lung. We are building tools that lower the cost and increase the accuracy of cancer diagnosis in a form that can be packaged to create widespread population health screening programs that don't exist today. While this artificial intelligence can serve to lower the cost of delivering our services, more importantly, artificial intelligence can create substantial new revenue streams for our company. Cancer is the second leading cause of death in the United States, and early detection and widespread screening programs are the obvious and most effective initiatives to lower mortality rates. Diagnostic imaging is non-invasive, convenient, and safe. It represents the opportunity for the early detection of the most prevalent cancers, and its effectiveness leads to better and more cost-effective treatment options. We are advancing conversations about screening programs and our advanced technologies with regional health plans, self-insured employer groups, local, state, and federal governments, and capitated payors. Our goal is to begin working with these partners to create population health programs and plans designed to encourage cancer screening and early detection. We recently participated in the Cancer Moonshot summit in Washington, and we believe there is significant appreciation for the value of cost-effective screening using diagnostic imaging. In the coming quarters, we will continue a number of initiatives to drive our growth and efficiency. Our activities will include moving the eRAD platform into a cloud-based architecture that will benefit our workflow and create enhanced operating efficiency for our staff and contracted radiologists. We will continue to pursue health system joint venture opportunities, both newly created ones, as well as the expansion of existing relationships. We will continue the consolidation of our call centers and scheduling functions for the convenience of our patients and referral sources and to create regional cost savings and efficiencies. We will continue to invest in and implement technologies that will shorten scanning times, improve the patient experience, and automate processes that today are manual, thereby allowing us to more efficiently utilize our labor force. 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 coming quarters regarding our progress. Operator, we are now ready for the question-and-answer portion of the call.

Thank you. We take our first question from Brian Tanquilut with Jefferies. Your line is open. Please go ahead.

Hi, good morning, guys. I guess, Howard, I'll start with you. We had some discussions, obviously, on AI here in this call. But if maybe you can share with us your thoughts on how you're planning to or how you're thinking about the commercialization of your AI products that you've gotten the FDA approval for, number one? And then maybe, Mark, as I think about the rollout of AI into your own clinics, how are you thinking about the benefit of that as we think about 2023 or maybe part of that is, when do you expect to see benefits hit the P&L from your internal rollout?

Good morning, Brian. Thank you. I believe we cannot overlook the significance of artificial intelligence as a transformative opportunity for the healthcare industry, especially in radiology. AI is pivotal for enhancing diagnostic accuracy and productivity in this specialty. Together with our eRAD divisions, including PACS and RIS systems, the integration of AI and data analytics will shape the future of healthcare and radiology. We plan to bundle these tools to create new applications of data and AI that will transform healthcare and radiology, particularly to meet the increasing demand for cancer diagnostic tools and implement them on a much larger scale than currently seen. This will present a challenge for the radiology community to manage the increasing volumes of screening tools, which can only be efficiently addressed with AI, especially considering the shortage of personnel, particularly radiologists. I hope to elaborate on the significance of this opportunity for both RadNet and the healthcare industry in the next 18 to 24 months. Regarding the rollout of our artificial intelligence within RadNet, we have started implementing our DeepHealth breast AI across the organization. This is a considerable undertaking as we have nearly 400 mammography systems in RadNet, each requiring training and implementation at the center and radiologist levels. We aim to complete the full implementation by the end of the year, bearing in mind that we only began this process in April after receiving FDA approval for the DeepHealth screening tool. At the very least, we expect to fully implement by the end of the first quarter of next year. We anticipate that RadNet will experience improved accuracy, which we have solid data to support; this should enhance the cancer detection rate among radiologists interpreting mammography and significantly boost their overall productivity, potentially by 15% to 20%. Therefore, RadNet should see benefits from increased volume in screening mammography and other screening tools for prostate and lung cancer, although those may take longer to adopt. However, the momentum and direction towards large-scale screening and improved patient compliance are at the forefront of our efforts at RadNet, and we hope to share more about our nationwide screening networks later this year or early in 2023.

Got it. Okay. And then, Mark, as I think about just rising interest rates, you've done a good job deleveraging the balance sheet. But maybe if you can just walk us through how you're thinking about your interest rate exposure at this point?

Sure, Brian. Good morning. We are fortunate that in 2019, we had the foresight to enter into a couple of swap hedging arrangements with counterparties on, at the time, $500 million of our floating rate exposure. So, today, we have $717.5 million outstanding under a floating rate LIBOR-based facility, meaning our term loan B. And of that, $500 million is essentially swapped at interest rates. $100 million of that is at interest rates of - at 1.96% and the other $400 million at 2.05%. So, essentially, you can effectively think of us as having swapped our LIBOR exposure at 2%, which, in 2019, didn't look so good, because shortly after we entered into these derivative arrangements, interest rates plummeted. And so, we've been paying our counterparty for the better part of two and a half years a significant amount of money on these swap arrangements. But more recently, one month LIBOR has broken through our swapped level and today, if I look at one month LIBOR, it's about 2.39%. So, today, we are actually getting money each month from our counterparties on these swap arrangements to effectively keep LIBOR at 2%. These arrangements do have an expiration date. On the $100 million notional swap, it expires in October of next year. And then for the $400 million swap arrangement, it expires in October of 2025. So, we're feeling pretty good now going forward that we have these swap arrangements, which effectively hedge us from the rising interest rate environment and exposure going forward. So, effectively, we have a fair bit of our debt in fixed rate situations.

Got it. And then, Mark, last question for me. You guys mentioned in your prepared remarks that you felt like you still had some COVID impact on volumes during the quarter. I mean, same store was not bad at 2.2%, but just thoughts on same-store performance going forward as we see further normalization out of COVID?

Yes. So, we produced about 2.2% of same-center growth here in the second quarter, which is in line with what we've always told folks over the long term that we can and support 2% or 4% long-term same-center growth in our business. Having said that, the growth over the last three or four quarters has significantly outpaced that amount and we've been in the mid to, in some cases, high-single digit on a same-center basis. So, we did see some slowing of our growth in the second quarter here, and we do think that a lot of that has to do with the ongoing impact of COVID, not only with patients and their hesitancy to get exams done, particularly exams that are more elective in nature, and we've noted that in our mammography business, although it is growing year-over-year, it's falling significantly behind the projections that we put together for that modality in 2022. So, we're seeing that both on the patient side, but we're also having an impact from our employee base. Right now, about 1.6% of our employee base is out on COVID leave. That number, interestingly enough, is significantly higher here in California. It's over 3% in California. So, we're experiencing a more difficult COVID situation here in California at this point. So, we're seeing that with our employee base that we've had to rejigger scheduling, thank goodness we have centralized scheduling capabilities that allow us to load-balance patient volumes and redirect patient volumes from a center that might be struggling with its staffing on a particular day to a center that has some capacity and ability to get more patients in that day. So, we've been doing what we can. As Dr. Berger said in his prepared remarks, we've invested significantly in some technologies that rely less on human capital and more on our technical assets to not only drive patient volumes, but to service patient volumes. For instance, we've invested in technology that allows for us to do MRI scanning in a shorter period of time, both on our older equipment as well as our newer equipment, and it uses post-processing software capabilities to clean up images to take shorter exams and still provide the resolution that's necessary for radiologists to effectively read the scans. We've implemented digital waiting rooms that allow for patients to be more effectively called for their exams, and they can wait in their cars in a lot of instances before their exams. So, we've done things to try to rely less on labor, which has been impacted by COVID in a substantial way. And we feel like at some point we're going to get through most of this COVID period and get back to normal, and I think that will be positively impactful on our procedure volumes moving forward.

Awesome. Thanks, guys.

Thank you, Brian.

Thank you. We take our next question from Sarah James with Barclays. Your line is open.

Thank you. You recently commented that you needed the GE plan to get back to normal supply of contrasts by August-September to avoid any business interruptions. Can you update us?

Sure. Good morning, Sarah. Yes. Fortunately, GE has come back online with its primary manufacturing facility in Shanghai. Leading up to that point, we had done a very good job of centralizing our distribution internally to make certain that all of our centers had adequate access to supplies of contrast material. As a result, we're going to take this experience and rethink our own distribution capabilities, as well as the reliance that we've had in the past year to be so heavily dependent on one supplier. I don't think any of us can predict the future here, but we have to certainly learn from our past, where if there are businesses that are particularly affected by pandemics or other kinds of world economic factors, whether they be wars, in addition to health issues, needs to be something that we try to insulate ourselves from as much as possible. That's a long-winded answer perhaps to your question. But right now, I believe that the GE contrast production is probably 80% to 90% or more of its original capacity before the shutdown. So, we fortunately have not experienced any interruption of our scanning as a result of the difficulties with contrast availability and production.

Great. And then can you update us on your joint venture pipeline? How does the scope of it compare to where you guys were last year?

Well, last year, the number of centers that we had in joint ventures with joint venture partners was a little under 25%. At the end of this quarter, we're approaching 30%. And the pipeline is very robust, both with new potential joint venture partners, as well as expanding joint venture partners with new systems that we're currently in conversations with. We particularly like that business strategy for reasons I spoke about during my opening remarks. And all of our joint venture partners, I can say, are very happy with the performance of RadNet. Many of them are now looking to RadNet as being their solution for their outpatient ambulatory services. So, our model of being concentrated in certain markets has led us to more and more joint venture partners. Some of these health systems are beginning to engage us in conversation in markets that we're not in currently, and which we believe could represent a good entry point for us, expanding beyond the seven markets that we currently - or the seven states that we currently operate in. So, as I mentioned here, the goal of the company is to try to achieve half of our centers being in joint ventures with health systems here within the next two to three years or in that time range, and I'm confident that we should come very close to reaching a goal based on current interest and activities that we're undertaking.

Sarah. I'll add one thing. As payers and large health plans - private health plans are getting more aggressive in trying to redirect hospital-based imaging towards the significantly lower cost ambulatory outpatient centers, like the ones that we operate, many of the hospitals are rethinking their strategies of trying to keep as much of that business in-house until they ultimately lose it and are trying to set up structures where they can participate in this trend, as opposed to fight the trend. And so, because of the aggressiveness of the payers in trying to drive the business out of the hospitals, we're seeing a lot of hospitals create ambulatory outpatient strategies. And that's not only happening within the specialty of radiology. We're seeing it with some of our hospital partners. They're doing it with surgery center businesses, outpatient physical therapy, dialysis, home health. And many of these hospital partners have realized that the most effective way in getting into this community-based medicine practice is by partnering with experts who either already have these assets in place or who have a long history of being able to operate ambulatory, non-hospital-based, facility-based businesses more effectively. And so, we've had an easier time in the last couple of years, as the payers have gotten more aggressive to stoke up some of these hospital-based relationships.

That's really helpful, and it touches on my last question. You mentioned earlier that like United, Cigna, Elevance that's been making these network design changes to prefer freestanding centers. Have you seen the full benefit from those payers yet of the shift, and are there any other payors that you work with that have yet to adopt this that could do so in the future?

Well, I believe all of the major payors have adopted it. But this is a big ship and it's going to turn slowly, because it's not just up to the payors to redirect. They have to work in concert with the referring physicians, because, ultimately, the patients are going to take the advice of their referring physicians as to where best to get their imaging. Again, just kind of echoing Mark's comments, that's another reason why making these joint ventures or creating joint ventures with hospitals is a win-win for everybody. And while none of the hospital systems like giving up the revenue that they get disproportionately from their billing structures with imaging, nonetheless, it is an inevitable tide and one where I believe we are seeing some traction, albeit slowly. There are certain of the payors who seem to be more interested in having robust conversations with us, and I think these conversations are not or shouldn't just necessarily be focused on what reimbursement is. This is where, I believe, with our hospital partners, the conversations can be more about screening tools and other ways that we have of managing patients from an outpatient standpoint that's going to produce longer-term benefits for the patients, the health carriers, and the hospital systems themselves.

Very helpful. Thank you.

Thank you, Sarah.

Thank you. Next question is from Mitra Ramgopal with Sidoti. Your line is open.

Yes. Good morning, and thanks for taking the questions. First, I just want to touch on the tight labor market. I know this is going to be a headwind for you this year in terms of significantly higher salary and expenses. Just wondering, where you are on that front in terms of filling the staff you need at the center and admin levels, or is it still a challenge in terms of being able to hire and retain?

I think it's - good morning, Mitra. I'm sorry. It's a challenge, and I think it's a challenge that's here to stay. Healthcare and RadNet, in particular, are no different than almost every other business out there that is experiencing similar labor force challenges. Ours is made even greater because the hospital systems are so aggressive in their hiring that they're able to afford much higher salaries than we could based on the fact that their reimbursement is so much greater than it is in the outpatient sector. So, part of the challenges that we face are not just addressing the labor challenge as a short-term financial issue, but a long-term transition in how we actually operate the business, investing in technology, whether it's artificial intelligence or equipment that can shorten scanning time or ways that can improve the scheduling process are all things that we've been investing for now over the last two to three years, and which I believe are allowing us to mitigate to some extent the labor challenge. But I believe this is going to be a challenge for us and everybody else out there for some time to come, and we need to think about it in a more global way of how we deliver the overall RadNet services and not just function by employee to - employee by employee. So, I think to answer your point, we're not going to see a lessening of these pressures. We can only hope that we improve our unit time of productivity on our equipment and provide a better environment because I think with the technology that we're implementing, it makes it easier on our technologists as we become more capable of having uniform protocols throughout our organization. So, it's a multi-faceted problem and one that we're literally wrestling with every day. But I feel, as stated in our opening remarks, RadNet and its management is up to this challenge.

Yes. To - Mitra, good morning. To Dr. Berger's point about trying to leverage technology as opposed to human capital, one other example of this that I don't think we mentioned on the call was our implementation of remote MRI technologists, where we now have technology in a number of our centers where we can have an MRI tech who is located in one location controlling multiple MRI machines at different locations, so long as there is a tech aide on location that is able to get the patient out of the dressing room, get them on and off the table, put coil - certain body part coils on them and so on and so forth. So, the idea here is to think out of the box and try to figure out how we can leverage technology and not rely on trying to leverage the human capital side of our business.

Okay. No, thanks, that's very helpful. And just switching gears a little on M&A, obviously, you have a lot on your plate right now with the AI investments and the JVs you continue to add. But just curious, on M&A, in terms of if you're seeing more opportunities, especially from a valuation standpoint, given the increased cost of capital and it's more difficult to access capital right now for some of the smaller players.

Yes. I think it's not just the smaller players that have difficulty of access to capital. I think it's the bigger players too that are highly leveraged and may have challenges in terms of trying to expand their businesses under the prior valuations that they were looking at. We think that there's going to be decompression in the marketplace in terms of multiples that people were getting a little bit too comfortable with, both as a result of leverage issues, as well as the rising cost of capital from an interest rate standpoint. So, we've seen a little bit of softening in some people that we would have thought previously might have commanded a higher multiple. And I think there is more people out there today as a result of some of these other economic factors that are going on today. So, I think the acquisition marketplace, at least for RadNet, looks very healthy and one in which I think we can be, as we have been in the past, very disciplined in how we attract and bring in new operators into the RadNet family. So, we actually think this, whether it's reimbursement cuts, increased interest rates, high leverage, all of which we have found a very good comfort level with, will inure to our benefit going into the future, and will continue to separate out RadNet as the premier provider of outpatient imaging services in the country.

Yes. And one other thing I would add to that is that we had an experience like that. So, we can draw on our experience from back in 2009, '10, '11, after the credit crisis when the economy went into a pretty severe recession. That created a wave of consolidation in our industry, which we were a big beneficiary of, where a lot of the weaker players started having financial issues, leverage issues, access to capital issues, and we were able to provide them a solution to join a bigger, better capitalized, more stable home for their patients, the referring physician communities, the radiologists. And should the economy continue to be challenged, should the labor market issue continue into the future, I think, given our relative position with low leverage, access to capital, market position in our geographies, I think we're in a very good position to capitalize on opportunities that I would expect to see in a difficult economy.

Okay. No, that's very helpful. And finally, just wondering if you could maybe provide a quick update in terms of what you're seeing in the Phoenix market. I believe, at one point, it was sort of lagging your expectations and just curious if it's maybe now back on track.

I don't think it's quite back on track, but there are a number of initiatives that we undertook earlier this year, namely, building two very large premier centers along with our joint venture partner, the Dignity Health system. That will be a game-changer for us in that market. So, we're very happy with our entrance into the Arizona market. We think that there is a lot of opportunity, perhaps more so in that market than there are in other markets, and it's just required patience and investment, which, almost like every other market we've been in, has come back to benefit the company long term. So, I think we'll be able to report more of the success in that marketplace in the upcoming quarters of this year. But we're as enthusiastic about the Arizona market as we ever were, and look forward to being able to discuss that with you in greater detail in the third and fourth quarters.

Okay. Thanks again for taking the questions.

Thank you.

Thank you. It appears there are no further questions at this time. I like to turn the call back to you, Dr. Berger, for any additional closing comments.

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 through these challenging times. 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 we look forward to our next call. Stay well.

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