Good day, and welcome to the RadNet, Inc., Third Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Mark Stolper, Executive Vice President and CFO of RadNet. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's third quarter 2024 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, 2023. 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 third quarter 2024 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. Again, I am very pleased with our performance in the third quarter. It was the strongest quarter in our company's history with record revenue and adjusted EBITDA. Relative to last year's third quarter, total company revenue increased 14.7% and our Digital Health revenue increased 34.3%. Imaging Center revenue growth was driven by heavy demand in virtually all of our markets, benefiting from the increasing utilization of diagnostic imaging within healthcare as well as the continuing shift of procedural volumes away from the more expensive hospital alternatives to ambulatory freestanding centers like the ones we operate. Also contributing to the strong revenue performance was the positive impact of improved reimbursement from our payors, who recognize the important role we are playing as a lower-priced alternative to hospital-based imaging. Lastly, our top line is benefiting from a continuing shift in modality mix towards advanced imaging, MRI, CT, and PET/CT, where our revenue per scan is substantially higher than with routine imaging. During the third quarter, advanced imaging represented 26.7% of our procedural volume, an increase of 142 basis points from last year's same quarter. This is both a function of an overall industry trend of more of these exams being ordered as a result of technology advances in these modalities, and the significant capital investments we have made in the last several years in advanced imaging equipment for growth and replacement. Contributing to the strong revenue growth within Digital Health were the AI businesses, including our AI-powered EBCD breast cancer screening program, which grew 75.8% quarter-over-quarter from last year. Adjusted EBITDA was also a quarterly record. While the strong revenue results contributed to more EBITDA, our focus on operational efficiency, improved management and utilization of labor, investments in information technology, and effective cost controls contributed to a 27.2% increase from last year's third quarter. Another contributing factor to adjusted EBITDA growth was the disproportionate growth in the higher profit margin Digital Health businesses. Cumulatively, these factors drove a 156-basis-point increase in our adjusted EBITDA margin as compared with last year's third quarter. While we are pleased with this margin expansion, I remain convinced we have further opportunity to improve margins in the future. The strong operating results in the third quarter relative to our internal budget resulted in our decision to increase 2024 full-year guidance ranges for revenue, adjusted EBITDA, and free cash flow, which we also increased after reporting our first and second quarter's financial results. 2024 continues to be a year of investment in our business. Year-to-date, we have opened five de novo facilities, and we have three additional anticipated site openings for the remainder of 2024. Moreover, we have 15 additional projects in development, which we intend to open during 2025. These de novo facilities are split almost equally between wholly-owned and joint-venture centers and are located in markets where we have patient backlogs, require additional capacity, or where we currently lack access points to service identified patient populations. While these projects are requiring us to make capital investments above our normal spending, we are confident that these centers will be material contributors to our long-term performance and growth. We continue to grow our hospital and health system joint-venture businesses. Currently, 152 of our 399 centers, or 38.1%, are held within health system partnerships, which includes two imaging centers that were jointly opened in the third quarter with the University of Maryland Medical System and one inside our three-way joint venture in the San Fernando Valley in Los Angeles with Cedars-Sinai and Providence Health System. These and other systems are seeking long-term strategies around outpatient imaging and have recognized that cost-effective and efficient freestanding centers will continue to capture market share from hospitals, as payers and patients both migrate to the site of care towards lower-cost, high-quality solutions. Our hospital and health system partners have been instrumental in increasing our procedural volumes with their physician relationships. We continue to gain momentum with initiatives inside the Digital Health segment. Some of you may have seen last week that we announced the first customer for a suite of solutions powered by the DeepHealth OS. ONRAD, a full-service radiology provider to more than 120 hospitals, radiology groups, and imaging centers, will implement a variety of DeepHealth OS solutions to streamline its clinical and operational workflow, including deploying the DeepHealth OS in advanced viewer and smart reporting features. ONRAD, who is a new customer to us, meaning that it does not use any of the legacy eRAD or DeepHealth solutions, will begin implementation of the DeepHealth OS solutions in the first quarter of 2025. Additionally, earlier this morning, we announced a collaboration with GE Healthcare aimed at accelerating the adoption of AI-powered workflows and clinical solutions through smart technologies. This collaboration brings together GE's healthcare legacy in bringing innovative hardware solutions to our industry with DeepHealth's leading-edge AI-powered digital solutions. Our shared objective is to make imaging hardware more capable, enriching diagnostic equipment with AI-powered workflow and clinical solutions to better service clinicians and patients in all imaging settings. Our first offering with GE is in the area of mammography, where bringing together DeepHealth's SmartMammo solution and GE's Senographe Pristina Mammography unit will improve speed, clinical accuracy, operational efficiency, and improve patient care. SmartMammo is a DeepHealth AI-powered SaaS solution designed to seamlessly integrate into existing breast cancer diagnostic workflows, enhancing diagnostic accuracy and workflow efficiency. By incorporating imaging informatics into advanced mammography systems, the SmartMammo solution can support high-volume breast cancer screening programs. SmartMammo can prioritize cases based on suspicion level and ensure seamless integration and interoperability with existing healthcare IT infrastructure. As one of its advanced features, integration of SmartMammo with GE's Senographe Pristina Mammography unit will include Smart Alerts, a workflow solution that alerts rapid AI processing, with the goal of notifying imaging sites of cases with potentially suspicious lesions in minutes. This kind of solution aims to empower earlier diagnostic examinations, follow-ups, compliance, and reduced anxiety for women with potentially suspicious findings. The GE DeepHealth collaboration agreement will enable GE Healthcare to distribute SmartMammo and other DeepHealth solutions to imaging providers in the United States as part of GE Healthcare's comprehensive portfolio of imaging technologies. In addition to collaborating on SmartMammo, we and GE Healthcare intend to explore areas of further collaboration for smart technology solutions in other modalities and clinical domains, expanding the access to and impact of AI-based workflows. In our booth at the RSNA convention in Chicago, we will be demonstrating, among other things, SmartMammo with a GE Pristina unit, DeepHealth OS workflow solutions, our breast, prostate, and lung AI solutions, as well as other technologies. DeepHealth Solutions will also be demonstrated in the booths of GE Healthcare and Siemens, where we are demonstrating an ultrasound integration with DeepHealth technology. We are meeting with dozens of potential customers and partners at the convention, and through Barclays and Jefferies, we will be hosting investor presentations at our booth on December 2nd and 3rd. We encourage anyone listening today to reach out to Barclays or Jefferies should you want to join one of these investor presentations at our booth. At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2024 results. When he is finished, I will make some closing remarks.

Thank you, Howard. I will now provide a brief overview of our third quarter 2024 performance and highlight some significant items. I will also explain certain aspects of our financial statements and share insights into the metrics that influenced our performance during this quarter. I will refer to adjusted EBITDA, which is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, and amortization. It excludes losses or gains from equipment disposals, other income or loss, debt extinguishment losses, and non-cash equity compensation. Adjusted EBITDA includes equity earnings from unconsolidated operations and deducts earnings allocations to non-controlling interests in subsidiaries, adjusting for any non-cash or extraordinary events during the period. A detailed reconciliation of adjusted EBITDA to net income attributable to RadNet, Inc. shareholders is provided in our earnings release. Now, let's review our third quarter 2024 results. RadNet reported total revenue of $461.1 million and adjusted EBITDA of $73.7 million for this quarter. Revenue increased by $59.2 million, or 14.7%, and adjusted EBITDA grew by $15.7 million or 27.2% compared to the third quarter of 2023. Looking at our individual segments, the Imaging Center segment generated revenue of $452.4 million and adjusted EBITDA of $70.4 million. This reflects a revenue increase of $56.8 million or 14.3% and adjusted EBITDA growth of $14.8 million or 26.6% compared to the same quarter last year. This strong performance was driven by high procedure volumes, improved reimbursement rates from commercial and capitated payers, a shift towards advanced imaging, and effective expense management. The Digital Health segment recorded revenue of $16.4 million and adjusted EBITDA of $3.2 million, marking a revenue increase of $4.2 million or 34.3% and an adjusted EBITDA increase of $950,000 or 41.7% compared to the third quarter of 2023. The notable growth in Digital Health was partly due to a $2.2 million or 75.8% rise in AI revenue, totaling $5.1 million this quarter. Total net income for the third quarter of 2024 was $3.2 million, compared to $17.5 million for the same quarter last year. Fully diluted net income per share was $0.04 this quarter, down from $0.25 in the third quarter of 2023. Several unusual or one-time items affected the third quarter, including $8.1 million in non-cash losses from interest-rate swaps, $304,000 in severance expenses for cost-saving initiatives, $1.3 million in lease expenses for facilities under construction, $3.3 million in non-capitalized research and development expenses related to DeepHealth Cloud OS and generative AI, $417,000 in acquisition transaction costs, and $147,000 in losses associated with debt extinguishment and related expenses. After adjusting for these items, total company adjusted earnings were $3.3 million, and diluted adjusted earnings per share were $0.18 in the third quarter of 2024, down from $8.8 million and $0.13, respectively, in the prior year's third quarter. For the third quarter of 2024, MRI volume increased by 14.6%, CT volume by 15.5%, and PET/CT volume by 23.8%. Overall, including routine imaging exams such as X-ray and ultrasound, total volume rose by 9.0% compared to last year's third quarter. On a same-center basis, MRI volume grew by 9.9%, CT volume by 9.8%, and PET/CT volume by 16.8%, with overall same-center volume for routine imaging exams increasing by 5.5%. In total, we performed 2,738,007 procedures in the third quarter, with 73.3% of the work in routine imaging. Dr. Berger noted a continuing shift toward higher acuity procedures, with advanced imaging procedures accounting for 26.7% of total procedures this quarter, up from 25.3% last year. Enhanced pricing and margins from advanced imaging contribute positively to our financial results. Overall GAAP interest expense for this quarter was $19.4 million, compared to $16.1 million in the previous year's third quarter. Cash interest expense this quarter, including net payments and income from interest rate swaps, was $4.3 million, down from $11.7 million last year, primarily due to increased interest income from a larger cash balance. Regarding our balance sheet, as of September 30, 2024, our unadjusted net debt was $261 million, which is our total debt minus our cash balance. This amount includes our 49% share of New Jersey Imaging Network's debt at $136.9 million, where RadNet is not a borrower or guarantor, and our 49% share of NJIN's cash balance of $86.4 million. This compares to $498.3 million in net debt as of September 30 last year. We were undrawn on our $282 million revolving line of credit and had a cash balance of $748.9 million. Our accounts receivable balance was $199 million, an increase of $35.4 million from year-end 2023, mainly due to increased business and revenue. Our days sales outstanding, or DSO, was 35.7 days at September 30, 2024, close to a historical low. Through September 30, we had a total of $127.5 million in capital expenditures, net of equipment sales. This includes $6.9 million under equipment notes and excludes $15.5 million of New Jersey Imaging Network capital expenditures and a one-time software code purchase of $9 million. I would like to update our 2024 financial guidance levels. Given the positive trends in nearly all areas of our business and strong financial performance in the first nine months, we are raising certain guidance levels in anticipation of results that we believe will exceed our previous expectations. For revenue, we now forecast between $1.710 billion and $1.760 billion, which is a $25 million increase in our guidance. We have also raised our adjusted EBITDA guidance for the Imaging Center segment by $5 million, now projected to be between $262 million and $270 million. Our capital expenditure guidance is now between $145 million and $155 million due to increased spending on our de novo facilities; we expect to open three by the end of this year and 15 in 2025. Our cash interest expense is now projected to be between $25 million and $30 million, reflecting a larger cash balance than anticipated and increased interest income. Our free cash flow guidance has also increased to a range of $83 million to $93 million, up by $10 million to $13 million. For the Digital Health segment, our guidance remains largely unchanged, although we have increased spending by $1 million on non-capitalized R&D related to the Digital Health cloud-based OS and generative AI initiatives. I'll conclude my remarks with an update on 2025 Medicare reimbursement. As a reminder, Medicare reimbursement represents 22% of our business mix. With respect to Medicare reimbursement in July of this year, we received the matrix of proposal rates by CPT code, which is typically part of the proposal that is based on the physician fee schedule released about that time every year. At that time, we completed an initial analysis and compared those rates to 2024 rates. We volume-weighted our analysis using expected 2025 procedure volumes. As you may recall, four years ago, 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 at that time with budget neutrality, meaning that they proposed to reallocate reimbursement from physicians who rarely bill for these evaluation and management codes to physicians who regularly bill for these codes. As a result, radiology and most other specialties experienced cuts in reimbursement from 2021 through 2024. The cuts we are currently experiencing in 2024 were substantially mitigated by congressional legislation that was passed in March of this year as part of the consolidated legislation. In the proposed rule we received in July for governing 2025 reimbursement, it appears that Medicare is phasing in the remainder of the evaluation and management code-related cuts implemented this year. The cut proposed for 2025 results from a decrease in the conversion factor in the Medicare fee schedule by about 2.8%, along with certain minor changes to RVUs of specific radiology CPT codes. Our initial analysis of the proposal for next year implied that RadNet, on roughly $1.8 billion in revenue would face an approximately $6 million to $8 million revenue hit in 2025 from its Medicare business. Medicare's final rule, which was released at the end of October, was consistent with the initial proposal in July. Because the proposed decrease in the conversion factor affects all physicians, not just radiologists, there have been many lobbying groups from various medical specialties aggressively opposing the cut. In response to the cuts, Representative Greg Murphy, a Republican from North Carolina, along with seven bipartisan co-sponsors, introduced the Medicare Patient Access and Practice Stabilization Act. The bill would provide a 4.73% increase to the Medicare fee schedule conversion factor for calendar year 2025, essentially mitigating the 2.8% final rule that Medicare just released and increasing Medicare reimbursement in 2025 by 1.93%. We expect that this bill will be put forth for vote in Congress sometime next month, at which time we will have more clarity on 2025 Medicare reimbursement rates. I'd now like to turn the call back over to Dr. Berger, who will make some closing remarks.

Thank you, Mark. This is most definitely the most exciting time I've seen in our industry. Diagnostic imaging is entering a time of transformation and RadNet seeks to lead the industry forward during this dynamic period. The trends for RadNet and the rest of the outpatient imaging industry are strong and are projected to be sustainable for years to come. We continue to experience growing procedural volumes, driven by advances in equipment, contrast materials, radioactive isotopes, post-processing software, and more recently, artificial intelligence. Patients are more frequently being directed away from hospitals to more cost-effective ambulatory sites of care like the centers RadNet operates. There's a greater focus on using diagnostic imaging for population health, preventative medicine, and screening programs. Most importantly, we are at the beginning of an acceleration in technology from generative and clinical AI that will transform the way our industry operates and delivers its services. These advances will increase patient access, improve the patient experience, increase the productivity and accuracy of radiologists, and most importantly, improve patient outcomes. It is our objective to position RadNet to be on the leading edge of this transformation by doing this both in our core Imaging Center business and within our Digital Health initiatives. Inside our core business, we are focusing on growth areas such as prostate, Alzheimer's and cardiac imaging, which are being enabled by advances in equipment, software and radiopharmaceuticals. We are partnering with health systems to provide patients with better access and lower-cost solutions, advancing population health screening programs for breast, lung, prostate and cardiac disease, and testing alternative site opportunities within Walmart and retail malls. Digital Health is making significant progress with initiatives that are poised to help us drive more revenue, reduce costs, and increase margins. To this end, we are excited about the commercial launch of DeepHealth OS in a few weeks, which is a delivery platform for solutions that automate office processes and more effectively manage patient and clinical data, including automating patient scheduling, clinical reporting, medical coding, sales and marketing, and clinical workflows. In parallel to the DeepHealth OS development, we continue to grow revenue from clinical AI solutions for breast, lung, and prostate cancer screening. Our breast AI is improving the productivity and accuracy of our radiologists while providing a valuable benefit to our patients for which they are willing to pay out of pocket. We are formulating similar screening programs for prostate, lung, and other chronic diseases for both domestic and international markets as we firmly believe that healthcare needs to shift towards prevention and early detection, and not just focus on treating patients who are already sick. Finally, as we discussed this morning with the GE Healthcare announcement, we are also working with imaging equipment manufacturers to bring SmartTechnology solutions to the equipment marketplace that will greatly benefit all stakeholders, including radiologists, technologists, imaging center staff, referring physicians, and patients. Operator, we are now ready for the question-and-answer portion of the call.

Thank you. We will now begin the question-and-answer session. Our first question today will come from Brian Tanquilut with Jefferies. Please go ahead.

Hey, good morning guys and congrats on the GE deal in the quarter. So maybe Howard and Mark as well, just on the GE announcement this morning, if you could share with us just more details on how that contract or that agreement actually works? And what exactly does the SmartMammo cover? And how different is this from your EBCD offering in terms of what the eventual client/radiology clinics would have access to or be able to offer in terms of clinical services through your AI platform? Thanks.

Good morning, Brian. I hope you're well. First, let me start by saying that the major component of SmartMammography is the embedding of the DeepHealth operating system onto, in this case, the GE Senographe Pristina Mammography System. What that means is that the capabilities of the AI solutions, both clinical and generative, will be embedded onto the gantry of the GE mammography system, allowing essentially for a turnkey operation. As you are well aware, we have begun, for example, deploying mammography systems in malls and Walmart locations. This system will allow us to plug and play. We will be able to install these systems and simply need a power source and a connection to the Internet to essentially make this function in the same way that a patient coming into a RadNet center would experience. In other words, all of the information systems and clinical tools, which would include the EBCD program as part of our AI clinical package, will be available as part of an offering that the GE Healthcare system and their marketing and sales force will help distribute for us. This will allow faster deployment of these systems not only in traditional imaging settings but in non-traditional sites where imaging can be performed, like in Walmart and mall locations. We believe that there are other opportunities for distribution of this type of network of equipment that will help facilitate access and compliance, making it possible for about a third of the female population to get early breast cancer screening. So, the best way to look at this is that it's a collaboration between GE with their mammography system and RadNet with their DeepHealth AI tools to create an environment for easy access and effective distribution of information, since the DeepHealth system is a cloud-native system. This means faster turnaround times for reporting results and improved navigation of patients into the next appropriate step in their mammography or breast screening programs. Did I leave something out there, Brian, that you'd like me to elaborate on further?

No, that's really helpful, Howard. And then maybe just one comment that you made earlier is that you see an opportunity to drive margins further up. So just curious how you're thinking about the composition or the drivers of that. Thanks.

Well, the improving of margins is really where we expect the DeepHealth operating system, which we have already begun to deploy some of the modules inside RadNet's centers, will streamline activities currently dependent on manual processes relative to scheduling, reporting tools, data migration to the cloud, retrieval of medical records, revenue cycle management, coding, as well as other functions. We expect to be able to process patient demands and needs more rapidly and accurately, making our employees more effective in their use of these systems. The response of the DeepHealth platform addresses an existential challenge that healthcare has, particularly in radiology, with the shortage of both radiologists and support staff required to facilitate the patient experience.

All right. Got it. Thank you, Howard.

Thanks, Brian.

Hey, good morning. I just want to unpack this GE deal a little bit. Who are your primary targets for selling the solution to? And who's going to be responsible for that selling? Is it going to be yourself? Is it going to be GE? Should we think about Walmart being one of the top potential suspects in terms of getting this rollout?

Well, the prospects for this are obviously current hospitals and outpatient imaging center providers. But there's a larger market beyond this in what we refer to as alternative or non-traditional imaging locations, such as what we are piloting with Walmart and retail malls. When you consider the potential market for this, it is substantially larger than just the existing conventional market. In addition, we think that there are other market opportunities. There are companies looking to provide mammography in OB-GYN offices where women typically come for their wellness visits. For this, this equipment provides a good opportunity given that it operates as a turnkey solution that simply requires a power source and an Internet connection to perform the mammogram and integrate seamlessly into patient management systems for billing, medical records storage, and retrieval, while utilizing clinical AI for interpretation. This collaboration will enable RadNet to install these systems in multiple locations and work closely with GE’s extensive sales and marketing force, not just in the US but globally, for broader penetration of these products. We view this as a fundamental collaboration, not just in creating the product and deploying it, but also in educating both parties for making inroads as quickly as possible. We will also look to sell the DeepHealth platform that can integrate with other mammography systems, but nothing will have the integration level that currently exists between the GE Pristina mammography system and DeepHealth.

Okay. And then just kind of switching gears, Mark, I know we're not giving '25 guidance today, but I know you talked about the Medicare headwind, you've talked about the de novos. What are some of the other puts and takes we should think about when we build out our '25 models?

Sure. And obviously, we issued guidance. We will issue 2025 guidance at the end of February of next year. And we're going through our budgeting process today. So, I don't want to go too deep into it, but I will say, as you mentioned, the headwinds potentially on the Medicare side could be as much as a $6 million to $8 million headwind should the final rule go into effect as proposed, but we do think our experts believe that this will be either partially or fully mitigated with the congressional bill I referred to in my prepared remarks. The other challenge we face, like every other healthcare company in radiology and beyond, is the increase in cost and the availability of labor. We've been managing through that as best we can. It's been inflationary as we've had to pay more to attract and retain talent. On the positive side, the business continues to experience heavy demand; we have backlogs in virtually every market in which we operate. We're actively building new facilities to meet the high demand. We anticipate opening three centers before year-end, with 15 more de novo projects lined up for 2025, along with additional projects that extend beyond that. We are also aggressively expanding our hospital joint ventures; we added three additional sites to joint ventures in the third quarter, two within the University of Maryland system, and one here in Los Angeles with Cedars and Providence Health System. We will announce new relationships with partners and new joint ventures going forward. We're continuing to experience shifts toward advanced imaging modalities, with over a 140 basis-point shift this third quarter in favor of MRI, CT, and PET/CT, which bring higher revenue and margins. We believe this trend is sustainable moving forward, not just from our aggressive investment in those technologies, but due to ongoing advances across the industry. We will continue to pursue small tuck-in acquisitions, with an active pipeline today. Lastly, all the growth we anticipate within the Digital Health segment will support our outlook next year, along with the anticipated commercial launch of our DeepHealth OS product in 2025.

And just lastly for me, the structure of your deal with GE, is this a software license? And just how does that work?

Hi, John, it's Dr. Berger again. Yes, this is a software licensing arrangement with GE. They will, through their sales and marketing force, distribute that for us on their equipment. We will, of course, as I mentioned earlier, also be pursuing sales directly to other providers and in other opportunities where the benefits of our DeepHealth program can be illustrated. It's a licensing product or program currently, and it has the capability of also being SaaS-based. We are exploring various models because some clients might prefer a capital investment while others may want to approach this as a variable expense. We not only put the clinical AI tools like the EBCD program and reporting tools on the system, but also the office-based generative AI tools that manage the rest of the other office requirements like scheduling and billing in a turnkey operation.

Okay. Thank you.

Thank you, John.

Hi. Good morning. This is Evan on for Andrew. During the quarter, we saw AI revenue decrease nearly 10% sequentially versus Q2, while mammography volumes remained largely constant. What were the underlying drivers of that? And do you still expect the AI business to exit the year profitable? Thank you.

Thank you for the question. I should have mentioned this earlier. In Q2, we had a $600,000 implementation fee related to our AI businesses that won't recur in 2023. If you adjust for that, the AI business grew sequentially by about $100,000 to $200,000, which I should have highlighted. Regarding your second question, yes, we still expect the AI business to reach profitability in the fourth quarter and continue into 2025.

And just a quick follow-up. What is the current EBCD adoption rate on both the East and West Coast? Thanks.

The adoption rate on the East Coast, where it's now been implemented for close to two years, is approaching 45%. We aim to get it to 50%, and early trends make us confident we can achieve that by 2025. On the West Coast, the adoption rate is closer to 30%, but that figure is somewhat diminished due to the large capitation program we have here, which we're negotiating to integrate the EBCD program by obtaining higher revenue. So, if we exclude the capitation aspect, the adoption rate on the West Coast with its shorter implementation time would likely be closer to 40%.

Thanks for the color.

Great, thanks, and good morning, Howard, and good morning, Mark. I want to follow up on the Digital Health question regarding the GE collaboration. Do you have any timelines on when they will integrate your software into an existing machine? Considering the usual OEM timeframe, could you provide an estimate on when these products will be available for commercialization?

Good morning, Larry. The commercialization efforts will really kick off at the RSNA, where we will have the SmartMammo both at our booth and the GE booth at McCormick Place, where the meeting is held in Chicago. Those tools are tested and pending final FDA approval, which we hope will come through soon, potentially before the first quarter of 2025. However, the initial tools and systems are ready for rollout in early 2025.

Got you. Can you provide an update on your efforts to establish partnerships with hospitals and collaborate with large healthcare physicians, as well as any acquisitions? Also, how is the progress in Houston going, particularly with the recent tuck-in acquisitions aimed at developing a new location? I'd appreciate any updates on those developments. Thanks.

As Mark mentioned, we have an active pipeline of acquisition opportunities, both small and large, that we're considering. We have a substantial cash balance and are looking to deploy it on both the DeepHealth side and Imaging Services side. We've got 15 new de novo centers in various stages of construction that will open throughout 2025, along with three more expected to be operational this quarter. Our capital is being deployed across all areas to drive more revenue. We are also identifying opportunities that could drive advantages in the AI space, where acquiring critical AI tools could save us time and costs compared to building them ourselves. The AI tools we currently have focus on cancer screening for breast, lung, and prostate, but we're also looking for efficiency tools to assist with our routine work in ultrasound and X-ray. This continued effort is crucial for us as we expand joint ventures with hospital systems, which we believe, once they understand the DeepHealth and SmartTechnology benefits, will enhance their partnerships with RadNet further, even beyond those currently established.

Hi, good morning, and thanks again for taking the questions. You talked about the program in the UK for screening for lung cancer. What are the hurdles you need to implement that in the US?

That's a question that unfortunately doesn't have a straightforward answer. The primary difference between the UK and the US is that the UK has the National Health Service (NHS) managing over 90% of healthcare for its population. Therefore, once they adopt a program, it can be effectively implemented. In the US, we lack a similar streamlined model. Despite lung cancer being recognized as a significant health risk, currently less than 5% of eligible patients are accessing screenings. The hurdles include long processes for authorizations and consultations before patients can receive scans, which is very different from breast cancer screening. Here, women can self-refer, which is not the case for lung cancer. It’s essential to remove these barriers to ensure significant uptakes in lung screenings across the country. Right now, the NHS is working toward having at least 80% of at-risk patients screened by a similar program within a couple of years. We must address these logistical and social challenges to increase the number of people receiving lung screenings in the US.

That said, using these successful models from the UK to engage payers here in discussions about widespread preventive health screening could be beneficial. We are currently seeking FDA approval for the Aidence lung and DeepHealth product in the US, which we anticipate receiving mid-year 2025. That will enable us to launch similar programs.

With the new administration coming in, do you see any new risks for your business or any new opportunities, and how do you think you'll adapt?

I’m not sure the new administration coming in really impacts our business significantly. The previous administration was supportive of many of the healthcare initiatives. We may see some changes in reimbursement under the new administration, but we're following this closely too see how it might affect the operations.

There's one area where we could see an improvement in healthcare: regulatory processes. Currently, there are substantial hurdles concerning growth, particularly for mergers and acquisitions, that need to be cleared for sizable acquisitions. I believe those barriers will reduce under the new administration, allowing for more efficient scaling to deliver cost-effective healthcare, which will be beneficial.

Right. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Berger for any closing remarks.

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 to endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you all for your time today and for sharing this important and exciting journey with us. I look forward to our next call. Good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.