Good day, and welcome to the RadNet, Inc. First Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. Please note today's event is being recorded. I would now like to turn the conference over to Mark Stolper, Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. And thank you for joining Dr. Howard Berger and me today to discuss RadNet's first quarter 2025 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 make RadNet's actual results 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, 2024. 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 and to reflect new information, events, or circumstances after they are 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. Thank you for joining us today. Mark and I will share highlights from our first quarter 2025 results, discuss the factors influencing this performance, and outline our future strategy. After our remarks, we will open the floor to your questions. I appreciate your interest in RadNet and for taking the time to join the call. As we mentioned at the end of February, when we released our fourth quarter 2024 financial results and guidance for 2025, we noted that the first quarter of 2025, particularly January and February, was significantly affected by severe weather in the Northeast and Houston, Texas, as well as wildfires in Southern California. We estimated this negative impact to be around $22 million in revenue and $15 million in EBITDA, and this was factored into our full-year guidance for 2025. While the severe weather and wildfires impacted our first quarter results, I am pleased to say that our business bounced back in March, April, and early May, demonstrating strong growth trends. I can report that these issues are now behind us, and our business is showing strong procedural and revenue growth that is consistent with our recent performance. Several noteworthy items emerged during this quarter. First, we continue to see a gradual shift towards Advanced Imaging. In this quarter, 26.9% of our procedural volume came from Advanced Imaging, up from 25.7% in the first quarter of last year, reflecting a 126 basis point increase. This change is a result of overall industry trends and significant capital investments we've made in Advanced Imaging equipment for both growth and replacement. Additionally, despite the adverse weather and fire conditions, aggregate PET/CT volumes grew by 22.9%, driven by an increase in newer prostate and brain procedures. Since PET/CT exams are typically used to identify late-stage cancer or detect plaques associated with Alzheimer's or dementia, these procedures were less impacted by severe winter weather and wildfires compared to other areas of our business. Due to the operational strength observed in March, April, and early May, we have revised our 2025 revenue and adjusted EBITDA guidance upwards. Despite the challenges from severe weather and wildfires, we advanced critical operating and digital health initiatives in the first quarter. Among these is the ongoing implementation of the TechLive remote technologist solution. Radiology technologists represent nearly 40% of our workforce, and their high demand coupled with a shortage creates challenges in expanding hours to meet strong local demand, leading to rising labor costs. The DeepHealth technology allows technologists to operate equipment remotely, enabling coverage of otherwise unstaffed shifts, and in many instances, allowing them to control multiple scanners simultaneously. We have installed TechLive on 255 of our nearly 400 MOI scanners and are testing it on ultrasound scanners, where effectiveness depends on the training and experience of technologists. We believe this technology will positively affect revenue and reduce operating costs. Moreover, the EBCD digital DeepHealth AI-powered breast cancer screening program continues to grow. Despite the challenges from weather and fires, EBCD adoption rose from nearly $3 million in the first quarter of 2024 to over $4 million in the first quarter of 2025, marking a 33% increase. Nationally, we are currently seeing a blended adoption rate exceeding 40%. More cancers are being detected earlier at our centers that may have otherwise gone unnoticed, increasing our radiologists' productivity. In the first quarter, we enabled our first third-party EBCD customer, OB/GYN Specialists of the Palm Beaches, to offer AI-enhanced breast screening to their patients. They serve nearly 6,000 women across ten locations in Southeast Florida and are now providing state-of-the-art mammography, along with EBCD and expert radiologist interpretation. Currently, over 50% of OB/GYN Specialists' patients are adopting EBCD as part of their mammography screening. Our contracted board-certified breast imaging radiologists are interpreting all mammography and diagnostic screening exams conducted at OB/GYN specialist locations. This point-of-care model represents a new growth opportunity for RadNet and DeepHealth, not just in mammography but also in X-ray and ultrasound. DeepHealth is collaborating with various equipment manufacturers to develop technology that will facilitate more routine imaging access for patients. Subsequent to the end of the quarter, on April 15th, we announced the acquisition agreement with iCAD Inc., a global leader in clinically proven AI-powered breast health solutions. The combination of iCAD's extensive breast health suite and RadNet's DeepHealth AI-powered breast screening solutions positions us to substantially enhance patient diagnosis and outcomes globally through improved accuracy and early detection. With over 1,500 healthcare provider locations and more than 8 million annual mammograms processed in 50 countries, iCAD's established base, along with their strong sales, engineering, and marketing capabilities, will provide us immediate valuable customer relationships and commercialization opportunities, accelerating our existing DeepHealth initiatives. This business combination aims to solidify our leadership in AI-powered breast cancer screening and strengthen our commitment to population health. We anticipate the transaction will close in the second quarter or early third quarter of 2025, contingent on iCAD shareholder approval and other customary conditions. We are also witnessing growth in our hospital and health system joint venture business, with 154 of our centers operating within system partnerships, including two new facilities launched in the first quarter within the New Jersey Imaging Network joint venture with RWJBarnabas Health System. We expect to establish new joint ventures with other health systems and to expand existing ones throughout 2025. Health systems are continuously seeking strategies for outpatient imaging and have acknowledged that cost-effective freestanding centers will continue to gain market share from hospitals as both payers and patients prefer lower-cost, high-quality solutions. Lastly, we maintain strong liquidity and modest financial leverage, ending the first quarter with a cash balance of $717 million and a net debt to adjusted EBITDA ratio of just over one. We have an active pipeline of acquisitions under review for both our Imaging Center and Digital Health divisions, and we are confident we'll be able to invest our cash balance in opportunities that will support RadNet's strategic goals. I will now turn the call back to Mark to discuss some of the highlights of our first quarter 2025 performance. After he concludes, I will provide some closing remarks.

Thank you, Howard. I'm now going to briefly review our first quarter 2025 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 insight into some of the metrics that drove our first quarter performance. I will also provide an update to 2025 financial guidance levels, which were released in conjunction with our 2024 year-end results in February. In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments, and noncash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries and is adjusted for noncash 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 first quarter 2025 results. As Dr. Berger highlighted in his prepared remarks, the first quarter was marked by the severe winter weather conditions in the Northeast and the California wildfires, significantly distorting any meaningful comparison to last year's first quarter results. These extraordinary events were fortunately confined to January and February as our business bounced back nicely in March and revenue and procedure volumes have been strong since. While I won't recap all the financial information that's contained in yesterday's earnings report, here are some of the highlights. For the first quarter of 2025, RadNet reported total company revenue of $471.4 million and adjusted EBITDA of $46.4 million. Revenue increased $39.7 million or 9.2% and adjusted EBITDA decreased $12.1 million or 20.6% as compared with the first quarter of 2024. Adding back the estimated $22 million impact from the weather and fires to revenue in the first quarter of 2025, revenue would have increased 14.3% from last year's first quarter. And adding back the estimated $15 million impact from the weather and the fires on adjusted EBITDA for the first quarter of 2025, adjusted EBITDA would have increased 5% from last year's first quarter. As a reminder, in general, the first quarter from a seasonality perspective is always our most challenged quarter. Among other things, this is due to increased payroll taxes, the expensing of employee bonuses, the front-loading of our capital expenditure budget and lower healthcare utilization in general as a result of the annual reset of deductibles. The Digital Health segment reported revenue of $19.2 million and adjusted EBITDA of $3.7 million in the first quarter. Revenue increased $3.6 million or 31.1% and adjusted EBITDA increased $191,000 or 5.4% as compared with the first quarter of 2024. Digital Health growth was driven by 33.3% growth in AI revenue, mainly as a result of the improved adoption of EBCD and 30.1% growth in radiology software, mainly from more intercompany revenue driven by aggregate procedure volume growth in RadNet's core imaging centers. We finished the first quarter of 2025 with a strong cash and liquidity position. At quarter end, we had $717 million of cash on the balance sheet, full availability of a $282 million revolving credit facility and a term loan that is priced at SOFR plus 225 basis points reflective of the refinancing transaction we completed last April and the repricing transaction we completed in November. Continued improvement in revenue cycle has kept our DSOs, or days sales outstanding, at 33.3 days, slightly lower than where we were at this time last year. With regards to our financial leverage, as of March 31, 2025, unadjusted for bond and term loan discounts, we had $285.5 million of net debt which is our total debt at par value less our cash balance. Note that this debt balance includes RadNet's ownership percentage of New Jersey Imaging Network's net debt of $39.9 million for which RadNet is neither a borrower nor a guarantor. At quarter end, our net debt to adjusted EBITDA leverage ratio was slightly more than 1 times. Given the positive trends we experienced in March, April, and the first part of May, we elected to increase revenue and adjusted EBITDA guidance ranges for our Imaging Center business. We increased revenue by $10 million at the low and high ends of the guidance ranges and increased adjusted EBITDA by $3 million at both the low and high ends of the range. We also increased our capital expenditure budget guidance ranges by $5 million. Otherwise, all guidance ranges for both the imaging center and the Digital Health segments remain unchanged. With respect to Medicare reimbursement for 2026, there is nothing to report at this time. As is typical each year, we are expecting CMS to release a preliminary rate schedule sometime in June or July. At which time, we will analyze CMS' proposal and our industry's associations and lobbying groups will provide CMS our industry's feedback. At the time of our second quarter financial results call in August, we will be in a position to comment on CMS' proposal and its impact, if any, upon RadNet's future results.

Thank you, Mark. I want to take a moment to share a letter we received from a patient who recently visited one of our New York Lenox Hill Radiology locations for her annual screening mammography exam. The letter details that a few weeks ago, she had a routine mammogram and sonogram as part of her health check-up and was encouraged to use AI software to assist with the exam. This led to the detection of an issue that had previously gone unnoticed. After undergoing a biopsy at another RadNet facility in New York, she was diagnosed with Stage 0 breast cancer. She expressed that without the software, the cancer might have remained undetected for a longer period. Recently, she had surgery and is now recovering well. She is very thankful for the EBCD technology, emphasizing that early detection can make a significant difference. This story underscores several important points. As diagnostic imaging progresses, there will be a greater emphasis on early detection, preventative care, and managing population health. Currently, most diagnostic imaging is used for patients who are already showing symptoms or illnesses. However, healthcare could see significant improvements by screening asymptomatic patients for common diseases that contribute to rising healthcare costs. Breast cancer illustrates the benefits of population health management, and similar approaches could be beneficial for prostate cancer, lung cancer, colorectal cancer, and various cardiometabolic diseases if widespread diagnostic imaging for screening is implemented. RadNet is dedicated to leading the way in this area. Our DeepHealth technology, which supports the EBCD program, is already providing AI-driven solutions for prostate and lung cancer screenings. We are also expanding cardiac screening at more RadNet centers through coronary CT angiography, including AI-powered analyses. Furthermore, advancements in technology, especially AI, will revolutionize diagnostic imaging programs. With broader adoption of AI, we can expect enhanced diagnosis and operational efficiency, addressing labor challenges and making screening programs more affordable and accessible for both patients and insurers. AI will also increase the productivity and accuracy of radiologists while addressing shortages in the field as procedural growth accelerates. We anticipate that third-party payers will start offering reimbursements for radiology AI. Many RadNet patients, like the woman whose letter I shared, recognize the value of AI and early detection, and they are vocal about it. Payers are beginning to take notice. Based on our discussions with them, we are confident that by the end of the year, one or more national carriers and other insurers will initiate reimbursements for the EBCD program. This reimbursement could signal the beginning of a new era in which radiology is increasingly utilized in population health screening programs. Additionally, we continue to invest in programs to support these developments by opening new centers within RadNet. In 2024, we opened nine centers, and by the end of 2025, we plan to open 11 more, with another 11 scheduled for 2026. In conclusion, RadNet is strategically positioned at the crossroads of healthcare services and technology. We have the largest and most advanced network of imaging centers in the U.S., alongside a digital health division that enhances operational and clinical software to improve workflows and radiologist interpretation. This integrated, technology-driven approach is unique in the history of diagnostic imaging. By addressing operational and clinical challenges in our core imaging business, and through our implementation of DeepHealth technology, we are tackling fundamental industry issues. Consequently, RadNet is well-placed to benefit from both efficiencies and cost savings introduced by DeepHealth solutions, as well as from the potential to sell and license these transformative solutions to others. Operator, we are now ready for the question-and-answer portion of the call.

Today's first question comes from Brian Tanquilut with Jefferies.

Howard, regarding your earlier comment about the strength seen in advanced imaging, could you share your thoughts on how you anticipate growth in this area over the next three to five years? What do you believe will drive that growth, especially in relation to the overall utilization growth and the sustainability of current volume trends for your business?

We expect these trends to persist. To meet the need for increased capacity, we are using tools that are developed through AI or finding better management strategies with the new equipment we’ve invested in. Both approaches have significantly impacted our staffing in order to meet current demand. In many of our regions, we are facing backlogs due to staffing shortages. However, with the introduction of newer equipment that offers shorter time slots and the efficiency of AI, as seen with our TechLive, we anticipate addressing that backlog and driving revenue as a result. Furthermore, AI will continue to drive demand. As I mentioned earlier, programs like our EBCD grew by a third when comparing this year's first quarter to last year’s, and we expect this growth to extend both within RadNet and externally as we make this vital tool available to others. This growth will be supported by our iCAD acquisition and other AI products we plan to introduce for screening. Our focus is not limited to breast AI; Advanced Imaging will expand as we develop newer techniques in areas like cardiac imaging and CT angiography, which are crucial for health management. With cardiovascular disease being the leading cause of death in the U.S., innovative tools for treatment once risks are detected in patients have transformed the cardiology landscape. Additionally, the significant growth in PET/CT, which has increased by nearly 23% in a challenging first quarter compared to the previous year, is expected to continue. We believe we are in a strong position to support this growth due to the numerous PET/CT systems across our markets and the specialized capabilities that instill confidence in referring physicians about the value of these tools. Therefore, I anticipate that advanced imaging will grow at an accelerated rate. However, it's important not to overlook the rapid growth in routine imaging, which will also be a key focus for RadNet in the near term as we strive to manage this growth operationally and improve the quality of services in both outpatient imaging centers and other imaging providers that are not primarily radiology-focused.

And then maybe, Mark, just shifting gears a little bit here. As I think about JVs and M&A, just curious what you can share with us in terms of your pipeline and where you think you could take M&A deal flow over the next 12 to 18 months?

I'm going to hijack that question, Brian, from Mark since I'm a little bit closer to it than Mark is. The pipeline is very robust. We don't go out looking necessarily for customers. We need customers or clients, potential clients, that recognize the need that they have for radiology solutions. And that includes both operating the opportunities for the demand that they have as well as giving them an education to know how the impact of AI and IT solutions can positively improve the delivery of healthcare. We have gotten a number of calls, which we are having discussions with hospitals that we clearly are and I'm happy to say several that we do not that recognize the value proposition that RadNet has in transforming their radiology delivery. And I really want to emphasize that because hospitals are having the same kinds of problems inside their four walls with radiology staffing, both on the physician side as well as the technologist side. So what we're experiencing in other outpatient imaging centers are experiencing in the way of challenging labor demand is the same thing hospitals are having despite the fact that they offer substantially higher compensation to their employees. So these kinds of solutions are the future and I believe every hospital system at some point will be adopting some form of IT and AI solutions as a part of their strategy that not only is a necessity for them but probably existential if they're going to continue to try to capture all of the downstream opportunities that screening technologies and AI are capable of delivering. So I think I've said before in the past, Brian, that I'd like to have all 400 of our centers in joint ventures with hospitals. I think the currently 40% of our centers that we have, almost 160 are performing exceptionally well and I believe indicate how strong that model is. And when other systems see that and talk to our partners, they quickly determine that RadNet has the tools to help make this heavy lift and transformational requirement.

And our next question today comes from David Mall with Truist Securities.

This is actually Grayson McAlister on for Dave this morning. Just wanted to follow up on the labor front. I know you guys talked about some improvement in the first quarter, but wanted to check specifically on technologist hiring trends. And last quarter, I think you talked about a $45 million headwind from labor. I just want to see if we're still on track for that.

There's approximately $45 million of additional same center labor cost increases included in our guidance, which remains aligned with our budget. We are observing some improvement in hiring, particularly the availability of technologists, our main challenge, which is helping to ease some of the financial strain we've been facing with external staffing companies. At this stage, we are still confident in the $45 million of additional labor expenses that are part of our budget.

And just sticking with labor. Obviously, still early in the TechLive rollout. But just wanted to see if you could talk about how the rollout has gone so far and then just any savings leverage that you've seen through the rollout thus far?

As I mentioned, we have 265 out of our slightly more than 400 MRI centers utilizing TechLive across both coasts. The response from technologists and managers at these centers has been overwhelmingly positive for two main reasons. First, the oversight from MRI technologists has enabled quicker and more accurate scanning, which has already been evident. In some centers using TechLive, we've managed local MRI staffing challenges by utilizing tech aids trained in safety and other essential tools to assist patients alongside remote technologists, boosting revenue opportunities unique to MRI given the high demand for greater capacity. Our goal is to have all 400 centers using TechLive by the end of the year, which will help reduce the need for external staffing that we've relied on for the past year and a half as this trend has become standard across the imaging field. This should help offset some of the anticipated $45 million labor costs, though we may not see the full impact until late this year or more likely in 2026. In addition, I believe we are now experiencing a more favorable environment for hiring. Our recruitment efforts have been enhanced by educational programs we've established in collaboration with local organizations over the past year for non-technologist staff. We are expanding these efforts to include technologists, starting with DEXA scanning and also extending to radiology and MRI. We are finding that many candidates are attracted to programs that enable the recruitment of new employees into RadNet operations, and with the advancements in AI and other technological tools we're implementing, available technologists are increasingly inclined toward job opportunities at RadNet. Therefore, both coasts are showing signs of easing staffing challenges, and I expect this to improve throughout the year, with clearer quantification of the progress after the fourth quarter. I'm confident that our strategies for staffing and operating our centers are solid for our performance in 2025, and I expect these methods to be effective in the latter half of this year and into 2025. Additionally, we are in the process of implementing almost all modules of our detailed operating system on a pilot basis within RadNet centers. This initiative will impact all facets of our operations, including contact centers, scheduling, reimbursement processes, kiosks for faster and more accurate patient check-ins, and insurance verification. We anticipate having significant components operational by the end of the year and look forward to sharing more details about the positive effects this will bring. This is part of a transformative strategy that I believe will become essential for anyone involved in diagnostic imaging procedures.

And our next question comes from Andrew Mok of Barclays.

Despite the weather and volume headwinds, revenue still finished 6.5% above consensus. How did revenue perform against your own internal expectations in the quarter? And can you comment on why there wasn't a higher earnings conversion on that perceived revenue beat?

If you factor in the $22 million in revenue lost due to the fires and severe winter weather in the Northeast and the Mid-Atlantic, our revenue was robust and aligned with our internal guidance. The effects of the weather were primarily felt in January and February, but by March, business improved significantly. There were no further weather issues, and the healthcare utilization in Southern California returned to normal as displaced populations stabilized. We experienced a strong performance in both April and May, which has led us to increase our budget for revenue and EBITDA for the remainder of the year. We are seeing a continuation of the positive trends we observed in the first quarter, and we feel optimistic about the year ahead. Historically, the first quarter presents challenges for profitability for several reasons. Like other healthcare services companies, we face the impact of reset deductibles leading to lower utilization at the beginning of the year. Additionally, we incur some expenses in the first quarter that we typically do not encounter throughout the rest of the year, including accelerated payroll taxes until we reach the cap for highly compensated employees and related expenses for bonuses from the previous year. Furthermore, we tend to front-load our capital expenditure budget, and our days sales outstanding slightly increased in the first quarter due to these deductible resets.

Let me add to Mark's comments. I think some of the growth is coming from the nine new centers we opened in 2024. These new centers take time to ramp up, and by 2025, since they were opened throughout the year, we are beginning to see some of that impact. I'm mentioning this because we are developing 11 more centers in 2025, with fewer than five having opened so far, possibly only three. This means we have eight more centers that will contribute to revenue growth this year and another 11 for next year, which are still in the early stages of development. Additionally, TechLive has now grown to 255 locations, whereas last year we were only in the testing phase with about half a dozen locations. We have ramped that up, which has significantly improved our MRI revenue despite the weather conditions and fires we faced. I also want to highlight the substantial growth and our pride in our PET/CT program. These factors are the main drivers for increased revenue, which we expect to translate into improved performance, especially in the third and fourth quarters.

And maybe just a follow-up on the profitability. I think the revised guidance implies that margins for the balance of the year would be about 16.4% or up about 60 basis points year-over-year. Can you help us understand what's driving that stronger than normal progression and why EBITDA margins for the balance of the year would be up?

I believe there are two main factors. First, the growth of Advanced Imaging, which has higher margins. Additionally, we also have strong margins in our mammography program, which accounts for about a third of our overall revenue and offers good margins, especially as we enhance EBCD adoption. The second factor is the ongoing implementation of our TechLive and AI programs, which are executed at significantly lower costs, helping to drive volume and reduce labor costs. These two elements are the main contributors to our improving margins. As we deploy our AI tools in other areas of the business, we expect to see margin improvements, which may become evident towards the end of the year and definitely into 2026.

And maybe just one last one from me. I think the stock-based compensation number increased meaningfully to $28.5 million in the quarter that's close to last year's full year number. Can you help us understand the significant increase there? Is this the new run rate to consider or are there nonrecurring items within that?

Part of it was stock that vested that was given in past years and given the increase in the stock price this year relative to last year's first quarter that added to the expense this year. So we expect for the second, third, and fourth quarters, the stock comp to be significantly lower than the first quarter. In addition, we brought on a whole bunch of new technology folks within our Digital Health division and gave them grants that vest over time, some of which were for bonuses for last year's performance of which are our retention programs for the future and that hit also in the first quarter. So you'll see our stock comp go down, it will be a fraction of where it was in the first quarter for the remainder of the year.

Our next question from Larry Solow with CJS Securities.

I have a couple of follow-up questions regarding Medicare reimbursement. First, is the EBCD code something we can expect in the near future? You mentioned that national coverage is a necessary step for obtaining a Medicare code for the EBCD software, and I’m curious about the progress on that front. Secondly, concerning Medicare, I’d like to know more about the general physician fee schedule for 2026. While it’s hard to predict government actions, my understanding is that the current expectation is for rates to remain flat, particularly regarding the shift towards general practitioners. Is that accurate?

Let me address the second question regarding the Medicare fee schedule. We cannot predict what it will look like in 2026. Typically, Medicare releases a proposal in June or July, followed by negotiations with industry groups and associations before the final rule is published in November. Over the past five years, we've experienced minor cuts, which began when CMS significantly raised reimbursement rates for primary care practices through the E&M codes, evaluation and management codes, on a budget-neutral basis. This meant taking funding from other specialties to support the increased reimbursement initiated almost five years ago. We anticipate that 2025 will be the final year of the phase-in for this major reimbursement adjustment. Therefore, we believe that the future outlook for Medicare reimbursement in the years ahead is stable, if not improving. We aim to advocate for increases in reimbursement, especially considering the growing role of imaging in healthcare delivery and the significant changes in the cost of doing business over the last five years. Hopefully, CMS will recognize these factors, but we won't have a clearer understanding until they release their proposal.

I'm going to expand on that. Part of your question seemed to be about the potential opportunities in 2025 to address the cuts that were implemented on January 1st. Firstly, our forecast does not account for any changes in Medicare reimbursement this year, whether increases or decreases. I don’t anticipate any decreases since the fee schedule has already been set. However, in January, changes were expected to be proposed to Congress to either reduce the cuts or potentially eliminate them entirely, or even increase them as you suggested. Secondly, predicting any government actions is quite challenging. If there are positive developments this year, that would certainly help us meet or exceed our guidance, but I’m not relying on that outcome. Regarding EBCD adoption for Medicare reimbursement, I think we will see an opposite trend compared to the transition from 2D to 3D mammography. Initially, Medicare quickly adopted the increased reimbursement for the new technology, which was well-received. This time, however, it appears that getting CMS to establish a new code for breast AI will be more complicated. While they have released new codes for other AI applications in areas like cardiac and thyroid imaging, this particular case might present more challenges given the widespread implications. Nevertheless, I am optimistic about our very positive discussions with commercial payors and self-insurers who recognize the value of this technology. I believe they will integrate it, and we have played a pivotal role in setting a price point that is acceptable for patients, likely establishing a benchmark for the industry. This time, the momentum is likely to come more from the private sector rather than from government sources as in the past.

And just a couple on the detail side. So appreciate all the updates on the TechLive. It sounds like that implementation is advancing. And I think you mentioned sort of on the DeepHealth operating system, you have a pilot in place and it sounds like implementation across your centers has begun. I'm just trying to get a feel for that and sort of target some timeline for that.

Yes, we've begun pilot programs in our contact centers and in scheduling and phone call box to help our patients. The early results are very promising. But I'm confident that by year-end, most of the tools that we have will be in place. While we do that, we obviously have expenses related to the implementation of it and continuing the older systems until we're ready to turn over. So I think the benefits from that, which I mentioned in some of my other remarks, particularly as they might be reflected in improved margins, are more likely to be seen in 2026 than they are in 2025. But I can only mention that we've got 400 centers to implement this in and it's a heavy lift but we're up to the task.

And our next question today comes from Juan Z with Riley.

This is Brandon Carney on for Juan. First, you previously talked about the recent trends in capitation. Have you gotten any more visibility on the cadence of that trend for the remainder of the year?

Calibration has been quite stable for us. In fact, we are likely increasing the relative percentage of our revenue from capitation. This is partly due to the rest of our business outside of Southern California operating on a fee-for-service model. Additionally, there are capitation contracts where we've opted to transition to fee-for-service because the demand is such that we must take reimbursements that allow us to keep investing in our business, including equipment, services, and now AI. We haven't lost any significant business from moving away from capitation as patients who previously benefited from better reimbursement rates under fee-for-service are still coming to us. Furthermore, we have large capitation groups that have decided to remain with capitation, and we're seeing substantial increases in their rates to align their overall utilization with our fee-for-service model. Overall, capitation remains a strong business, though it doesn't quite align with the broader RadNet strategy and is primarily a Southern California phenomenon.

We benchmark each quarter all of our contracts against the other payer classes or the other books of business that we have. And if we fall behind where we need to be from a reimbursement standpoint relative to other books of business, we go back to the contracts, particularly when they're at the renewal process. And we've had some challenging discussions over the past couple of years that have led us to cancel a number of those capitation relationships. And as Dr. Berger said, flip them to fee-for-service where we get significantly higher rates, it doesn't guarantee us that we do 100% of that patient volume anymore, because now the risk is put back on the medical groups and they have the ability to refer that out to anyone they want. But in the markets in California, obviously, we're the biggest player by far in the state. There are markets where we do the lion's share of the outpatient or the nonhospital-based imaging and we're still capturing a lot of that patient volume just at fee-for-service higher rates. My belief is that a number of these contracts will end up coming back to us in a year or two from now when they recognize that they were probably financially better off accepting higher capitation rates and shifting the risk and the burden of the utilization to RadNet than to keeping that risk themselves and sending out the business at higher fee-for-service rates. So we've been through a number of these cycles before. And as you can see, it's not impacting our overall revenue; it's just shifting revenue from the capitation portion to the fee-for-service portion.

And then on the PET business. Can you help us understand the impact of pricing of the radiopharmaceutical imaging agents? If the unit prices of the imaging agents get lower, does it have an overall benefit to RadNet's operation?

What you're asking about are the newer, more specialized tracers as opposed to FPG, which is the more commonly used agent in many oncological studies. The new tracers for Alzheimer's and prostate imaging come with a high cost. The reimbursement for these is done on a pass-through basis, meaning we don't earn much, if anything, by marking up the radioactive tracers for those exams. As prices are expected to decrease over time, due to increased usage in prostate and Alzheimer's imaging and growing competition in manufacturing, we anticipate that the pricing for these tracers will go down. However, there is currently no profitability from these tracers for us.

Just to follow up on that a bit for the growth in the PET/CT business, can you give us any detail on the contribution of the newer scans like Tisanera, Abeta versus the FPG scans that you mentioned? Any color there would be appreciated.

In the first quarter of 2025, studies related to prostate and Alzheimer's, particularly amyloid studies, accounted for approximately 19% of our PET/CT business, and this segment has been growing significantly year-over-year. We are now conducting over 500 amyloid studies each month, which began about a year to a year and a half ago when Medicare started approving these studies more frequently for qualifying patients for newer drug therapies. Prostate imaging has also been a major contributor to our PET/CT performance. Together, these studies represent about 19% of our business and are driving more than 20% growth in our PET/CT business on a quarter-over-quarter basis.

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to the company for any closing remarks.

Thank you again for 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 endeavors to be a market leader that provides great services with an appropriate return on investment for all stakeholders. Thank you for your time today, and I look forward to our next call.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.