RadNet, Inc. (NASDAQ:RDNT) Q3 2023 Earnings Call Transcript

RadNet, Inc. (NASDAQ:RDNT) Q3 2023 Earnings Call Transcript November 9, 2023

RadNet, Inc. beats earnings expectations. Reported EPS is $0.14, expectations were $0.06.

Operator: Good day and welcome to the RadNet Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Mark Stolper, Executive Vice President and Chief Financial Officer. Please go ahead.

Mark Stolper: Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet’s third quarter 2023 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, 2022. 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.

Howard 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 2023 results, give you more insight into factors which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I’d like to thank all of you for your interest in our company and for dedicating a portion of your day to participate in our conference call this morning. Let’s begin. I am very pleased with our performance in the third quarter. Strong procedural volumes primarily contributed to the growth of revenue in the third quarter as compared with last year’s third quarter. Aggregate procedural volumes increased 8.6%, and same-center procedural volumes increased 4.2%.

These metrics drove an increase to consolidated revenue of 14.8% from last year’s third quarter. The consolidated revenue $2 million was the highest third quarter revenue in our company’s history. Though revenue in the third quarter was $1.7 million less than that of the second quarter of this year, we had one less workday in the third quarter as compared with the second quarter. However, the average revenue per day in the third quarter exceeded revenue per day in the second quarter, a trend that has continued into the fourth quarter. The challenge remains servicing the heavy demand we have experiencing — we have been experiencing in most of our local markets, many of which have significant scheduling backlogs. Adjusted EBITDA performance was also very strong in the third quarter.

In concert with strong revenue, this was a result of aggressive and active expense management despite a challenged labor market and inflationary pressures. Relative to the third quarter of last year, adjusted EBITDA from the Imaging Center reporting segment increased 20.3% to $60.4 million for the quarter. The continuation of these operating trends into the fourth quarter encourages us to raise 2023 adjusted EBITDA guidance for the third time this year. The artificial intelligence division continues to gain momentum. AI revenue has more than tripled from last year’s third quarter and sequentially relative to the second quarter, grew over 21% on roughly the same number of center offerings are enhanced breast cancer detection or EBCD service.

This is indicative of wider patient enthusiasm within our East Coast operations, where adoption rates are approaching 35%. Subsequent to the end of the quarter, we began implementing EBCD in Southern California and expect that we will be fully deployed in all centers by the end of the first quarter of 2024. We continue to receive very positive feedback from our patients, referring physicians and radiologists. Over 500 cancers have been diagnosed that otherwise would have gone undetected while at the same time, callback rates have been significantly lower and radiologist productivity and accuracy has been increased an immense amount of data has been collected, which we will be sharing with payers in support of eventually receiving third-party reimbursement for this service.

Aside from the clinical AI tools, we continue to advance efforts in generative AI focused on driving efficiency and cost saving in RadNet’s business processes, which will impact contact centers, patient scheduling, insurance verification and revenue cycle functions. The objective is to place into service some of these gene tools beginning in the second quarter of 2024. Currently, we rely on manual processes to perform functions that can be more accurately and officially completed with artificial intelligence. We see a future where patients and referring physicians will be able to schedule appointments, be able to verify patient insurance coverage, be able to request radiology reports and images, receive billing and payment information and pay outstanding balances amongst other things, with significant reduction in manual intervention.

The process of moving the eRAD radiology information and imaging management systems to the cloud has begun. A cloud system will provide our centers and other eRAD customers and ecosystem to host RadNet’s deep health and third-party AI solutions that can scale the capabilities and functionality of radiology operations. Additionally, a cloud-based solution will provide customers better third-party support, system updates and improve security. As we continue to advance the eRAD platform and the suite of products and migrate them to the cloud, there is a natural convergence between our radiology, informatics and AI solutions. We see a time when customers, including radiology practices, imaging centers and hospitals will use this platform in a seamless environment to host the clinical AI, generative AI and business tools to manage and further their clinical and operational workflow requirements.

In the new year, we look forward to discussing more on how we plan to position RadNet’s AI and on informatics solutions into an industry-leading digital health platform. During the third quarter, we expanded our relationship with the Cedars -Sinai Medical System, one of the premier health systems in Southern California. As part of the expanded relationship, we established a new joint venture called Los Angeles Imaging Group, initially with three locations, as well as broadened our existing two center joint venture, Santa Monica Imaging Group to include the contribution of seven additional centers, five of which were contributed by Cedars -Sinai and two from RadNet. The expanded relationship with Cedars-Sinai is designed to increase patient access to outpatient radiology by broadening the ambulatory network of imaging centers throughout Los Angeles, including certain underserved communities.

The ventures will streamline and improve patient care by improving workflow, providing better access to records and producing more timely and accurate results for patients and referring physicians. We now have three joint ventures with Cedars-Sinai, encompassing 16 locations in the West Side, Downtown and San Fernando Valley areas of Los Angeles. As an increasing amount of patient volumes are being directed away from expensive hospital based imaging procedures towards more cost-effective ambulatory outpatient settings, hospitals and health systems are seeking viable long-term strategies for outpatient imaging. This is leading to increased interest among hospitals and health systems to engage with us in partnerships, discussions and outpatient strategies.

RadNet’s current partners are some of the largest and most successful systems in our geographies, including RWJ Barnabas, MemorialCare, Dignity Health, Lifebridge, University of Maryland Medical System, Adventist, Cedars-Sinai and others. Our hospital and health system partners have been instrumental in increasing our procedural volumes through their relationships with physician partners. Additionally, the joint venture partners are helpful in providing support, if needed, in establishing long-term equitable outpatient reimbursement rates for our services. After giving effect to the expanded Cedars-Sinai relationship, 130 of our 366 centers, or 36% are now held within health system partnerships. We continue to execute on our de novo development strategy, which we launched almost two years ago.

These development projects are located in markets where we have patient backlogs, require additional capacity or where we currently lack access points to service patient populations in need of RadNet services. While these projects require 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. Approximately a dozen additional centers are scheduled to open throughout 2024 in various markets. Finally, I would like to comment on RadNet’s liquidity position and financial leverage. On June 16th, we completed an equity offering where we raised $246 million of net proceeds to deleverage our balance sheet and position us to accelerate growth.

This offering along with strong operating performance resulted in a net debt to adjusted EBITDA ratio of approximately two times at the end of the third quarter. We currently have the lowest leverage and strongest liquidity position in our company’s history. As of September 30th, we had $338 million of cash on our balance sheet. And we’re undrawn on our $195 million revolving line of credit. Our Days Sales Outstanding, DSOs at June 2023 was 33.6 days, which we believe to be one of the best in the industry. While we are committed to growing and expanding our business, we will also continue to follow a disciplined approach to managing our financial leverage. To this end, on October 30, subsequent to the third quarter end, we made a $30 million voluntary prepayment of our term loan, demonstrating our commitment to managing our debt balance and cost of capital within an economic environment that has experienced rising interest rates, inflation and other macroeconomic challenges.

The lower leverage and cost of capital and stronger liquidity relative to many other industry operators position us to capitalize on acquisition opportunities and other business opportunities. We remain patient and disciplined in our approach to acquisition, focused first on our core markets where we bring unique synergies and cost savings. At this time, I’d like to turn the call back over to Mark, to discuss some of the highlights of our third quarter 2023 performance. When his finished. I will make some closing remarks.

Mark Stolper: Thank you, Howard. I’m now going to briefly review our third quarter 2023 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our third quarter performance. I will also provide an update to 2023 guidance levels, which were released in conjunction with our 2022 year-end results in March and which we amended in May upon releasing our first quarter financial results and again in August, on releasing our second quarter financial results. In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments and non-cash equity compensation.

Adjusted EBITDA includes equity and earnings of unconsolidated operations and subtracts allocations of earnings to non-controlling interest in subsidiaries and is adjusted for non-cash or extraordinary and one-time events taking place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is included in our earnings release. With that said, I’d now like to review our third quarter 2023 results. For the third quarter of 2023, we reported revenue from our imaging centers reporting segment of $399.1 million and adjusted EBITDA of $60.4 million. As compared with last year’s third quarter, revenue increased $49.9 million or 14.3% and adjusted EBITDA increased $10.2 million or 20.3%.

Including revenue from our AI reporting segment of $2.9 million consolidated revenue was $402 million in the third quarter of 2023, an increase of 14.8% from $350 million in last year’s third quarter. Including a $2.5 million adjusted EBITDA loss from the AI reporting segment, consolidated adjusted EBITDA was $57.9 million in the third quarter of 2023 and $45.8 million in the third quarter of 2022, an increase of 26.5%. For the third quarter of 2023, and RadNet reported net income of $17.5 million as compared with $668,000 for the third quarter of 2022. Diluted net income per share for the third quarter of 2023 was $0.25 compared with a diluted net income per share of $0.01 in the third quarter of 2022. Based upon a weighted average number of diluted shares outstanding of 68.8 million shares in 2023 and 57.7 million shares in 2022.

There were a number of unusual or onetime items impacting the third quarter, including the following: $2.3 million loss of noncash interest rate swaps, net of accumulation of the net of amortization of the accumulation of the changes in fair value in other comprehensive income, $1.2 million of severance paid in connection with headcount reductions related to cost savings initiatives. $16.8 million gain on the contribution of imaging centers into the Santa Monica Imaging Group joint venture with Cedars Sinai. $1 million expense related to leases for our de novo facilities under construction that have yet to open their operations. $1.3 million of pretax losses related to our AI reporting segment, net of noncash adjustments to contingent consideration and intangible AI assets and $915,000 loss from the revaluation of certain acquisition constant consideration.

Adjusting for the above items, adjusted earnings from the Imaging Center reporting segment was $9.9 million and diluted adjusted earnings per share was $0.14 during the third quarter of 2023. Also affecting net income in the third quarter of 2023 were certain noncash expenses and unusual items, including $4.3 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock at $746,000 of non-cash amortization of deferred financing costs and loan discounts related to financing fees paid as part of our existing credit facilities For the third quarter of 2023, as compared with the prior year’s third quarter, MRI volume increased 11.7%. CT volume increased 10.9% and PET/CT volume increased 17.7%.

Overall volume taking into account routine imaging exams inclusive of X-ray, ultrasound, mammography and all other exams increased 8.6% over the prior year’s third quarter. On a same-center basis, including only those centers which were part of RadNet for both the second quarters of 2023 and 2022, MRI volume increased 6.9%, CT volume increased 6% and PET-CT volume increased 15.2%. Overall same-center volume, taking into account all routine imaging exams increased 4.2% over the prior year’s same quarter. In the third quarter of 2023, we performed 2,511,19 total procedures. The procedures were consistent with our multi-modality approach, whereby 74.7% of all the work we did by volume was strong routine imaging. Our procedures in the third quarter of 2023 were as follows.

389,566 MRIs as compared with 348,912 MRIs in the third quarter of 2022. 230,276 CTs as compared with 207,554 CTs in the third quarter of 2022. 15,216 PET-CTs as compared with 12,932 PET-CTs in the third quarter of 2022. And 1,875,961 routine imaging exams as compared with 1,742,050 of all these exams in the third quarter of 2022. Overall GAAP interest expense for the third quarter of 2023 was $16.1 million. This compares with GAAP interest expense in the third quarter of 2022 of $12.4 million. The higher interest rate — the higher interest cost is predominantly the result of the upsized New Jersey Imaging Network credit facility completed in October of last year in conjunction with NJIN’s acquisition of Montclair Radiology and a higher SOFR rate on our unswapped floating rate debt Cash paid for interest during the quarter, which excludes noncash deferred financing expense and accrued interest, was $19.5 million.

Cash paid for interest net of interest earned on our cash balance and interest rate swap payments received from our swap counterparties was $11.7 million for the three-month period ended September 30, 2023, and $41.7 million for the first nine months of 2023. With regards to our balance sheet, as of September 30, 2023, unadjusted for bond and term loan discounts, we had $532.7 million of net debt which is our total debt at par value less our cash balance. Note that this debt balance includes New Jersey Imaging Network debt of $144.4 million for which RadNet is neither a borrower nor a guarantor. This compares with $662.9 million of bad debt at September 30, 2022. Our net debt balance is substantially lower than last year, primarily as a result of the stock offering we completed in June of this year.

As of September 30, 2023, we were undrawn on our $195 million revolving line of credit and had a cash balance of $338 million. At September 30, 2023, our accounts receivable balance was $167.7 million, an increase of $1.4 million from year-end 2022. Our days sales outstanding, or DSO, remains near the lowest levels in our company’s history at 33.6 days at September 30, 2023. The flat accounts receivable and low DSO despite our increased revenue are the result of improvements in cash collections from patients at the time of service and better performance with respect to avoiding insurance denials, submitting clean claims and obtaining necessary preauthorizations and insurance verification. Through September 30, 2023, we had cash capital expenditures net of asset dispositions and sale of imaging center assets and joint venture interest of $117.9 million.

This excludes $13.6 million of cash capital expenditures at our New Jersey Imaging Network joint venture, $19.8 million of equipment purchased operating leases with a promissory note and a $5 million payment to purchase certain software and intellectual property from a vendor. At this time, I’d like to update and revise our 2023 financial guidance levels, which we released in conjunction with our fourth quarter and year-end 2020 results and amended after reporting both our first and second quarter 2023 financial results. For total net revenue, our revised guidance range is unchanged at $1.575 billion to $1.610 billion. For adjusted EBITDA, we’ve increased our guidance range by $3 million, both at the low end and the high end of the range. Our new guidance range for adjusted EBITDA is between $235 million and $245 million.

For capital expenditures, we increased our guidance range both at the low end and the high end by $5 million to $115 million to $125 million to reflect additional capital investments in our de novo facility openings. For cash interest expense, our guidance remains unchanged at between $45 million and $50 million for the year. And our free cash flow guidance range also was unchanged at between $65 million and $75 million. For our AI segment, our guidance for both revenue and adjusted EBITDA remains unchanged for revenue. We anticipate $11 million to $13 million of revenue for the year. And for adjusted EBITDA, our guidance range is between negative $11 million and negative $13 million for the year. I’ll now take a few minutes to give you an update on 2024 reimbursement and discuss what we know with regards to 2024 Medicare rates.

As a reminder, Medicare represents about 23% of our business mix. With respect to Medicare reimbursement, in July, we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about that time every year. At that time, we completed an initial analysis and compared those rates to 2023 rates. We volume-weighted our analysis using expected 2024 procedural volumes. As you may recall, three 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 with budget neutrality, meaning that it proposed to reallocate reimbursement from physicians who rarely bill for these E&M codes to physicians who regularly bill for these codes.

As a result, radiology and most other specialties experienced cuts in reimbursement during 2021, 2022 and 2023. Cuts meant to be phased in over a several year period. The cuts we faced in 2023 were substantially mitigated by legislation that was passed at the end of last year as part of the Consolidated Appropriations Act. In this year’s proposal in July, governing 2024 reimbursement Medicare appeared to effectively be phasing in the remainder of the E&M code related cut avoided last year as a result of the Consolidated Appropriations Act. The cut proposed for 2024 resulted from a decrease in the conversion factor in the Medicare fee schedule by about 3.4%, along with certain minor changes to the RVUs, the relative value units of certain radiology CPT codes.

Our initial analysis of the proposal implied that RadNet on roughly $1.6 billion in revenue would face an approximate $7 million to $9 million revenue hit in 2024 from its Medicare business. Last week, we received the CMS’ final rule governing 2024 reimbursement. Our analysis shows that the final rule is relatively consistent with the proposal in July and that our revenue will be impacted by the approximately $7 million to $9 million estimate that we had back in July. Because the final rules decrease in the conversion factor affects all physicians, not just radiologists, there are many lobbying groups from the various medical specialties aggressively opposing the cut. At this time, our experts believe there remains a reasonable likelihood that part of the scheduled cut will be mitigated through congressional action that could take place next month, similar to what happened last year.

While the $7 million to $9 million cut to RadNet’s revenue next year is not insignificant, we have reimbursement increases completed or scheduled capitated and commercial payers that will fully mitigate this Medicare reduction should it go into effect for CMS’ final rule. I’d now like to turn the call back over to Dr. Berger, who will make some closing remarks.

Howard Berger: Thank you, Mark. We have a lot to be optimistic about as we move into 2024. While we might face headwinds from the $7 million to $9 million Medicare cut and from increasing labor rates. We have numerous growth initiatives that not only should overcome these challenges but should provide us another year of accelerated growth. While we will not be issuing formal 2024 guidance until we announce fourth quarter and full end year end results in February, I’d like to end today’s prepared remarks by discussing why we are so excited about 2024 and the growth initiatives that will fuel 2024 performance. First, as Mark mentioned, we have scheduled rate increases with various commercial and capitated payers that will more than mitigate the anticipated Medicare rate cut.

Most payers recognize that we are their partners in moving imaging out of more expensive hospital settings and realize the importance RadNet provides in their outpatient network strategy. We are in the fortunate position that we have tremendous demand, which makes us steadfast in working only with payers that properly value our services. Second, we anticipate that strong same-center performance will continue throughout 2024, projecting low to mid-single-digit growth on the current base of $1.6 billion of revenue, we expect $50 million to $60 million of incremental revenue in 2024, which by its wealth towards the Medicare and labor headwinds. Third, we expect to open approximately a dozen de novo facilities throughout 2024, which are currently in various stages of construction.

These new center openings should contribute significantly to growth and profitability in 2024 and beyond as they have been focused in markets where we are experiencing patient backlogs or where there are identified patient populations that we are currently not servicing. While these centers will open throughout the year, we anticipate each center contributing an average of $3 million to $5 million of additional revenue once mature. Fourth, we anticipate further progress in the AI and digital health platform. We remain convinced that these technologies will transform both the clinical and operational aspects of all of radiology. By the end of 2024, we could see AI revenue on a run rate that is double our current performance, and it is a realistic objective that we will reach breakeven adjusted EBITDA for this segment.

Fifth, we anticipate that acquisition activity will accelerate in 2024. We currently have an active pipeline of opportunities, and we believe that the higher interest rates and labor challenges will create further consolidation. RadNet’s low leverage and strong liquidity favorably position us to be in an industry consolidator. Lastly, we expect to drive growth through new and expanded health system joint ventures. As we discussed today in conjunction with the expanded relationship with the Cedars-Sinai Medical System in Los Angeles, joint ventures are an increasingly important and attractive growth aspect of our business. We believe that in the next two to three years, over 50% of our centers could be held within health system partnerships.

We are currently in various stages of development of new and expanded partnerships, which we expect to announce during 2024. Operator, we are now ready for the question-and-answer portion of the call.

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Q&A Session

Operator: We will now begin the question-answer session. [Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies. Please go ahead.

Jack Slevin: Hey. Good morning. Thanks for the questions and congrats on the quarter. It’s Jack Slevin on for Brian. I wanted to start by digging a little deeper on the AI rollout. I appreciate the comments around the timing and having it fully rolled out by Q4. But is there any color you can give on sort of early findings there or things you’ve seen as you started to roll it out, what the progress is to date and maybe performance on adoption looks pretty similar to the thus far or a little better?

Howard Berger: You’re specifically referring to our EBCD product?

Jack Slevin: Yes, that’s right.

Howard Berger: Okay. I’m sorry, you may have said that, but I’m not certain I heard it in any event. We’re very enthusiastic about it. We currently, on the East Coast, where we began implementation of this earlier this year, and I believe around the April time frame and now getting an enrollment from our patients in the range of about 35% of the screening mammography, which are eligible for the early breast cancer detection program. The significance of that is that it is self-pay at this point. So our patients and physicians, both primary care and breast surgeons realize that the benefit of early detection, perhaps one to two years earlier than could previously been seen is an important adjunct to breast cancer detection. And in fact, as I mentioned in my prepared remarks, to-date, we have identified 500 cancers that would have taken another one to two years before they became clinically evident.

So we’re extremely pleased with that. I have to admit that the rollout of this program is perhaps more difficult than we anticipated given the uncertainty that people have in general about artificial intelligence and the need to provide appropriate collateral material and information at the time of service that has altered our approach and which is helping us gain traction on this. We’ve also began to rollout here in September on the West Coast, which our early results are at least as good as they are on the East Coast and has benefited from the experience of the past six or seven months to provide the collateral material and instructional information for patients. So we expect to have that fully rolled out by the end of the first quarter of 2024.

Once fully adopted and even at the rate that we’re currently experiencing, which we expect to increase, we probably will be doing at least 500,000 to 600,000 [ph] of our screening mammograms in the ABCD program. So I think that gives some magnitude of the potential that we’re expecting. Even if the current rate does not increase, but I believe that is very conservative at this point in time. Another element of this, which we are continuing to gain information and they, in and itself, proof importance is a decrease in the recall rate of certain breast mammograms where there were the suspicion of cancer previously required further diagnostic evaluation and which, along with the help of our artificial intelligence and third-party consultation from our senior mammographer radiologists, has reduced the call rate.

And given both a lower cost for these services, as well as greater comfort surrounding the potential diagnosis. So the increased cancer detection rate and decreased recall rate are data that we are collecting and plan to meet — begin meeting with various payers in order to have them see the importance of this and begin consideration of reimbursement for all women that would go through their insurance.

Jack Slevin: Got it. Really helpful. And then one more for me. Just I appreciate some of the commentary around staffing shortages and labor challenges going forward. Can you just give a little bit more detail on sort of how you think about that labor impact progressing throughout 2024 and any possible mitigation efforts you might have underway?

Howard Berger: All right. Good question. Thank you. We are actively recruiting part of the challenges that we’re facing, which are unprecedented in our business like most of them. Our result both of, I believe, the COVID after effect, if you will, as well as just an extraordinary demand for our services and fewer people being coming into the health care system to be trained for this. So in that regard, we believe our salaries, which are going to be reflected in our 2024 budget of increases will help us and are helping us attract more candidates and that we’re actively pursuing educational programs, which while they probably will take some time for us to implement will allow us to increase the staffing levels that we need in order to expand the hours of operation and demand that we have.

Along with this, and that shouldn’t go a notice is our investment in technologies, which almost on every type of procedure we’re doing will reduce the scan times and improve throughput and workflow, not only for the patients, but our technologists and our radiologists to make the whole patient journey, they are much more effective. So a combination of investment, adjustments and salary raises and active recruiting and educational programs, we believe will have a material effect on our ability to capture the additional volumes and demand, which we have virtually in every market that we serve.

Jack Slevin: Got it. Appreciate it. And congrats again on the quarter.

Howard Berger: Thank you very much. Give our regards to Brian.

Operator: Our next question comes from Nathan Malewicki with Raymond James. Please go ahead.

Nathan Malewicki : Hey good moprning. Thanks for the question. So — and this is Nathan Malewicki settling for John Ransom. On the back of the announced JVs and new centers, is there any more color that you can provide us on kind of new center economics and how quick these de novos are to ramp? I know there’s been some color provided on revenue contribution at maturity, but anything else you can give us?

Howard Berger: I’m not sure exactly your question. You want to know the ramp-up of the de novo centers or…

Mark Stolper: Yes. I think Nate, you’re asking about what a typical de novo center might contribute and whether there’s a ramp-up to that contribution once mature or maturity process?

Nathan Malewicki: Yes.

Mark Stolper: Yes. So I mean, I think the way you can look at it is we’ve said that we have about a dozen de novo centers that should open throughout 2024. And if you can — if you think of them as being similar in size and scope and breadth of capabilities to the existing RadNet centers. You can think about the average center I’m doing about $3 million to $5 million of revenue with a contribution pre-corporate of about 20% EBITDA margins and after corporate kind of in the mid-teens EBITDA contribution after corporate overhead. So typically, if we’ve done our job correctly and been effective in assessing the demand in a particular market we’re at capacity at a particular center, that’s in that market already or have significant backlog.

The ramp-up period of these de novos are pretty short. And we think after a couple of quarters, we should be at full maturity of these centers. It’s we — like our investors who are listening to this call, we have a portfolio of these types of opportunities and some will outperform our projections and our initial ramp up, some will lag behind. We’re not perfect every time. But we are, as Dr. Berger mentioned experiencing heavy volumes at virtually all of our local markets. And we’re struggling not with getting patient demand, but actually getting them in the door and servicing on them. And so that bodes well for a faster than typical ramp-up for a lot of these novo facilities.

Nathan Malewicki: Helpful. Thank you. And then just a follow-up on de novos and JVs. I’m just wondering if you could provide some color on kind of the makeup of the remaining pipeline or those 12 de novos to open next year, are those focus in California or the Mid-Atlantic? And then any color you can provide past 2024 on the strategy would be helpful.

Howard Berger: Yeah. I think for the sake of this conversation, about half of the de novos for next year are on the East Coast and the other half on the West Coast. Some of them are in joint ventures, particularly on the East Coast, where we’re expanding our relationship with the with RW Barnabas in our New Jersey Imaging Network division as well as the University of Maryland Medical System that could lead to statewide opportunities that we would pursue with the University of Merrill and Medical System. On the West Coast, most of the joint ventures are in areas that are also with some of our joint venture partners like in Orange County, with the Memorial Health System and some in more of the rural areas where the demand continues to grow and where RadNet currently and the entire market that we’re looking at is underserved from the standpoint of imaging services.

So I think de novos really should be taken into consideration for RadNet, not as just a greenfield or a start-up, where it may take two to three years to develop a significant contribution from that effort. But as Mark mentioned here, we expect within two to three quarters at the most to ramp up the performance of these centers, which means that most of the centers that we’re talking about, the dozen centers that we’re talking about will provide some EBITDA and significant revenue impact in 2024.

Nathan Malewicki: Awesome. Thanks, guys.

Operator: The next question comes from Larry Solow with CJS Securities. Please go ahead.

Larry Solow: Great. Thanks, guys. Just a follow-up on the — it sounds like, Howard, you mentioned you actually had your average revenue went up sequentially quarter-over-quarter and that kind of bucks the normal seasonality, which I think from most discussions with other healthcare companies, I think seasonality kind of did come back this year. Maybe we didn’t have it for a couple of years at COVID, but pretty impressive to go right through that. And my question is it sounds like you’re operating more at a supply constraint telling your centers just because of just not enough scheduling time in the day. It may be not a labor issue, but more just an absolute capacity and just filling in some of these areas with some of these de novos will alleviate that? Is that kind of a fair to say that really it sounds like the strategy of the de novos effect.

Howard Berger: Yes. I think that’s primarily correct, but I will tell you that the staffing shortage is still substantial enough where – if we can be more successful in our recruiting efforts, there is a lot of additional volume that we can push through our imaging centers. We currently don’t operate many of our centers, particularly for those procedures that are in highest demand. I’m talking about MRI, particularly in mammography. We can’t operate those — the current centers given the fact that we just don’t have enough staffing. We’ve made significant improvement and progress in that. And I think that is, in large part, due to the success in the third quarter and which we’re seeing accelerate even into the fourth quarter.

So I’d like to be more optimistic here, but it’s a slow process. Not only do we not — do we have to only find – find the staffing. We then have to integrate them into the RadNet system, which can take two, three months sometimes of training on our equipment and our procedures. So this is going to be an ongoing process. I think, really for the long-term here both because there’s a shortage. And given the shortage, there is a lot of demand, not just by us but by other providers in our markets. But I think our particular business model, and I think with the addition of all of the AI and generative AI tools that we will be implementing also next year, it will make the RadNet system, an even more attractive place for us to recruit employees, both at the professional and the non-professional level.

Larry Solow: Okay. I appreciate all that color. And just in terms of the expanded partnership or JV with Cedars-Sinai, it looks like, maybe, Mark, you can answer it looks like there was no cash in the deal, looks like its just structured as an asset swap. Can you maybe just give us a little more or an asset contribution, you’re both contributing a same amount of assets. Can you maybe just give us a little walk us through that in a real fast.

Mark Stolper: Yeah. Sure. I think that’s an accurate statement or premise in your question. We structured it with — when you contribute assets, whether its Cedars-Sinai contributing assets into the Joint Venture or RadNet contributing assets, we have an outside third-party valuation done to a value — at fair market value of the assets being contributed. And what we did with Cedars because we had two different joint ventures, one being expanded and one being created. We were able to equalize and the equity — the resulting equity stakes of each of the partners in terms of their membership interests in these — in order to essentially not have a lot of cash changing hands. In one situation, Cedars was buying up, in the other situation we were RadNet was buying up in another joint venture in such a way where less than $1 million of debt cash actually changed hands between the two parties.

Howard Berger: Yeah. I’d like to amplify on this because, in the joint ventures, particularly along with Cedars, which we’re extremely proud of. It’s not just really about how the joint venture comes together. It’s really about the partnership and the commitment that the health system, in this case, Cedars, is making to RadNet. RadNet Cedars has really looked to RadNet as their outpatient partner throughout Southern California. And with that, will come a lot of volume that they’ve currently be doing in the hospital and will be shifted over to the joint venture, so that they can accommodate more acute care medicine in the hospital and where the outpatient imaging is really done in a much more convenient and comfortable atmosphere for their patients.

So while, we initially put the partnership together or expanded in this case based on current activities, it’s really the prospects of moving the outpatient imaging for all of Cedars into the RadNet system, even in centers where they not — may not be part of the joint venture as Cedars looks to cast its shadow, way beyond the physical confines of their hospitals and become a major player in delivery of health care, throughout Southern California. So for us, this is a lot more of a strategic relationship than it was just looking at the current financial relationships. And as I said, we’re extremely proud of this given that Cedars was in U.S. News & World Report I think it was this year, noted as the number two health system in the country, only behind the clinic.

And they look — they’re looking to us to develop their outpatient strategy and adoption of artificial intelligence to be implemented for the screening tools that we have throughout their system and in Southern California. So I think we have to look beyond just what the immediate assets were that were contributed and look at the fact that price contribution from Cedars will be far beyond what we are currently doing today.

Larry Solow: Got you. I appreciate all that color. And if I could just slip one more in, just on pricing. It sounds like commercially, you guys maybe get a little momentum on your side. And I know it’s not a foot of a switch, you got, I guess, go to each payer and negotiate pricing and new contracts, but it sounds like that’s building. And then I guess that’s part A. And then part B, does the physician fee, the schedule on the rotation or rebalancing towards primary care? Is that — are we supposed to be, I think, 2025, that’s supposed to be kind of done? Is there any kind of I know it’s the government, you never know what’s going to happen there. But is that kind of maybe we have one more after 24 one more year of up? Thanks.

Howard Berger : When you said the government, we don’t exactly know what the are you talking just about health care or in general, because I think…

Larry Solow: I’m talking — yes. Not a different discussion, but yes. I mean the CMS. Yes, yes. I mean, CMS, yes.

Howard Berger : Yes. I was being a little facetious, I apologize

Larry Solow: Of course. No, I get it.

Howard Berger : Yes. I think, Mark, you can embellish on this, but I think if they’re true to their word, 2024, maybe the last year. However, if they do some mitigation.

Mark Stolper : Correct. It may go into 2025.

Howard Berger : 2025. This is a question of, do you want to take the medicine all in one golf or divide it up into two spoon pools. But either way, we’re going to get hit with it. And yes, we’d like to see it push down the road, but which the government is famous for. But I’m not certain that, that’s going to be the case this year given all the other issues and dysfunctionality that currently exist in Washington. As far as the other part I think what’s important to emphasize here is the consolidation that we have assiduously followed here over really decades now, finally has allowed us to have a seat at the table in terms of negotiating pricing for the with our payers. And for years, we have essentially been like almost every other physician provider, we have been a price taker, not a price maker.

And it’s easy for a lot of these payers just to say this is what we’re going to pay, take it or leave it. And I think we have evolved in every one of our markets where we’re willing to say, leave it if you don’t recognize and reimburse us at sustainable rates that allow us to continue, not to make profitability, but to provide the level and quality of service, which we have become known for throughout the industry and which ultimately benefits them and to the extent that they care, their members. So I believe the discussions that we’re having is one that we’ve been doing through the years, but the tenor is different today, given that the demand is so substantial that the leave-it scenario is one that we’re willing to adopt. I don’t want to call it the nuclear option, but there needs to be more of a conversation and not just take a leave it attitude.

And hopefully, RadNet will be able to demonstrate to the radiology community and for that matter to the health care community, the importance of fair and reasonable reimbursement rates.

Larry Solow: Great Thanks, Howard. Appreciate all that color.

Howard Berger: Thank you, Larry

Operator: Our next question comes from Jim Sidoti with Sidoti & Company. Please go ahead.

Q – Jim Sidoti: Hi, good morning and thanks for taking the call. A couple of quick ones. Sounds like you added a handful of centers in the quarter with this new joint venture or expanded joint venture. How many total centers do you have right now?

Howard Berger: 366.

Q – Jim Sidoti: Okay. And then, Howard, I think you made some comments about a little debt pay down in the quarter, but you did raise $250 million or so of cash, and it doesn’t seem like you’ve made any big payments to date. Is there more debt paid down coming in the fourth quarter? Or are you saving that for acquisitions?

Howard Berger: Well, I think we made a $30 million payment, as I mentioned, at the end of October. We could make more, but I think based on some of the opportunities that we see face –not facing us, but opportunities that we have that we’re pursuing in 2024, we’ve decided to keep some of our cash on the balance sheet and determine perhaps later in the fourth quarter or perhaps even by the end of this year whether or not we would want to pay down more of that debt. So I think we’re just being — like we have been prudent in our case of cash here. I wouldn’t rule out paying down more of that debt. I also wouldn’t rule out the use of it to expand the company’s footprint not only in our existing markets, but perhaps in other markets.

So I think I’m sure if we elect to pay down more that our lenders would be more than happy to receive the money. So I don’t think we’ll get any resistance if we choose to do more later. But I think also our lenders as well as our shareholders want us to put the capital to work if it can be more helpful in growing the company and improving our overall performance.

Q – Jim Sidoti: All right. Thank you.

Howard Berger: Thank you, Jim.

Operator: Our next question comes from Yuan Zhi with B. Riley. Please go ahead.

Q – Unidentified Analyst: This is Brandon [ph] calling in for Yuan. Congratulations on the progress in the quarter and thanks for hosting us at your flagship New York meeting center. Just one on us returning to the CMS question. I was just wondering if you could talk a little bit about that from the patient access point of view And what kind of arguments like patient and physician advocacy groups will have going into Congress. And I think that you’ve already touched a little bit on your thoughts on their chances for success there, but maybe you can just reiterate that.

Howard Berger: Well, I liken the advocacy program to the old parable of a tree falls in the woods would anybody hear it. I think we’ve been to Washington met with numerous both House and Senate representatives or their age. And while we go through the process, I’m not sure ultimately if it has any impact. I think what CMS needs to do is really sit down and revalue primarily the technical component of what we deliver and take into consideration impacts like inflation, like salary increases, increasing cost of equipment and other things that they have not revalued probably for close to two decades. I think that the sustainability of what Medicare and CMS are doing is ultimately going to hurt the health care delivery system and put the Medicare population in jeopardy of not having the access that they need.

As you’ve probably seen, and we see it in our markets here that the whole development of a concierge type of practice where Medicare and maybe even other insurance payers are not being taken, and it’s all goes to self-pay is a trend that I think will continue as long as the system does not recognize the need to make the investments in a reimbursement atmosphere that will attract the talent and allow for the investment that we in the US are still capable of doing and bending the cost curve for the delivery of health care. And that disconnect just has to change, we saw a change dramatically during COVID, so that we know when the pressure is on to deliver better health care that the government can respond to that. And I think we are in a similar, although less noticeable crisis right now.

And whether we’re that agent to change or others, our agents have changed. That change is coming. It’s got to come with other changes in health care where we move to perhaps more value-based medicine for reimbursement, population health and other things that will require short-term investments, but we’ll have long-term gains. And I think that will always as a country, you have to suffer through this until the conversation, much as I talked about, becomes a dialogue and not just a monologue based on the government’s desire to try to just rearrange the chairs on the deck of the Titanic.

Q – Unidentified Analyst: Great. That sounds like a longer term view of things. In the near-term, do you think the best case scenario for this year would be that they kick the can down the road to next year? And just the near-term, do you think that, that year after year taking the can down the road is likely to continue?

Howard Berger: Yeah. I ,guess the best thing to do is kick the can down the road. That’s what the government is famous for. But I think even if you kick that can down the road, it’s a recognition of the fact that in many aspects, our health care system is broke. And the sooner we have more of a conversation, which truly looks at the root causes and that just tries to lower access. I’ll give you perhaps the best example of this that we have. Right now, there is a clear benefit to screening for lung cancer predominantly, obviously, from smokers. Risk assessment tools have demonstrated that perhaps in excess of $15 million Americans are at risk for lung cancer and that there is reimbursement for that [indiscernible]. Right now, only 6% of the people who are risk assessed or even less are getting that.

And in the VA system, which is effectively a single payer system, that number is even less than 6%. I think it’s a quality that the opportunity to really change the dynamics and impact of lung cancer, which is the greatest — highest mortality rate amongst all cancers is not something that is aggressively will be in pursuit and instead, hurdles are placed for patients who are risk assess to be able to easily get a lung scan just as a woman is capable of getting a mammogram due by self referral. And I know I’m kind of stepping on a little bit of thin ice year because there is controversy about this. But the one place that isn’t controversy is earlier diagnosis leads to better outcomes. And the more that we delay taking the aggressive actions necessary to earlier diagnosis.

And I’m not just talking about lung cancer. I’m talking about all types of long-term chronic diseases, cardiac diseases, diabetes, et cetera, which imaging has unique opportunities to be the tool, the agent and the tool of change needs to be adopted in a more urgent and aggressive manner than what any of the payers or the government is currently doing. So everything is kicked — kicking the can down the road, but at some point, this will only cause further stress on the system, and it’s time just to have all of us put out big boy pants on and tackle these issues because we have the technology to do it. And the fact that we don’t is really reprehensible for all of our healthcare leaders to not take a more aggressive action on this.

Q – Unidentified Analyst: Right, right. Thanks for that. Maybe I could squeeze one more in on Alzheimer’s. Can you give us any updates on preparations going into providing for the medical imaging needs for those patients as more treatment options come online?

Howard Berger: Yes, that’s a great question. We expect that there will be a significant increase in imaging as some of the new Alzheimer’s drugs et further adopted. All of us should be aware, just like everything else in healthcare, it’s a slow process, but much like the experience that we’ve had with prostate cancer and the adoption of PET CT scan, which has fundamentally change the whole diagnostic and therapeutic approach to prostate cancer is possible in Alzheimer’s disease. We now have tools to detect it earlier and quantify the benefit of these new drugs, but they come with potential side effects, which imaging can also help identify earlier and more accurately. So I expect that over the next couple of years, all of the forces inside health care will start taking advantage of these new drugs and imaging will be at the forefront to help make this a more effective tool in diagnosing Alzheimer’s.

Alzheimer’s is probably another under diagnosed disease. And while the number I hear of 5 million people that have been diagnosed with Alzheimer’s, I think you probably double that number and people that could be diagnosed earlier before the more severe symptomatology makes the diagnosis more after it, if you will. So while we’re not certain how to build the revenue opportunity into our models at this point in time. I’m confident that sometime in ’24 and probably more in 2025, it will have a substantial impact for our Imaging network, which, again, is built in the most densely populated areas where the majority of Alzheimer’s patients reside. So we expect to see substantial benefits from that. And probably that we can be part of bending that curve in the diagnosis in the earlier diagnosis and ultimately, treatment of Alzheimer’s.

Q – Unidentified Analyst: Great. Thanks for the color and thanks for taking my questions.

Howard Berger: Thank you.

Operator: Our next question comes from Rishi Parekh with JPMorgan. Please go ahead.

Rishi Parekh: Thanks for taking my questions. I guess I just have one around your comments that you’re actively looking at acquisitions. There are numerous opportunities, and some of them include fell ventures or failing ventures. Can you just walk us through the characteristics of the acquisitions that you’re pursuing? And if you’re looking at more of the challenged assets, what are you seeing in terms of multiples given their leverage profiles and given some of the possibilities that they’ve either underinvested in their assets or all needed or impaired relationships? Thank you.

Howard Berger: Good question. Well, first of all, I think in general, and not just in health care, but multiples certainly have come down. I think the day of basically almost zero interest rates created a feeding frenzy, if you will, that allowed certain groups that go out there and be less concerned about how much they were paying for these assets given that money was almost free. I think the benefit, if you will, of rising interest rates is bringing a little bit more common sense approach to this because health care, unlike a lot of other industries is really unpredictable. Things that we’re looking at today, for example, like labor shortages, continuing deterioration or lowering of reimbursement or things that we may not have thought about three years ago.

So I think that the multiples are coming down. We’ve been disciplined and never really got into that kind of an arms race, if you will. And so — that’s why I think we’re in a very good position with our leverage, not only being about two times of our debt. And I think more common sense, not just from distressed, but all of the assets inside of health care and particularly imaging, will now be a little bit more rational. For us, the decision-making is really two parts. Number one, in markets that we’re currently in, two acquisitions add to our network access, which allows us operational and conversational improvement for our reimbursements. And that’s always our first priority. So much like we did last year — okay, it was last year with Montclair Radiology, which was a big provider in New Jersey.

We stretched and made, what I think was a very good acquisition for us long-term in terms of our network access and delivery and buying a very high-quality radiology group. As opposed to new markets, we are looking at new markets, but there has to be the right dynamic where we’re not interested in going into a market where we buy a single center or two even if the pricing looks good. We have to have a good platform acquisition to enter a new market and one where there are growth opportunities to add to that, it gives us a very substantial presence in that market for the same reasons that we’ve developed that in all the other seven markets that we’re in or seven states, I should say there we’re in. We’re in multiple markets beyond just the seven states.

But I believe those opportunities will now be more likely because of assets that may be distressed either because people tried their own consolidation and paid more for those assets and they’re worth or they just couldn’t create the kind of consolidation synergies that they thought were there, which were far more equipped to deal with. So as we mentioned in our remarks, I think our liquidity position and leverages, leverage allows us to look at opportunities to go into other markets or to potentially take on acquisitions that might significantly bend the curve in terms of RadNet’s presence inside the radiology community.

Operator: Are you done with your question, Rishi?

Rishi Parekh: Yes, sorry. Thank you.

Operator: We will move on to our next question, which is from Ed Kressler with TPG Angelo Gordon. Please go ahead.

Ed Kressler: Good morning. Thank very much taking the questions. And Rishi partially covered this, but just in terms of the recent equity raise and subsequent deleveraging, at least on a net debt basis, just a little more color on the thought process behind that, please, if you would. Is it related to the de novo opportunity and kind of associated CapEx that’s required there? Or is it more of this M&A-driven opportunity that you just spoke to and the opportunity for even a transformational deal? And then related to the possibility of a transformational deal, do you have a leverage target that you feel comfortable going to for the right deal, kind of obviously, we’ve gone through COVID and had some disruption. But kind of pre-COVID you were kind of 4 times levered versus kind of the two times levered you are now? Do you — how do you think about leverage in the context of a deal like that? Thank you.

Howard Berger: Sure. Hi, Ed. I think I’ll take this question. I think to your question about how we’re looking at our capital structure and deleveraging and how that could potentially change with acquisitions. We’ve been prudent and disciplined, and it’s not been lost on us that interest rates have gone up about 500 basis points in the last 12 to 18 months. And so as we’ve seen rates go up, we’ve been more and more we’ve had more and more conviction to try to deleverage the balance sheet. We were very fortunate that we entered into interest rate swaps in 2019 that have shielded us from some of the pain that others are feeling as the base rates have increased so rapidly over the last 18 months. We did do the equity raise in part to deleverage the business and derisk the capital structure, but we also did that to accelerate growth.

As we’ve talked about a lot in our prepared remarks today and in past calls, we’ve got more than a dozen de novo centers in various stages of development. We’re executing on hospital joint ventures. We continue to do the smaller tuck-in M&A transactions in our markets. We’re spending aggressively to increase capacity and improve our technology and our throughput at our centers to meet heavy demand and we see this as an opportunity to set ourselves apart from other operators in our industry and competitors that we have in our market where we can advantage ourselves by having the capital and having the liquidity to execute on these types of opportunities when others cannot. Now, in terms of the other part of your question about our thoughts of levering up again for a substantial acquisition.

I guess our answer is it all depends upon what the acquisition is and what the opportunity is to drive value for our shareholders and for our — all our stakeholders, including our lenders. I think there would be an opportunity to do something on a larger scale for the right deal. I think our management team and the level of infrastructure that we have can support a much larger platform, and we can grow this business substantially in the future without essentially building up our corporate infrastructure much larger than it is today. I think we’ve also, over several decades of operating this business, have come to a model that we think is the model that works and can scale in this industry effectively. So, we would be interested in growing this business and that capital that we raised in June of this year, I think, is positions ourselves to do something on a larger scale.

Would we take on a little bit more leverage and a little bit more capital structure risk do something like that? I think the answer is yes, we’re willing to do it to a point. I don’t — I think that the days of being five, six times levered, particularly in a capital-intensive business like the one we’re in, are behind us because interest rates today don’t lend themselves to having that type of leverage. But we would potentially take on additional leverage if we could convince ourselves that in a reasonable time period, meaning 12 to 24 months, we could deleverage the capital structure through synergies and efficiencies with whatever transaction we were contemplating.

Ed Kressler: Great. Thank you. thanks so much for that color. I’m sorry.

Howard Berger: Yes. That’s okay. I just want to add a comment. I think Mark was spot on here. There’s three things that really allow us to potentially look at something transformational. One is where are the synergies coming from. If we can’t find synergies, then I don’t believe it’s possible to think of a large transformational acquisition because the need to leverage down is critical to RadNet’s philosophy. So synergies become probably the single most important driver. And as opposed to what I’ve seen other people do, when we do due diligence and find synergies, we’re going to have to have an extraordinary degree of confidence that those can be achieved. That’s number one. Number two. We have tender now, which we didn’t have before in the value of our stock that would have to be a component of any transaction to avoid leveraging up their company beyond levels that we’re comfortable with.

But the third one that I want to mention is the fact that we have committed to a substantial investment and transition inside RadNet to artificial intelligence, both on the clinical and operational side will allow us, as RadNet performs today and into the future as well as taking on other expanded relationships. Whether they’re with our joint venture partners, new acquisitions or something transformational that will allow us to run the company in a way that doesn’t burden us like it does today with the need for more and more human capital. So our AI capital becomes really the driver in our ability to take the almost 400 centers that we’ll have by early next year and create a sizable business beyond that. And I want to leave everybody with that commitment on the part of RadNet to make the investments that will not only make RadNet a bigger and better company, but which will have ultimately enormous benefit to the most important asset we have, and that’s our customer base, our patients.

So I think we’re in a much different place today than we were even a year ago. And I think the future for RadNet and all of its employees and shareholders is very rosy.

Ed Kressler: Thank you so much for all the color.

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

Howard Berger: Right. Thank you, again. And I would like to take the opportunity to thank all of our shareholders for their continued support, and particularly the employees of RadNet for their dedication and hard work. Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all of our stakeholders. Thank you for your time today, and I look forward to our next call. Good day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may all now disconnect.