RadNet, Inc. Q3 FY2024 earnings call

• Strong Q3 performance: Third quarter was the strongest in company history with record revenue and adjusted EBITDA. Total company revenue increased 14.7% y/y, Digital Health revenue up 34.3% y/y.
• Imaging Center growth: Driven by heavy demand in markets, improved reimbursement, and shift to advanced imaging (advanced imaging represented 26.7% of procedural volume, up 142 basis points y/y).
• Digital Health growth: AI businesses, including AI-powered EBCD breast cancer screening program, grew 75.8% q/q. Adjusted EBITDA increased 27.2% y/y due to revenue growth and operational efficiency.
• Facility expansion: 5 de novo facilities opened YTD, 3 more anticipated by end 2024, 15 projects for 2025. Hospital joint ventures: 152 centers (38.1%) in health system partnerships.
• Partnerships: Collaboration with GE Healthcare for SmartMammo, DeepHealth OS commercial launch, and initiatives in Digital Health to drive revenue, reduce costs, and increase margins.

Imaging Center segment: Reported revenue of $452.4 million and adjusted EBITDA of $70.4 million for the third quarter of 2024. This was an increase of $56.8 million or 14.3% in revenue and an increase of $14.8 million or 26.6% in adjusted EBITDA compared with last year's third quarter. Digital Health segment: Reported revenue of $16.4 million and adjusted EBITDA of $3.2 million. Revenue increased $4.2 million or 34.3% and adjusted EBITDA increased $950,000 or 41.7% as compared with the third quarter of 2023. Digital Health's significant growth was due in part from a $2.2 million or 75.8% increase in AI revenue, which climbed to $5.1 million during the third quarter of 2023.

• Revised 2024 guidance: Revenue guidance increased to $1.710 billion to $1.760 billion, Imaging Center adjusted EBITDA guidance to $262 million to $270 million, capital expenditures to $145 million to $155 million, cash interest expense to $25 million to $30 million, and free cash flow to $83 million to $93 million.
• 2025 guidance to be issued end Feb 2025, considering factors like Medicare reimbursement, labor costs, advanced imaging trend, and Digital Health growth.

• Medicare reimbursement changes: Potential $6 million to $8 million headwind in 2025 from final rule if not mitigated.
• Labor cost inflation: Impact on operational expenses due to need to attract and retain talent.
• Regulatory hurdles: Affecting mergers, acquisitions, and growth in healthcare.

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

A: Good morning, Brian. I hope you're well. First, let me start by saying that the major component of SmartMammography is the embedding of the DeepHealth operating system onto, in this case, the GE Senographe Pristina Mammography System. What that means is that the capabilities of the AI solutions, both clinical and generative will be embedded onto the gantry of the GE mammography system, allowing essentially for a turnkey operation...

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

A: Hi, John, it's Dr. Berger again. Yeah, this is a software licensing arrangement with GE. And they will through their sales and marketing force, distribute that for us on their equipment. We will, of course, as I said, also be doing some of that ourselves directly to other providers and in other opportunities where the benefits of our DeepHealth program...

Q: Great. Thanks, and good morning, Howard, and good morning, Mark. I guess just following up on the Digital Health question. Just on the GE collaboration, just any timelines on when -- I guess, they're rolling in your software into an existing machine, right? So when we take that usual OEM a lens of time, but could you just give us an idea of when these products actually will be available for commercialization?

A: Well, I'll answer that one, Larry. Good morning. The commercialization efforts will begin really at the RSNA, where we will have the SmartMammo both at our booth and the GE booth at McCormick Place, where the meeting is held in Chicago on demonstration -- and which we are able to deliver today. There are some upgrades that are coming to the GE system that will further enhance the viewing and resolution that are in for FDA approval that hopefully will be an upgrade to the systems that they may sell today, sometime in the second quarter of next year. But essentially, the tools are tested and pending a final FDA approval that DeepHealth will be getting about adoption or application of the EBCD -- excuse me, not the EBCD, but the AI tool on the GE systems, which we expect this month will be ready for a rollout of these systems in the first quarter of 2025.