Again, I'm Brian Tanquilut, Healthcare Services Analyst here at Jefferies. Welcome to the 2024 Global Healthcare Conference. With us this morning is RadNet, largest operator of outpatient imaging facilities in the U.S. Joining us today is Howard Berger, the company's Chairman and CEO. Howard, thank you so much for joining us, and it's really nice to see you here in New York, now that you live here part of the time. Yeah. So it's great to see you. Maybe let's start, Howard, by just doing a state of the union here. What's going on with RadNet? The story, as we were chatting outside, has changed quite a bit. Obviously, the stock reflects that. So curious what you're seeing, what you think, and where do you think RadNet's going? Yeah. Thanks, Brian, and nice to see you again. Nice to be here. Well, I think the easiest way to describe the state of the union is that change is afoot. I don't think this is necessarily unique to RadNet, nor is it unique to the imaging industry, radiology industry. It's what's happening in healthcare. I think as most of you who follow the company are aware that we announced 2, 3 months ago that we were splitting the company into 2 segments, 2 reporting segments. One, the traditional imaging services division, and now our new digital health division, which was effective as of January first, and which our first quarter report on March first, I think it was, gave you a glimpse into how the company would look. I think that's probably what is on the minds of a lot of people today, is what is, what does digital health mean for RadNet? What does it mean for the industry? And rather than me spend too much time on the imaging services side of it, which is the traditional blocking and tackling that we've been doing for 40 years, but seem to be doing a better job of it these days for various reasons, the digital health is what's exciting and transformative, for healthcare and in particular, imaging. We're focused on two aspects of digital health. One is the field that we entered, or the part that we entered about 4 years ago when we made our first acquisition into artificial intelligence on the clinical side, also known as the predictive side. And we bought a company that was doing artificial intelligence for breast scanning, mammography. We then followed that up with investments in prostate screening, lung screening, and neurologic screening tools. But about a year ago, with the advent of and availability of generative AI, otherwise known in some circles as GPT, the company made a bigger commitment into the generative AI side of this, which will be transformative throughout healthcare, but particularly for RadNet, which is a technology company, meaning that the equipment that we use is really highly technologically driven, has an opportunity to affect every facet of what we do. Given the current labor conditions, both from a cost standpoint as well as availability and shortage of labor, transforming healthcare and our business in particular, from manual processes into computer-driven processes, could have an enormous impact, both in terms of the company's performance, margin expansion, as well as a totally different patient experience that I think will help continue to give RadNet a competitive edge. But we've made, more importantly, a commitment to, as opposed to our efforts in the past, to commercialize this part of our business. With the opportunity that we have of an enormous installed base, which is now almost over 400 centers, and seeing about 45,000 procedures a day that we're doing, we have an enormous ability to take that data and transform it into tools that artificial intelligence will help not only improve productivity, improve the quality of the imaging we do, make our radiologists more efficient, productive, and better quality and certainty, but will take the rest of our business and make tools that will ultimately fundamentally change our business and make it a better patient experience and a better outcome. So I think the state of our state is that we're doing a good job of building our infrastructure in terms of imaging services, continuing to do tuck-in acquisitions, and now perhaps some larger acquisitions that we might be looking at, given the capital that we've raised over the last 12 months. But trying to take all of this and wrap it around a very specific and very effective digital health division that will be able to have almost unlimited potential, even outside of RadNet itself. Now, thank you for that, Howard. So maybe since you started on AI, let's hit on those topics first, right? So, in Q1, you saw a 32% increase in revenue on your digital health segment. It sounds like you're gaining traction with your mammogram offering, which you call EBCD. Where do you think you can take that business, and what would it take to continue growing, you know, EBCD for one, and then maybe other modalities within AI that you have developed? Yeah. Well, RadNet currently does about 5% of all the mammography screening in the United States. So, technically speaking, the other 95% is certainly going to have artificial intelligence for screening mammography, as a component of it, and that will be the state-of-the-art. Even though there may be some people that'll go kicking and screaming, I think the information is clear that this is an enormous opportunity to improve the quality and earlier detection of breast cancer. So if you ask what the opportunity is, everybody's gonna be using this tool. It's a question of whose tool emerges as either the best tool or the one that's most effective. So given the fact that, we also expect that mammography, now that the U.S. Preventive Services Task Force has lowered the age at which they recommend initial screening, fortunately and finally, down to the age of 40. And my guess is that in the future, they'll probably lower that to the age of 35 or more, because certainly there's an increasing amount of cancer that's being detected earlier, at an earlier age. So we expect to see that base expand and increase the number of screening mammograms. So, right now, because there is no reimbursement for this, we have gone to a self-pay method for doing this, and I'm very pleased to say that, at least on the East Coast, where we've now had this rolled out for over a year, over 40% of our female patients are electing to get the AI tool that we have as part of their screening program. And, that's very gratifying, both because I think we've proven that the price point is a fair price point and that the benefit that they're getting is certainly worth this. So, that we see as probably the biggest potential for us with a screening AI tool, not only here in the United States, but nationally, internationally, nationally and internationally, is a huge untapped market that I think artificial intelligence will be critical in bringing out to the rest of the world. And that will be the biggest. As you've mentioned, we've also made investments, in the AI side, in lung and in prostate, both of which are showing that the artificial intelligence will have the same kind of opportunity as it has, in the case of breast, and that is earlier detection with better outcome. We're now part of a large rollout. Our lung AI tool is part of a large rollout in the United Kingdom, which has adopted lung screening for high-risk individuals for lung cancer, mainly smokers, if you will. And right now, about 25% of the UK population that has been risk assessed is actually getting lung screens, and we're doing the interpretation and the AI for about 80% of all of these patients, which we expect to quadruple, probably over the next 3-4 years as more and more people come in. We're also now working on a what we call a Manogram, a prostate AI tool which has some early work that we've done shows that applying the artificial intelligence to a screening MR will in fact diagnose prostate cancer earlier than traditional PSA testing, which is a blood test. So, given the number of men and women in the world, there's a huge potential for this. We're also working with some of the OEMs to put some of these tools right onto their equipment, which is another exciting opportunity that we hope to be talking about, you know, later in the year. So, that part of our AI program, I think, is well on its way to being both, expanded and adopted outside of RadNet, and we have beefed up our commercial team to do that. On the generative AI side of it, we're working to finish off, and we'll begin implementing, in the third quarter, pieces of this, which will impact primarily our contact center, our scheduling operations, some of our insurance authorization processes, and which we hope to have fully rolled out by the beginning of next year, at which time we'll be talking, as we already are, to other parties that will wanna utilize this outside of RadNet. I might emphasize, too, 'cause it's not always as clear in our reporting, but we have a built-in market for these tools by virtue of the expanding joint venture relationships we have, which with some of the major health systems here in the U.S., all of whom have expressed an interest in making the centers that we operate for them, that are gonna utilize these tools, be something that they utilize in their hospitals, and to try to create a uniform platform for the delivery of their imaging data, which we don't have to go out and try to hard sell, 'cause they're interested in providing that as part of the overall RadNet relationship. Howard, there's a lot to unpack there, so maybe I'll hit on probably what was new to me and what's interesting is, you mentioned the OEMs and trying to figure out who or which AI technology other mammogram operators, for example, will use, right? 'Cause, I mean, there obviously are different FDA-approved technologies out there. But it sounds like, you know, you're very close to some of these OEMs. So do you foresee the AI strategy maybe bifurcating to where you are gonna be a supplier to others, whether that's OEMs or hospitals or other, healthcare delivery channels? And how do you foresee that in terms of, you know, the lack of reimbursement from payers today, right? So what would the adoption look like where if I'm GE or whoever else selling a mammogram that's AI-powered to a physician, why would they care if there's no reimbursement yet today? Well, first of all, I think there will be reimbursement. We just don't know when and what form that will take. I think it's more important to recognize that the tools that we're talking about today will be standard sometime in the reasonably near future, given the fact that the clinical evidence is just so overwhelming on how much they improve the overall diagnostic capability and ultimately, outcomes. I'm a little less concerned about who's gonna pay for it, and I'll tell you why. For most of the radiologists that provide interpretation, at least let's speak about mammography, this tool will make them a better radiologist. For many of them, they may not even wanna charge their patients because it will give them either a competitive advantage in their market or at least bring them up to the level of quality that is generally associated with academic institutions, and universities, and dedicated women's centers. I think it's not easy to appreciate that that's where the majority of mammography is done. It's not done in hospital settings. It's not done at academic universities. For example, I have a good friend at Memorial Sloan Kettering. They do very little screening because most of the work that they do are women who have unfortunately already been diagnosed with breast cancer, and they're sent over to Memorial Sloan Kettering for definitive treatment. So screening tools for them are not what they need. In fact, my conversation was, is that my goal is to put you out of business because if we can diagnose, which we should, cancer earlier, it's a curable disease. No, no woman should die from breast cancer if they have access to adequate screening and artificial intelligence. So I think who pays for it is gonna be ultimately decided perhaps by the consumer, not necessarily by commercial payers or even Medicare. And I say that because 70% of all commercial insurance are by employers, either self, you know, self-pay, or that just use a network, if you will, for delivery. And we've already had some success with our hospital systems who self-insure, that they're now making artificial intelligence a part of their benefit package for their employees and dependents, and they are covering the cost of it. So I think that the dynamic of reimbursement is one that is going to change as the marketplace recognizes the benefits of what we're talking about. The movement, if you will, to population health and screening tools, whether it be cancers or non-cancer diseases like cardiovascular disease, are where the determination is gonna be made by the people who are footing the bill, not necessarily who are paying for it through an insurance product. And then, what about the OEM strategy, Howard? What would that look like? I think all the OEMs recognize that, artificial intelligence, is something that's gonna have to be a part of their equipment. In some cases, they're already using artificial intelligence, for example, to shorten scan times on the MRI, and CT scanners, et cetera. They're using it much like we are to do remote screening, or remote- Reading Scanning, I'm sorry, and use it. So they're all building it into their tools with how they operate their equipment and put it on, put it on their equipment. What they haven't done is gone into the clinical side of it, like we have. And what we're trying to do is put these tools onto the equipment itself, and they may become a distributor for us, and we may become helpful in driving sales of their product. So the alignment of RadNet in a unique way, simply because we own this technology, and we have such a huge base to implement it and test it on, is driving more and more of the conversation. Got it. And then maybe, Howard, let's shift back to the core business. I know everyone's excited about AI. Wait, what is it again? Oh, okay. But your core business has also been really strong, right? And it's, we've seen definitely some growth acceleration there. I think on your last earnings call, you said that you're expecting strength in volumes to carry over all the way to the back half of this year, at the very least, right? So what has changed in terms of industry dynamics for outpatient imaging that has translated that? for you guys? Yeah. Well, I think there's 4 drivers in it, one of which is the easiest to understand, is what we've been benefiting from over the years, and that is growing population and an aging population, all of which demand more imaging, if you will. And that's accounting for perhaps 2%-3% of our traditional growth and what we build into our budget. But the other 3 components that seem to be accelerating nicely now are, number one, an accelerated shift away from hospital-based higher pricing into the outpatient imaging, lower cost, and more efficient operation. I think that that that became accelerated a little bit during COVID, where people were more aware of trying to avoid going into a hospital, and now there's some stickiness to that, if you will, and that's driving it at a greater capacity, number one. Number two, more awareness of screening tools are now being adopted. We're seeing better compliance in breast screening, obviously, as I've talked about, lung screening, and prostate screening, and those are driving volume, much like, we're seeing in perhaps another area, and that is more use of advanced imaging for the, issues or opportunities like in PET/CT scanning with, PSMA and now the Alzheimer's drugs. So that's another component. That's accelerating very rapidly. We had an 18% growth in our PET/CT business, last quarter over the prior quarter, which is just, phenomenal. And the last, perhaps, is that the newer equipment that we're putting in has shorter scan times and greater accuracy and efficiency, and it's allowing us to capture some of the pent-up demand that we have, where we've not been able to get that kind of throughput. So all of these are trends that I believe will continue, not only at the current pace, but maybe even further accelerate as we're able to deploy more of these. As you're aware, we are now building a lot of our own centers to help address some of the capacity and demand issues, and I think that's helping drive more and more volume also. Howard, one of the other things that I've noticed is your balance sheet has obviously de-levered over the last few years to, you know, levels of- When did you see that? But also, you're sitting on almost $700 million of cash today. You just entered Texas, which is a brand-new market for you, earlier this year. So how should we be thinking about your view on or strategy on deploying that much capital off of a base of roughly $270 million-$280 million of EBITDA today? Yeah. Well, I think the benefit of being, of having cash on your balance sheet is it has people look at RadNet differently, whether you're a shareholder or a debt holder. Our leverage is down to about 1x, so I think everybody is more comfortable that we're able to make the kind of strategic business decisions a little bit more aggressively than we might have in the past. But we wanted to position ourselves where we could look into perhaps other markets that we'd like to go into, where it might require larger acquisitions to create a good platform, markets that we're not in right now, number one. Number two, many of the joint ventures that we have with the current health systems and newer ones that we're looking at, we might wanna buy into their centers or come up with a path to grow centers, which, 'cause they're all experiencing the same issues with demand and lack of capacity. And then, there are other opportunities of scale that, whether we do those or not, being able to deploy capital, not only with our stock, which has obviously achieved its own tender value, but with cash, makes the conversations a little bit more fluid in terms of us creating the kind of opportunity that we think is necessary to do more of a scale operation. So we've given ourselves the ability to almost go in any direction here, and, we're not-- we didn't accumulate the cash for the arbitrage, if you will. We're really gonna be in a position to, I think, deploy it in ways to grow the company like we have been, and also potentially take advantage of some of the digital health and AI opportunities that we believe are gonna come our way, as that industry itself has fallen a bit on difficult times with increased interest rates and some of the pullback of the venture capital funds in getting into startup of, or let's say, AI's businesses that are not yet generating much at all in the way of revenue. Howard, we've got a minute left here. So to conclude, as we think about RadNet, maybe if we can synthesize your growth outlook, you know, accounting for same store, market share gains, de novos, M&A, and margin expansion. So how do you see RadNet's path over the next few years in terms of the growth algorithm or the growth outlook? Well, I'd like to say that, we're gonna do the same things that we've been doing for the last 40 years in growing the company, just on a larger platform and scale. I think, we're gonna find, and we are finding, more hospitals that wanna look towards us for an outpatient strategy. Everybody's interested in AI and knows that it's the future in healthcare and in particular, in imaging. We wanna try to transition more and more into population health and screening tools, particularly cardiovascular. I think you'll be hearing a lot about that. I saw an article this morning that by 2050, it's hard to believe, that they're predicting that 61% of the population is gonna have cardiovascular disease. And so there's nothing more pervasive than that, and some of the tools that we have currently are incredible in their ability to diagnose cardiovascular disease earlier, ahead of a major complication. Howard, thank you so much. Really appreciate you being here. Thank you, everyone. Thank you, Brian. Thank you, everybody.