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

Mark Stolper: Thank you. Good morning, ladies and gentlemen. And thank you for joining Dr. Howard Berger and me today to discuss RadNet’s first quarter 2025 financial results. Before we begin today, we’d like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance, RadNet’s ability to continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining technologists, receiving third party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and adjusted EBITDA for the acquired operations as estimated, among others, are forward looking statements within the meaning of the Safe Harbor.

Forward looking statements are based on management’s current preliminary expectations and are subject to risks and uncertainties, which may make RadNet’s actual results differ materially from the statements contained herein. These risks and uncertainties include those risks set forth in RadNet’s reports filed with the SEC from time to time, including RadNet’s annual report on Form 10-K for the year ended December 31, 2024. Undue reliance should not be placed on forward looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RadNet undertakes no obligation to update publicly any forward looking statements and to reflect new information, events or circumstances after they are made or to reflect the occurrence of unanticipated events.

And with that, I’d like to turn the call over to Dr. Berger.

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 first quarter 2025 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 joining us today and your interest in RadNet and for dedicating a portion of your day to participate in the conference call. Let’s begin. As we indicated at the end of February in conjunction with releasing our fourth quarter 2024 financial results and 2025 guidance ranges, the first quarter of 2025, specifically January and February, were significantly and negatively impacted by severe weather conditions in the Northeast and Houston, Texas as well as wildfires in Southern California.

At the end of February, we estimated this negative impact to be approximately $22 million of revenue and $15 million of EBITDA. This impact was embedded into our 2025 full year guidance levels we released at that time. While the impact of severe weather conditions and wildfires — Southland fires were as expected material to the financial results of the first quarter, I was very pleased that the business recovered to levels in March, April and the early part of May that are consistent with the strong growth trends. I am pleased to report that these issues are behind us and that our business is now demonstrating the strong procedural and revenue growth trends consistent with recent performance. There were a number of items in the quarter worth noting.

First, we continue to see a gradual shift towards Advanced Imaging. During this year’s first quarter, 26.9% of procedural volume was from Advanced Imaging compared with 25.7% in last year’s first quarter, a difference of 126 basis points. This is both a reflection of overall industry trend as well as the significant capital investment we have made in the last few years in Advanced Imaging equipment for growth and replacement. Also despite the weather and fire impacts, aggregate PET/CT volumes increased 22.9%, driven by the continued growth of the newer prostate and brain procedures. Because PET/CT typically is performed to identify end stage cancer or in the case of brain studies to detect plaques correlated with Alzheimer’s or dementia, these studies tend to be less selective in nature and were less affected than the rest of our business by the severe winter weather and wildfires.

As a result of the operating strength we saw in March, April and the first part of May, we have adjusted upwards our 2025 revenue and adjusted EBITDA guidance ranges. Despite the challenges presented by the severe weather and fires, we have enhanced important operating and digital health initiatives in the first quarter. First, we continue to implement the TechLive remote technologist solution. Radiology technologists comprise almost 40% of our total employee base. Due to the continuing growth of an industry wide procedural volume, radiology technologist are in high demand and short supply, challenging our ability to expand hours necessary to meet this strong demand in RadNet’s local markets and has resulted in rising labor costs. As DeepHealth tech — remote scanning technology enables technologists to control equipment remotely, enabling them to cover shifts that would otherwise go on staff and in a growing number of cases enabling technologists to control multiple scanners simultaneously.

We have installed TechLive on 255 of our almost 400 MOI scanners are in the process of testing TechLive on ultrasound scanners whose effectiveness are highly dependent on the training levels and experience of technologists. We continue to believe this technology will positively impact revenue and lower operating costs. Second, the EBCD digital DeepHealth AI powered breast cancer screening program continues to grow. Notably, despite the weather and fire impacts, EBCD adoption increased from almost $3 million in the first quarter of 2024 to slightly over $4 million in the first quarter of 2025, a 33% increase. Currently, we are experiencing a blended adoption rate nationally of over 40%. More cancers are being found earlier across our centers that might otherwise have gone undetected and at the same time, we are making our radiologists more productive.

During the first quarter, we enabled our first third party EBCB customer OB/GYN Specialists of the Palm Beaches with the technology and interpretive services to offer AI enhanced breast screening to its patients. OB/GYN Specialists services nearly 6,000 women across 10 locations in Southeast Florida and is now offering state of the art mammography and breast cancer screening, inclusive of EBCD and expert radiologist interpretation. At the current time, over 50% of the OB/GYN specialists patients are adopting EBCD as part of their mammography screening. As part of the collaboration, RadNet’s contracted board certified breast imaging radiologists are providing interpretation of all mammography and diagnostic screening exams conducted across OB/GYN specialist locations.

This point of care model is a new growth opportunity for RadNet and DeepHealth’s offerings, not just in mammography but also in the areas of X-ray and ultrasound. DeepHealth is working closely with various equipment manufacturers to develop technology that can further enable routine imaging more accessible to patients. Subsequent to the quarter end, on April 15th, we announced the acquisition and signing of a definitive agreement of iCAD Inc., a global leader in providing clinically proven AI powered breast health solutions. ICAD’s profound breast health suite and RadNet’s DeepHealth AI powered breast screening solutions together have the ability to materially expand and improve patient diagnosis and outcomes on a global basis through further enabling accuracy and early detection.

With over 1,500 healthcare provider locations and facilitating over 8 million annual mammograms in 50 country, iCAD’s installed base and strong sales, engineering and marketing capabilities will provide us with immediate broad and valuable customer relationships and commercialization capabilities that can celebrate existing DeepHealth opportunities. With this business combination, we hope to accelerate our global leadership in and commitment to AI powered breast cancer screening and position us to further advance population health. The transaction is expected to close in the second quarter or early part of the third quarter of 2025, is subject to the approval by iCAD shareholders — stockholders and other customary closing conditions. We continue to grow our hospital and health system joint venture business.

Currently, 154 of our centers are held within system partnerships. This includes two de novo facilities, which we opened in the first quarter inside of the New Jersey Imaging Network joint venture with the RWJBarnabas Health System. We anticipate both establishing new joint ventures with other health systems as well as expanding existing partnerships during the remainder of 2025. Health systems continue to seek solutions for long term strategies around outpatient imaging and have recognized that cost effective freestanding centers will continue to capture market share from hospitals as payers and patients migrate their site of care to lower cost high quality solutions. Finally, we continue to have strong liquidity and modest financial leverage.

We ended the first quarter with a cash balance of $717 million and a net debt to adjusted EBITDA ratio of slightly more than one. We have an active pipeline of acquisitions, which we are evaluating both for our core Imaging Center division as well as for the Digital Health division, and we are confident we will be able to invest our cash balance over time in opportunities that advance RadNet’s strategic objectives. At this time, I’d like to turn the call back over to Mark to discuss some of the highlights of our first quarter 2025 performance. When he is finished, I will make some closing remarks.

Mark Stolper: Thank you, Howard. I’m now going to briefly review our first quarter 2025 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insight into some of the metrics that drove our first quarter performance. I will also provide an update to 2025 financial guidance levels, which were released in conjunction with our 2024 year end results in February. In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments and noncash equity compensation.

Adjusted EBITDA includes equity earnings and unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries and is adjusted for noncash or extraordinary and onetime events taking place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is included in our earnings release. With that said, I’d now like to review our first quarter 2025 results. As Dr. Berger highlighted in his prepared remarks, the first quarter was marked by the severe winter weather conditions in the Northeast and the California wildfires, significantly distorting any meaningful comparison to last year’s first quarter results. These extraordinary events were fortunately confined to January and February as our business bounced back nicely in March and revenue and procedure volumes have been strong since.

While I won’t recap all the financial information that’s contained in yesterday’s earnings report, here are some of the highlights. For the first quarter of 2025, RadNet reported total company revenue of $471.4 million and adjusted EBITDA of $46.4 million. Revenue increased $39.7 million or 9.2% and adjusted EBITDA decreased $12.1 million or 20.6% as compared with the first quarter of 2024. Adding back the estimated $22 million impact from the weather and fires to revenue in the first quarter of 2025, revenue would have increased 14.3% from last year’s first quarter. And adding back the estimated $15 million impact from the weather and the fires on adjusted EBITDA for the first quarter of 2025, adjusted EBITDA would have increased 5% from last year’s first quarter.

As a reminder, in general, the first quarter from a seasonality perspective is always our most challenged quarter. Among other things, this is due to increased payroll taxes, the expensing of employee bonuses, the front loading of our capital expenditure budget and lower healthcare utilization in general as a result of the annual reset of deductibles. The Digital Health segment reported revenue of $19.2 million and adjusted EBITDA of $3.7 million in the first quarter. Revenue increased $3.6 million or 31.1% and adjusted EBITDA increased $191,000 or 5.4% as compared with the first quarter of 2024. Digital Health growth was driven by 33.3% growth in AI revenue, mainly as a result of the improved adoption of EBCD and 30.1% growth in radiology software, mainly from more intercompany revenue driven by aggregate procedure volume growth in RadNet’s core imaging centers.

We finished the first quarter of 2025 with a strong cash and liquidity position. At quarter end, we had $717 million of cash on the balance sheet, full availability of a $282 million revolving credit facility and a term loan that is priced at SOFR plus 225 basis points reflective of the refinancing transaction we completed last April and the repricing transaction we completed in November. Continued improvement in revenue cycle has kept our DSOs, or days sales outstanding, at 33.3 days, slightly lower than where we were at this time last year. With regards to our financial leverage, as of March 31, 2025, unadjusted for bond and term loan discounts, we had $285.5 million of net debt which is our total debt at par value less our cash balance. Note that this debt balance includes RadNet’s ownership percentage of New Jersey Imaging Network’s net debt of $39.9 million for which RadNet is neither a borrower nor a guarantor.

At quarter end, our net debt to adjusted EBITDA leverage ratio was slightly more than 1 times. Given the positive trends we experienced in March, April and the first part of May, we elected to increase revenue and adjusted EBITDA guidance ranges for our Imaging Center business. We increased revenue by $10 million at the low and high ends of the guidance ranges and increased adjusted EBITDA by $3 million at both the low and high ends of the range. We also increased our capital expenditure budget guidance ranges by $5 million. Otherwise, all guidance ranges for both the imaging center and the Digital Health segments remain unchanged. With respect to Medicare reimbursement for 2026, there is nothing to report at this time. As is typical each year, we are expecting CMS to release a preliminary rate schedule sometime in June or July.

At which time, we will analyze CMS’ proposal and our industry’s associations and lobbying groups will provide CMS our industry’s feedback. At the time of our second quarter financial results call in August, we will be in a position to comment on CMS’ proposal and its impact, if any, upon RadNet’s future results. I’d now like to turn the call back over to Dr. Berger, who will make some closing remarks.

Howard Berger: Thank you, Mark. I’d like to take a moment and [reminisce] of a letter we received from a patient who recently visited one of our New York Lenox Hill Radiology locations for her annual screening mammography exam. It reads as follows: A few weeks ago, I had a routine mammogram and sonogram as part of my regular health check up. I was advised to have AI software assists with the exam. The results revealed something that had not been detectable previously. Following the findings, I completed a biopsy and another of in RadNet facilities in New York and the results confirmed a diagnosis of Stage 0 breast cancer. Without this software, the cancer might have gone detected until much later. Yesterday, I underwent surgery and I’m relieved to share that the procedure went well and I am now on the road to recovery.

While this journey has been unexpected and challenging, I am incredibly grateful for the power of EBCD technology. Without it, my diagnosis may have been delayed, possibly leading to more complex treatment. I share my story as a testament to the importance of medical screeming. Early detection saves lives and I am living proof of that. To anyone reading this, if you have the opportunity to get enhanced detection, take it, it could make a difference. This patient’s letter highlights several points that I would like to emphasize. First, in the coming years, diagnostic imaging will shift towards earlier detection, preventative maintenance and population health management. Currently, the vast majority of diagnostic imaging is performed on patients who present with symptoms, illness or injury.

While there is tremendous value proposition in servicing these individuals, healthcare can be dramatically improved by screening nonsymptomatic patient populations cost effectively for some of the most common diseases, which are responsible for the rising costs of healthcare delivery. Breast cancer exemplifies the potential for population health management where annual screens for women starting at the age of 40 has greatly improved women’s health. The same could be true for prostate cancer, lung cancer, colorectal cancer, cardiolatisese and other metabolic conditions if and when widespread diagnostic imaging screening is adopted. RadNet is committed to leading radiology and healthcare in this direction. RadNet’s DeepHealth, in addition to powering the EBCD program is already offering AI interpretive solutions for prostate and lung cancer screening.

Furthermore, we have been expanding the use of cardiac screening in a growing number of RadNet centers through offering coronary CT and geography, which often includes AI powered blood flow and plaque analysis. Second, technology advances and specifically technology advances — and specifically AI will have a transformational impact on the creation and effectiveness of diagnostic imaging based programs. As AI becomes more widely adopted, improvements in diagnosis and operational efficiencies will help address labor challenge and make screening programs more affordable and accessible to patients and payors. AI will also be instrumental in making radiologists more productive and accurate while helping to ease the shortage of radiologists in an industry where the procedural growth will continue to accelerate.

Lastly, we believe third party payers will begin to offer reimbursement for radiology AI. Hundreds of thousands of RadNet patients like the woman whose letter I just read have recognized the value of AI and early detection. These patients are passionate and often outspoken. Payers have begun to take notice. And based on — upon constructive conversations with them, we are confident that one or more national carriers, other insurers and self insured employers will offer reimbursement for EBCD program as early as year end. This reimbursement event and others like it could mark the expansion of a new era where radiology becomes more utilized in population health screening programs. I would also be remiss if I didn’t mention the continued investment to facilitate these kind of programs that we make in opening de novo centers throughout RadNet.

In 2024, we opened up nine centers. By the end of 2025, we will have opened up 11 more new centers and are scheduled to open up an additional levers — level — 11 centers in 2026. To sum up, RadNet is well situated at the intersection of healthcare services and technology. RadNet has both; number one, the largest scale and most advanced network of national imaging centers in the United States as well as number two, a digital health division that is advancing operational and clinical software to transform workflow at the centers and corporate levels as well as radiologist interpretation. This tech enabled and integrated approach is unique in the diagnostic imaging history. As we solve operational and clinical challenges in our core imaging center business, through which we have already been deploying DeepHealth technology, in turn, we are addressing the industry’s core problems.

As a result, RadNet is in a position to benefit both from the efficiencies and cost reductions enabled by DeepHealth solutions as well as from selling and licensing these transformational solutions to others. Operator, we are now ready for the question-and-answer portion of the call.

Operator: [Operator Instructions] Today’s first question comes from Brian Tanquilut with Jefferies.

Brian Tanquilut: Howard, maybe just on your comment earlier on just the strength that you’re seeing across advanced imaging. As we think about — if you look out to the next three to five years, I mean, how do you think the growth in Advanced Imaging will hold and what do you think the drivers would be for that? I mean, I guess, in just the broader context of utilization growth and the sustainability of current volume trends for your business?

Howard Berger: We certainly expect these trends to continue. The way that we are addressing the need for greater capacity is to basically utilize tools that are either AI developed or recognizing better ways to manage our business with the new equipment that we’ve invested in. Both of these tools have had substantial impact in staffing these centers to accommodate the demand that we have. In most of our regions, we have backlogs that are very difficult given staffing shortages. But as we put the newer equipment in, which has shorter time slots and as AI itself becomes more efficient, for example with our TechLive we expect to capture a lot of that backlog and drive revenue through that. Additionally, AI itself will continue to increase demand.

As I mentioned in my remarks, things like our EBCD program, which grew by a third comparing last year’s results in the first quarter to this year’s will continue not only inside RadNet but outside RadNet as we make this incredibly important tool available to others. That will help — be facilitated by our iCAD acquisition and other AI products that we intend to offer for screening. But it’s not limited just to breast AI, Advanced Imaging will continue to grow as newer and newer techniques, such as in cardiac imaging and CT angiography maintain an enormously beneficial position for managing health. Cardiovascular disease is the greatest cause of death in the United States and newer tools for treating this with medications once risks are noticed in the patient have changed the entire cardiology business dramatically.

So when you add to that, the enormous growth that we’re seeing in PET/CT, which has — which grew by — almost 23% in a challenging first quarter to the — last year to this year, we expect that growth to continue. I think we are uniquely capable of doing that because of the numerous PET/CT systems that we have across the — all of our markets and for which we get very specialized leading capabilities to help the referring physicians have confidence in the value of these tools. So I see imaging, particularly for advanced imaging being — growing at probably an accelerated rate. But I don’t want to lose sight of the fact that routine imaging is growing rapidly also and that will be a major focus for RadNet in the near future here to help facilitate managing that growth from an operational standpoint and improving the quality of what’s done not only in outpatient imaging centers but the other imaging providers that are not necessarily steeped in radiology as part of their provider responsibilities.

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

Howard Berger: I’m going to hijack that question, Brian, from Mark since I’m a little bit closer to it than Mark is. The pipeline is very robust. We don’t go out looking necessarily for customers. We need customers or clients, potential clients, that recognize the need that they have for radiology solutions. And that includes both operating the opportunities for the demand that they have as well as giving them an education to know how the impact of AI and IT solutions can positively improve the delivery of healthcare. We have gotten a number of calls, which we are having discussions with hospitals that we clearly are [Technical Difficulty], and I’m happy to say several that we do not that recognize the value proposition that RadNet has in transforming their radiology delivery.

And I really want to emphasize that because hospitals are having the same kind of problems inside their four walls with radiology staffing both on the physician side as well as the technologist side. So what we’re experiencing in other — of the outpatient imaging centers are experiencing in the way of challenging labor demand is the same thing the hospitals are having despite the fact that they offer substantially higher compensation to their employees. So these kind of solutions are the future and I believe every hospital system at some point will be adopting some form of IT and AI solutions as a part of their strategy that not only is a necessity for them but probably existential if they’re going to continue to try to capture all of the downstream opportunities that screening technologies and AI are capable of delivering.

So I think I’ve said before in the past, Brian, that I’d like to have all 400 of our centers in joint ventures with hospitals. I think the currently 40% of our centers that we have, almost 160 are performing exceptionally well and I believe indicate how strong that model is. And when other systems see that and talk to our partners, they quickly determine that RadNet has the tools to help make this heavy lift and transformational requirement.

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

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

Howard Berger: There’s about $45 million of additional kind of same center labor cost increases built into our guidance [Multiple Speakers] that’s still on track in terms of — it’s still built into our budget. We are seeing some improvement on the hiring side, the availability of technologists, which is our biggest pain point, which is alleviating some of the financial burden that we’ve been expanding with outside staffing companies. So I think at this point, we’re still comfortable with the $45 million of additional labor expenses that we built into the budget.

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

Howard Berger: As I mentioned, we had 265 of our slightly over 400 MRI centers on TechLive, both the East and West Coast. And the inception of this by the technologists as well as the managers in all of these centers has been overwhelmingly positive. There’s two reasons for that. Number one, the oversight by technologists — MRI technologies, in particular, that can allow faster and more accurate scanning has already been seen. And so in some of the centers where the TechLive is operational, we’ve been able to manage the local MRI from a staffing standpoint where we may not have enough technologies to open for the hours that we want and a tech aid who has been trained on safety and other tools to manage these patients along with the remote tech using TechLive has been instrumental in helping drive the revenue opportunities that MRI somewhat uniquely has for us given the high demand and the need to open for more and more capacity.

So what we expect is over a period of time between now and the end of the year to have all 400 centers on our TechLive. And that will allow us to reduce some of the outside staffing that we have been forced to use now for the last year and half since this trend has become really ingrained in the imaging world, if you will, not just for us but everybody. So that part of it might help mitigate some of that $45 million but we may not see that until late this year or more likely in 2026. That aside, we are now seeing, I believe, a better environment for hiring. Our hiring has been facilitated both by some educational programs that we use to train for our non-technologist staff that we’ve been doing in conjunction with local organizations for the last year or so.

And we are expanding that to include technologist first in areas like for DEXA scanning but we’re also looking to do that in radiology and MRI. And so the people are gravitating towards programs that will allow us to bring newer employees into the RadNet operations but also, I believe, with AI and other technology tools that we’re using, some of the available technologist out there are starting to prefer job opportunities inside of RadNet. So I believe on both the East and West Coast, we’re starting to see somewhat of a loosening of the difficulty that we’ve had in staffing and I expect that to improve throughout the year but be a little bit more something that we can quantify as we get past the fourth quarter of this year. So for the current time, I’m very comfortable that we have that built into our 2025 performance but expect all of the tools and method that we’re using for staffing and operating our centers will be highly effective in the second half of this year and certainly into 2025.

I should also say that we’re beginning to implement virtually all of the modules for our detailed operating system inside of RadNet centers on a pilot basis. And it will affect everything that we do from our contact centers, scheduling, reimbursement operations, kiosks at our centers for faster and more accurate presentation of the patients for their scans, insurance verification. And we expect to have large parts of this operational by year end and look forward to giving you more specifics on the impact that, that will have. But again, this is all part of a transformational effort that we are making that I believe will be something that virtually anybody who performs diagnostic imaging procedures will need to have or want to have in one form or another.

Operator: And our next question comes from Andrew Mok of Barclays.

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

Mark Stolper: So if you add back the $22 million of revenue we lost due to the fires and due to the severe winter weather conditions in the Northeast and the Mid-Atlantic, our revenue was strong and was in line with our internal guidance or budget. We did see — these impacts really were felt in January and February, March, the business bounced back very nicely. We didn’t have any weather issues. The displaced populations in Southern California, both in the west side of LA and in the Pasadena, Altadina area, that stabilized, people began using health care services and utilization looked more normal after that and we’ve had a strong April and strong May. So that’s what’s given us the confidence to increase our budget, both on the revenue and the EBITDA side for the rest of the year.

We’re seeing really the continuation of the strong trends that we’ve had up to this first quarter and feel good about the rest of the year. In terms of the profitability of the first quarter, first quarter is always our most challenged quarter for a number of reasons. First, like other healthcare services companies, we suffer from the fact that deductibles reset, annual deductibles reset and there’s just less utilization here in the first quarter or the beginning parts of every year with — in terms of healthcare. Second is that we’ve got some expenses in the first quarter that typically we don’t have in the rest of the year. The acceleration of the payroll taxes that we pay until the highly compensated folks max out. We have challenges related to paying the way we expense our bonuses from the prior year in the first quarter.

And then in general, we front load our CapEx budget so our — and DSOs lengthened slightly in the first quarter due to the reset of deductibles.

Howard Berger: Let me add to Mark’s comments. I think some of the growth also is coming from the nine new centers that we opened in 2024. Those de novo centers take some time to ramp up and by 2025, since they were opening throughout the year, I believe we’re seeing some of that impact. And the reason I’m mentioning that is that we’re developing 11 more centers here in 2025, of which I believe less than five of them have opened so far, maybe only three have opened so far in 2025. So we have eight more centers that will continue or contribute to revenue growth slated for this year and then 11 more for next year, which are in the early stages of development. So that along with, I think, things like TechLive now being up to 255 locations, whereas I think perhaps last year, we were just in the testing phase of this and maybe it only half a dozen, so we’re really on TechLive.

So we have ramped that up and I think that, that has helped significantly to improve our MRI revenue despite the weather conditions and fires that we face. And also, again, I’m going to mention the enormous growth and how proud we are about our whole PET/CT program. So I think those are the main drivers for the increased revenue side of this, which should translate into improved performance in the third quarter and then particularly in the — second quarter and then particularly in the third and fourth quarters.

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

Howard Berger: I think really it’s two things. One, the growth of Advanced Imaging, which has higher margins. Also, although we don’t talk about it as much, we have very good margins in our mammography program, which is about — if you take a look at all of the breast work that’s done, breast imaging work that’s done for RadNet, it’s about a third of our overall revenue and it’s good margin business, particularly as we improve the EBCD adoption. So that’s one part of it. And the other part of it is continued implementation of our TechLive and AI programs, which clearly are done with a much lower cost and those help drive volume and decrease the labor costs. So I think those two things are the primary drivers for improving margins.

As we introduce or implement our AI tools through other parts of the business that I described earlier from an operational standpoint, I think that, that will also improve margins, which we might start seeing towards the end of the year but certainly into 2026.

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

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

Operator: Our next question from Larry Solow with CJS Securities.

Larry Solow: Just a couple of follow-ups on the Medicare reimbursement, just a couple there. So the — I guess, EBCD, is that in the cards for — you mentioned kind of national coverage is inevitably for getting a Medicare code on the EBCD software that we’re moving in that direction? And then the second question just on Medicare would be in terms of the — just the general physician fee schedule in CMS for 2026, Mark. Obviously, you never know with the government, but current belief, I believe, is that rates at least to be held flat or were at least through the physician fee schedule where we were shifting to general practitioners, if I’m not mistaken. Is that correct?

Mark Stolper: So let me answer the second question first on the Medicare fee schedule. Obviously, we don’t know what it’s going to look like in 2026. Typically, Medicare comes out in the June or July time frame with a proposal and then the industry, lobbying groups and associations, negotiate that with CMS and the final rule comes out in November. We have been facing some small cuts over the last five years and that goes back to when CMS substantially increased reimbursement for primary care practices by increasing these codes called the E&M codes, evaluation and management codes. They did it on a budget neutral basis. Meaning that they’re taking reimbursement out of all the other specialties to pay for that large reimbursement that occurred almost five years ago.

We believe that 2025 is the last year of the phase-in of the pay for of that major reimbursement change five years ago. And so we think that the outlook for Medicare reimbursement in the coming years is stable, if not positive. We hope that we can advocate for reimbursement increases given the fact that the imaging is becoming a bigger part of the healthcare delivery system, number one. And number two, the cost of doing business has changed dramatically over the last half a decade and hopefully that CMS recognizes that. But we don’t — we honestly won’t really know or have a really good feeling about it until they come out with their proposal.

Howard Berger: I’m going to amplify a little bit on that. I think part of your question might have been about whether that there’s still any opportunity in 2025 for mitigation of the cuts that went into place January 1st. I’ll make two comments on that. Number one, nothing in our forecast includes any changes in Medicare reimbursement for this year whether it would be up or down. I don’t see it going down, obviously, because that fee schedule has already been adopted. But in January, there were supposed to be some changes put forth to the Congress to either mitigate the cuts or potentially bring them down to zero or maybe even increase them like you said. But the second part of my comment is that prognosticating anything that this government will do on almost any level is a real correction.

So I — yes, if there is a benefit that will come this year that will be a positive and help us continue to meet or beat our guidance, but there’s no expectation that, that’s going to happen, and I’ll keep my fingers crossed. As far as EBCD adoption for reimbursement by Medicare, I think this is going to be the reverse of what happened when we went from 2D to 3D scanning mammography. And there was a very early adoption by Medicare of the increase for people to providers to implement it because it was such a good technology. They — Medicare CMS led that and then the adoption was by payors gradually after that. I see this as a reverse situation. Number one, getting CMS to issue a new code for breast AI is difficult and problematic. While they have issued new codes for other AI tools in the area of cardiac imaging, thyroid imaging, which you’ll hear more about from us next quarter and some other tools but thus because of the consequences of this and the ubiquity of it I believe is going to be a difficult lift.

So this may be a situation because of very positive conversations that we’re having with commercial payors and other type of payors and self insurers who see this value. I believe they will adopt it and we have, I think, been very instrumental in establishing a price point, which is comfortable for our patients and probably will translate into something that sets a standard for the industry. But I believe it will come from the nongovernmental side of it this time as opposed to in the past.

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

Howard Berger: A timeline for…

Larry Solow: Implementation of the DeepHealth, yes.

Howard Berger: You’re talking about the implementation of the full detailed system…

Larry Solow: Yes.

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

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

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

Howard Berger: Well, calibration for us has been pretty stable. We’re actually probably increasing the — relative to our revenue capitation as a percentage of this. Part of it is, is because the rest of our business in other markets than Southern California is all fee-for-service. But also, there are capitation contracts where we have — at the term elected to go to fee-for-service, because the demand that we have is such that we can and will not take reimbursement that doesn’t allow us to continue to invest in our business, both on the equipment and the services side as well now as the AI. So we haven’t lost any real business from the transition away from capitation, because those patients are still coming to us that had better reimbursement rates under a fee-for-service program.

That being said, we do have more accommodating large capitation groups that have chosen to stay with capitation, but — which we’re benefiting from some significant increases in their capitation rate to make their overall utilization on a fee-for-service basis more consistent with the rest of our business. So I think capitation is still a very good business but one that does not necessarily fit into the bigger RadNet model and is more of really a Southern California phenomena.

Mark Stolper: We benchmark each quarter all of our contracts against the other payer classes or the other books of business that we have. And if we fall behind where we need to be from a reimbursement standpoint relative to other books of business, we go back to the contracts, particularly when they’re at the renewal process. And we’ve had some challenging discussions over the past couple of years and which has led us to cancel a number of those capitation relationships. And as Dr. Berger said, flip them to fee-for-service where we get significantly higher rates, it doesn’t guarantee us that we do 100% of that patient volume anymore, because now the risk is put back on the medical groups and they have the ability to refer that out to anyone that they want.

But in the markets in California, obviously, we’re the biggest player by far in the state. There are markets where we do the lion’s share of the outpatient or the nonhospital based imaging and we’re still capturing a lot of that patient volume just a fee-for-service higher rates. And so my belief is that a number of these contracts will end up coming back to us in a year or two from now when they recognize that they were probably financially better off accepting higher capitation rates and shifting the risk and the burden of the utilization to RadNet then to keeping that risk themselves and sending out the business at higher fee-for-service rates. So we’ve been through a number of these cycles before. And as you can see, it’s not impacting our overall revenue, it’s just shifting revenue from the capitation portion to the fee-for-service portion.

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

Mark Stolper: Yes, what you’re really asking about is sort of newer esoteric tracers as opposed to FPG, which was the commoditized agent that we use in most of the oncological studies. The new tracers for Alzheimer’s and prostate imaging are very expensive. Essentially, the reimbursement for that is on a pass through basis. So we don’t make much money, if at all, in terms of marketing — marking up the radioactive tracer in that exam. So to the extent that prices go down and they should go down overtime, because as the industry does more and more of prostate and these Alzheimer imaging, we use this tracer more and more and more competition on the manufacturing side comes into play. So we do expect these tracers — the pricing to come down over time. But for us, there’s really no profitability in these tracers.

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

Mark Stolper: So in the first quarter of 2025, the prostate and the Alzheimer’s studies, the amyloid studies represented about 19% of all of our or capitated — all of our PET/CT business and that’s been growing significantly year-over-year, particularly in the amyloid studies where we’re doing over 500 studies now a month. And those studies really started about a year, year and half ago as the Medicare regional administrator started more frequently allowing for those studies to take place to qualify these patients on some of these newer drug therapies. So it’s been a — and of course, prostate imaging has really been a big driver for us on the PET/CT side. And the two of those combined being about 19% of our business today is really responsible for the more than 20% growth that we’ve been seeing quarter-over-quarter in our PET/CT business.

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

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

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