RadNet, Inc. (RDNT) Q2 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the RadNet Inc. Second Quarter Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet Inc. Please go ahead, sir.

Thank, you. Good morning, ladies and gentlemen, and thank you for joining us today to discuss RadNet’s second quarter 2012 earnings 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 U.S. 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 parties 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 upon 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, 2011 and RadNet’s quarterly report on Form 10-Q for the 3 month period ended June 30, 2012. 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. Howard Berger, Chairman and Chief Executive Officer of RadNet.

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 second quarter 2012 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 would 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. We are pleased with our progress in the second quarter 2012. First, our performance both on an aggregate and same-center basis shows significant sequential improvement over the first quarter of 2012. We also continued our trend of quarter over prior year same quarter increases in both aggregate and same-center procedure growth as well as aggregate revenue and EBITDA. This quarter marks 7 quarters in a row with positive same-center procedure growth and the eighth quarter of the last 9 quarters where we had both increase in revenue and EBITDA as compared with the prior year’s same quarter. We are proud of the growth and consistency of our metrics. With this quarter’s results, our trailing 12 month revenue and adjusted EBITDA have increased to $662.6 million of revenue and $119.8 million of adjusted EBITDA. Including our second quarter results, our trailing 12 months revenue is already approaching the midpoint of our 2012 guidance range for revenue and our trailing 12 month EBITDA is already at the lower end of our 2012 guidance range for EBITDA. You may recall that our 2012 guidance range has implied healthy growth over 2011 results. A number of things giving optimism about the continuation of these positive trends in our results. First, we have not fully realized all…

Thank you, Howard. I am now going to briefly review our second quarter 2012 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 second quarter performance. Lastly, I will reaffirm our previously announced 2012 financial guidance levels. 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 each from continuing operations and excludes losses or gains on the sale of equipment, other income or loss, loss of debt extinguishments, bargain purchase gains and non-cash equity compensation. Adjusted EBITDA includes equity and earnings in unconsolidated operations and subtract allocations of earnings to non-controlling interest in subsidiaries and it’s adjusted for non-cash or extraordinary and one-time events that have taken 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 like now to review our second quarter 2012 results. We were pleased with the performance of our business this quarter. For the 3 months ended June 30, 2012 RadNet reported revenue and adjusted EBITDA of $171.4 million and $31.4 million respectively. Revenue increased $18.4 million or 12% over the prior year same quarter and adjusted EBITDA increased $851,000 or 2.8% over the prior year’s same quarter. Although the increase in revenue and adjusted EBITDA from the second quarter of last year was partially driven by procedure volume increases from acquired entities, the same center procedure volume increased 0.8% as compared to the second quarter of 2011. We now have…

Thank you, Mark. I’d like to emphasize as we conclude our prepared remarks that RadNet continues its steady and consistent course towards financial and operating improvement. Our business strategy is transparent and has been unwavering over the last several years. Our strategy is to continue to execute on the principal business tenants that will ensure our future success. The first of these is scale. In our highly fragmented industry which is suffering immense pressures of lower reimbursement, decreasing utilization and lower availability of capital, size matters. Our core structure, leverage with suppliers and payer and industry relationships with powerful Joint Venture partners set RadNet apart from other industry players. We will continue to make strategic acquisitions in our regions, particularly tuck in transactions of single centers and small groups. We will also continue to leverage our scale and expertise to partner with powerful local health systems and hospitals. We are also focused on deleveraging. Although we will continue the expansion of our business both organically and through acquisition we are very mindful of leverage. Not only do we expect deleveraging throughout the continued growth in our operating metrics i.e. the EBITDA, but we also expect aggregate debt pay down. We expect to demonstrate our free cash flow model to lower our debt in the last half of 2012. Third tenant of our business focuses on efficiency, cost containment and maintenance of operating margins. As discussed earlier on this call and in previous quarters we have key initiatives that will drive performance and continue to mitigate any reimbursement pressures that may occur in the future. An example of these are the implementation of our eRad, RIS and PACS system wide, voice recognition transcription, effective purchasing and supplies and equipment maintenance and the consolidation of costs and the elimination of unnecessary expenses with respect to our newly acquired operations. We will continue to identify other avenues to save costs and achieve efficiencies with our business in the future. And finally, our strategy continues to diversify our product offering. This has included our entry into radiology software, tele-radiology and professional services and medical oncology niches that are heavily imaging dependent. We are leveraging these capabilities to provide a continuum of services to Joint Venture partners who sink in imaging partner, who can provide solution to all their diagnostic needs. Furthermore, each product offering represents a unique growth opportunity in and of itself. And these offers are far less capital intensive than our core business. We continue to believe our strategy will manifest itself into long term and steady growth, deleveraging and profitability, benefits that will renew over time to all of RadNet’s stakeholders, both shareholders and lenders alike. Operator, we are now ready for the question-and-answer portion of the call.

[Operator Instructions] We’ll go first to Brian Tanquilut at Jefferies.

Howard, just a question here. So you talked about rates in the East Coast. Getting some increases there. Just wondering is that something that we are going to see you guys try to make a push for across the system, I know you’ve got the concentration in your locations, but is the back and forth between you and the payers starting to tilt towards RadNet’s favor?

That is the constant effort on our part in all regions and one where I believe we are having some significant and important dialogue and I think the key to that comment I am making is the word dialogue, is highly unusual that any small operator is going to have any impact on their reimbursement let alone the dialogue with the payers that will potentially have some meaningful outcome in terms of reimbursement. So I think the fact that we are having a dialogue and that we have already achieved increases from payers is something that helps validate the RadNet strategy.

So Howard, is it safe to say that the issues we’ve been talking about the past few quarters with payers is starting to abate or decrease at this point?

Well, I think it’s - the dialogue is increasing and we are being very aggressive here and what is particularly I think important here is that the conversations are very collegial, they are not really hostile or aggressive in the sense that people are pounding back at us about why we should have rate increases. We are demonstrating that we are a better alternative generally speaking to hospital based imaging which has substantially higher reimbursement that our senators are much more attractive and accessible to patients and are generally better at state of the art, not only in terms of modality, but in terms of IT services. So the conversations have been good, I think they’ve been positive and I think it’s giving recognition to the importance that RadNet plays in its core markets.

Okay. And then, Howard, we saw DaVita, for example, buy a big ACO in your backyard. So just wondering as we think about the growth of ACOs going forward, how is RadNet preparing to position for the eventual shift in the systems on ACO model?

I think the best example I can give you is the relationship that we’ve now implemented here with the Barnabas health system in New Jersey. We have similar kind of relationships with many hospitals particularly in the Maryland market place with about 8 or 9 Joint Venture partners we have and we will be seeking other health systems that I believe can use not only the expertise that we have in managing imaging but more importantly enjoy the access that we provide for imaging in their market places. So I think you’ll see in the future as we pursue more of these opportunities with hospitals that we will marry up to them. The interesting part about the DaVita acquisition of healthcare partners is not so much, I think just kind of the ACO model but it was an attempt by DaVita really to diversify their own revenue sources given what I think they perceive to be reimbursement pressures in the dialysis space for the future. Our initiatives will definitely be more with other providers who can bundle services together for both inpatient and outpatient and other medical specialties that rely so heavily on imaging that the value of the RadNet sites in their marketplace is indispensable.

Brian. The one thing I will add to Dr. Berger’s explanation is that we’ve been capitating with large medical groups here in California for the most part, for over 20 years and our experience and comfort with assessing utilization risk, taking that risk, managing that risk on and doing it profitably sits in perfectly with what we understand the ACL model to ultimately be which is essentially providing the responsibility for patient care or putting that responsibility for patient care on the provider, having the provider take that risk and manage that risk and we can fit in well with that model because as we do here in California with the healthcare partners and other large medical groups who in turn take that risk for managing HMO lives, we can essentially sub-capitate or take the imaging risk from them and we assume that utilization risk and it’s our responsibility and we’ve proven that we can manage that responsibility profitably where we take that risk in managing all of the imaging. So I think that 20 year experience in capitation fits in real well with the ACL model going forward.

And then last question for you. So you talked about the Medicare rate cut 5%, roughly $5 million, $6 million. Are you going to be - you talked about mitigation, but are you going to be able to fully mitigate that you think?

Yes. Just between the 2 areas that we stressed today on the call with respect to increases we receive from private payers through some recent negotiations as well as the implementation of voice recognition by year-end will fully mitigate not only the Medicare cuts themselves, but any sort of private payer follow on that we might predict.

We’ll go next to Darren Lehrich at Deutsche Bank.

So I guess I wanted to pick up where he just left off with regard to just the outlook for 2013. Obviously $6 million or $7 million not all that different than the type of pressure that we’ve seen in prior years, maybe just a little bit bigger, but your base is bigger and I just want to make sure I understand what you’re saying. So are you just saying that you’ve got some discrete things that you think will offset that and are you ruling out the ability to grow in 2013 because I think aside from the discrete items that you’ve discussed here, you’ve got a lot of acquisitions that will ripen next year. You’ve got probably a few other things in terms of your other businesses that might contribute more. So I just want to understand what the message is on 2013.

Obviously we haven’t issued 2013 guidance yet. But I think your statement was correct that aside from the Medicare cuts and the mitigation we have with those cuts, there are other growth areas that we expect to take advantage of next year as well as just simply the annualization and the optimization of acquisitions that we’ve completed either at the very end of 2011 i.e. the CML acquisition as well as acquisitions we’ve made this year like the West Coast radiology acquisition that aren’t yet fully realized in our historical financials and in 2013 obviously will be fully baked in and should be completely optimized by that period. So although we haven’t issued guidance for 2013 I feel fairly confident to say that our 2013 guidance will be materially higher than our 2012 results.

That’s great. Okay, I just wanted to clarify the message there. The other thing I just want to cover is on growth and first just to clarify, you’ve provided some commentary on same-store revenue growth separate from just the volume. So I’m assuming it was slightly below the volume because of pricing, but can you just comment on that. And then Howard, just as far as volumes go in general, clearly a lot of mixed signals across the healthcare services complex so far this year. Are you seeing anything different in terms of referral patterns in your markets that are noteworthy? It is obviously a little bit of a deceleration from what we’ve seen in the last few quarters. I know weather was a factor last quarter. But maybe just some broader comments on what you think you’re seeing in this quarter’s volume result.

Mark, you want to take the first part of Darren’s?

Same-store revenue?

Yes.

Yes, sure. You’re correct. As has been the trend over the last couple of quarters, our same-store sales revenue was slightly - same-store sales procedure volume was slightly up this quarter at 0.8%. Our same-store revenue was down which incorporates business mix and reimbursement changes and that was down 2.6% for the quarter. So your assumption was correct. Did you want to address the volumes?

Yes. I think that as we addressed in the remarks, Darren, that there is a slowing of referrals generally speaking in the imaging industry and I don’t think this is something that we’re uniquely capable of timing and we see it in literature that comes out about the marketplace in general with decreased position offices. We see it in publications from the various people that follow the imaging industry and I think for perhaps the first time in the last 10 years instead of the imaging industry growing it is actually flat or probably even just shrinking a little bit. That being said, we can’t be completely immune from those issues and they will have an impact. What we are doing to offset that is being aggressive in our markets with improving or increasing technology that is a driver for people - and the reason for people to shift business to more state of the art facilities. Getting more involved with electronic medical records and ease of information flow which all of the referring physicians and payers are acutely in need of. We’re doing small tuck in acquisitions or we see other operators closing so that we are getting I think a bigger piece of the market share in almost all of our markets which is helping sustain our volumes. But I think the long term horizon with decreased office visits and continued efforts on the part of a lot of parties out there to decrease imaging utilization will continue and ultimately have a desired effect in our case of putting more pressure on our competitors than it does on us and then ultimately our being the beneficiary of that. We are also trying to get to more exclusive relationships with our payers as we come in and talk to them about rates. Part of what they’re looking for is better access and better facilities and in exchange for volumes that are more exclusive to our centers. We’re being very aggressive in those conversations about where they’re sending their business and trying to gather again a bigger part of the market share.

That’s helpful. And just the last thing I had, just maybe brief question here. Is there anything that you guys are doing in terms of positioning yourself and your pricing for more of the consumer driven side of the equation? In other words, putting pricing a little bit more available into the consumer’s hands. I know there are some aggregators of that. Just curious if you’re working with any of those.

Yes we are, Darren. We have initiatives on both sides, conversations with people who have software products or systems that make the pricing in a marketplace available to the consumer. So they’re more freely capable of determining where they get the biggest bang for their buck and generally by the way that’s in trying to show them the pricing that might occur in hospitals where they generally have substantially higher copays and deductibles than they do in free standing imaging centers. And then we’re also working as part of our IT initiative on a web presence that will allow consumers to more readily see who we are, where we are and what we offer in the way of services and pricing to those people who are becoming ever increasingly more cost conscious of where they get their imaging done.

Next we’ll move to Miles Highsmith with RBC.

Just to clarify first, any sequestration, if it held up, would be incremental to the $6 million to $7 million, correct?

We don’t know what Medicare would do with its proposal at the end of the year based upon us moving forward with sequestration. So at this point we just don’t know what CMS’s move would be at the end of the year.

Okay, fair enough. And forgive me, I just can’t recall how much of any specificity you have on this. But I was curious if you could make any comments on CML with respect to the way margins might be, where they’re going. Can they get to company wide margins and any commentary in that regard.

Yes. In prior conference calls or closed calls here, earnings calls, all the same, we have suggested that the revenue from CML was about $70 million and that we expect those assets to be able to contribute with similar margins as we experience generally in our core business which is in the 20% range. So I think if you do the math on that you can readily see what our expectations are which we believe we will meet or exceed as we get to all of the integration that the purchase of those assets provide us with. We are substantially along that path. But there is a lot more to go because the complexity of some of the integration involves different radiology groups, joint ventures with hospitals and integrations of centers with both the operational side and the IT side of it that need to be fully completed before we can see all those benefits. But I think I’ve given you some guidance of what our expectations are for the CML transaction and that we have not realized all that we think we’re capable of achieving from that. We do feel that in 2013 we will have a full year of that benefit as part of our 2013 guidance when we issue that in the early part of 2013.

So 2013 you think you’ll be at companywide margins for the whole year? Did I hear that correctly?

Yes.

Yes. The other way to say it is we think our integration will be substantially complete at the end of this year.

And then a couple kind of broad questions. Can you characterize your commercial pay rate just kind of generally speaking relative to other players in the market and not the hospitals relative to other freestanding imaging providers? Are you guys generally in line? Are you significantly either over or under what you would consider to be averages out there?

Well, I think generally speaking the rate that we get paid in those markets is the same for all freestanding imaging center operators. What we’re attempting to do with these recent negotiations is begin to depart from what the general fee structure is with the commercial payers for their freestanding facilities versus what they will negotiate with RadNet. And we are starting to see that departure. We are unlinking the connection between Medicare reimbursement and what the commercial or private payers are paying and we are attempting to get increases as Mark described in his remarks over what we were getting paid in 2011. So the net effect is that I believe our reimbursement models will begin to separate us from the competitors in terms of better reimbursement and more importantly, unlinking it from any of the Medicare cuts and continued reimbursement issues. There’s a lot of payors out there so this is not an overnight process. But we’re clearly going after the larger payors where the discussions are a little bit more open and where the opportunities are greatest for RadNet.

Okay. But if I’m hearing you correctly, you’re not substantially above market for example which is I think one important consideration.

Yes. I don’t think we’re substantially above market. But we are significantly below market relative to the hospitals.

Okay. Last one for me. Can you give us just an update again general question where the freestanding Medicare rates are currently versus HOPS? My sense is it’s lower. What’s your best guess? Are we kind of 80%, 90% of the HOPS rate for this point?

Yes. If you remember, Miles, going back to 2007 with the advent of the DRA, why there was such an impact on the industry was that at the time the HOPS rates for the advanced imaging, the MRI, CTs and PET CTs were substantially lower than the Medicare fee schedule. So when we became subject to the lower of the 2 rates, we had to sustain a significant cut in MRI, CT and PET CT. What CMS has done over the last 4 years starting in 2010 and these projected rates for 2013 represents or are consistent with the strategy is they had a 4 year phase in and they talked about changing certain variables in the RVU formula like the assumption that the utilization assumption in that as well as come conversion factors. What they attempting to do and I think when we did the analysis for 2013 based upon their CPT codes, they’re attempting to lower the Medicare fee schedule so it was more on par for the advanced imaging modalities as compared with the HOPS schedule. And with the 2013 cuts, they’ve substantially done that. So today when we look at for advanced imaging where we’re being reimbursed, it’s now the majority of those CPT codes is now falling under the Medicare fee schedule whereas 2, 3 years ago the majority of those CPT codes were being governed by HOPS.

We’ll go next to Henry Reukauf with Deutsche Bank.

So Mark, is it just - so now you’re under it. So the reimbursement is less than the HOPS rate, that’s what we should take away from that, right?

Correct. Not all CPT codes, but for more than 50% of CPT codes on advanced imaging which is where the focus of reimbursement has been over the last 5, 6 years. We are now subject to the Medicare fee schedule.

Just on those advanced…?

But I should say the physician fee schedule.

So on the - and the more advanced codes under the physician fee schedule versus the HOPS, do you know what percent low now, how far they’ve lowered it?

Yes. I would say they’re within 10% on average of each other at this point.

10% lower.

Yes.

Okay. And then on the volume, I think a couple of other people mentioned deceleration. I know Howard it’s tough you’ve said in terms of volume out there with the doc visits and stuff. But when I look back I guess volume was very strong same-store in the first quarter and say fourth quarter of last year and really started to pick up in the third quarter of last year, almost like a bump and now it seems to be slowing. Was there something that kind of a one-time bump that the same-store sales growth and now we’re kind of going into what we should see maybe flat or same-store growth? Or what was it that caused the real acceleration for the last 2 or 3 quarters relative to this quarter?

Well, the first quarter, Henry, was an anomaly because if you remember in the first quarter we generally have a significant amount of seasonality related to our northeast operations where we have weather issues in the first quarter and this year’s winter was unusually temperate. So we didn’t have many site closings and our volumes were extremely strong. So it was – and we cautioned everyone last quarter to think that we could continue to comp at 5% to 6% same center volume growth and part of it was due to the winter. So that was an anomaly.

I think there’s…

But if you go back, just looking back over the last several quarters, because ’10 was rough winter in the northeast. But it does look like there was - for a long period of time you really were picking up a little bit. There’s nothing there other than just it was a better quarter to suggest that same-store volumes could grow and not shrink. I know it’s been 7%, but I’m not sure where to think about the same-store volume growth. That’s what I’m getting at because it does look like it decelerated a lot this quarter, not vis-à-vis last quarter but the quarter before and the quarter before that.

Yes. A couple of comments on that, Henry. First of all, starting in the second half of last year, we kind of became a little bit more aggressive with what I’ll call offensive CapEx rather than defensive. So there were certain selected markets where we felt upgrading particularly our MRI scanners was going to have a significant effect on volumes in some of our markets, particularly on the East Coast and Maryland and New Jersey were 2 prime examples of that. So I think we got a bump in the last half of the year from that kind of effort on our part and we’re going to continue that because I think that that is a differentiator in today’s marketplace because access to capital is tough and with decreasing reimbursement your smaller operators are less and less inclined to make those kind of investments with all the uncertainty. And by the way, the level of sales in the 9 hospitals standalone fixed imaging space for MRI and CT and PET scanners has probably dropped over the last couple of years by maybe as much as 80% to all of the major vendors. I’m talking about Siemens, Phillips and GE. And so what we’re doing is very aggressive and unusual in our markets and I think helped us in the latter half of last year and to some extent in the first part of this year. I’d also think there was an interesting phenomena in the first quarter of this year that with the milder weather, unusually mild weather that we had on the East Coast, I think work that we might have normally seen in the second quarter was actually seen in the first quarter. So there was some shifting if you will because when weather is bad it’s not that people don’t ultimately go to doctors and get these services, but they delay them because of either the lack of desire to get out or the fact that in really bad weather people just don’t go to offices because they’re closed. So I think we saw people in the first quarter being a little bit more willing to do what they normally would do towards the end of the first quarter or into the second quarter accelerate and we’re now seeing a little bit of that softening if you will from that first quarter. But I believe what we’re seeing in the second quarter of this year is more the new norm as we’ve called it here that the company will be adjusting to in order to better budget and anticipate what our needs are and our staffing requirements are. So I do think there are reasons that the slowdown is something now that we’re seeing that was generally being seen in the marketplace but was masked somewhat by our strategy of both capital expenditure as well as just outshining our competitors in terms of our own marketing.

Okay. And in terms of the next couple of quarters, you’ve looked like you’ll have tough comps. Do you think you can keep same store growth going? Does it feel like that this far into this quarter?

Our goal is to try to keep our volumes pretty consistent with what we’re seeing in the - or what we saw in the second quarter. We think we can maintain those volumes, but again I think some of that is going to come at the expense of other operators because clearly there is not going to be growth like we’ve seen in the past. So any ability on our part if there is a slight deceleration in the industry as a whole, it’s going to have to be made up from other operators that either we consolidate or that go out of business.

And then just getting back to one of the earlier questions, since the volumes were up it does look like pricing was down. It looks like MRI and CT were actually up pretty well. PET was down, but that’s not a big portion of the business. Was there a cut in one segment of the business that particularly pulled on the top line?

Well, remember that most of the cuts that have occurred and that were implemented in 2012, primarily impacted MRI, CT and PET CT and while that only represents about 25% of our volume, it represents about 2/3 of our revenue. So when you have a disproportionate decrease in your advanced imaging which generally provides you with your higher margins. It’s not surprising that that would have a disproportionate impact on the company’s overall performance, both on the revenue and the EBITDA line.

The most significant cut, Henry, was to the bundling of the CT, the abdomen, pelvis and we saw more follow on as expected from the private payers because they had to assign a certain reimbursement to this new CPT code. One of the things we’ve been working very hard on this year and we’re having some success which we’ve intimated on this call is to go back and renegotiate the rates that were assigned to the CT, the abdomen and pelvis by the private payers. But that was the most significant of all cuts we’ve felt in 2012.

In other words, to amplify what Mark just said, it was - we’re trying to unbundle for the private payers what Medicare bundled and which the private payers followed with in 2012 and we’re having fortunately very good success with the larger payers in getting the bundled unbundled again.

Okay. I remember, Mark, you gave us the - on that, I forget what it is now, but on the pelvis and abdomen you gave us the kind of the high low. So could you just repeat that, of what that was supposed to be going last year for all the role the commercial guys followed on? Because like right now it’s falling on. Next year you’ll be able to unbundle it. So it sounds like you got hit with a few million bucks this year and then next year you’re going to be able to unbundle it again. Is that what I’m hearing?

Yes, with some of the private payers. I don’t have the estimates that we gave last year when we - in front of me now, but what I’ll do is I’ll email you the conference call script where we gave those estimates.

Okay. And then just the last one, pipeline is full. You feel good about the opportunities. You’ve got some capacity on the revolver. Do you think you need to come to market with addition - raise additional capital to fulfill the supply I guess of good deals that you see out there?

Not unless it was an unusually large transaction. We’re very comfortable with our revolver capacity and our free cash flow.

And free cash flow. That will suffice in terms of…?

And we face no near term maturities. Our offer is in place through 2015. Our senior term loan is through 2016 and our bonds mature in 2018. So we’re comfortable with the current capital structure as it now stands particularly for the small to midsize acquisitions.

We’ll go next to Alan Weber at Robotti & Company.

Just a few follow on questions. When you talk about the negotiations with some of the payers now will offset some of the Medicare cuts. Obviously that’s part of your deal strategy and strength of your scale. My question was, when you talk about that for next year, is that with all of the payers kind of addressed or is it kind of more upside to that?

We’ve had ongoing discussions throughout this year which are actually being culminating or consummating now with the larger payers and that has been our major focus because that’s where the larger dollars are. We will turn our attention or we already have begun turning our attention to the smaller payors where the benefits are perhaps not as substantial but in aggregate they could be. But there’s literally hundreds if not thousands of payors out there that we have to have these conversations with and we went for the ones where we get the biggest bang for the buck. So I anticipate that this will be an ongoing process for as long as we’re doing close calls that will be a focus of the company here to constantly look at our reimbursement from all payers.

Okay. And then West Coast radiology that you acquired in this quarter, is that similar to CML in terms of not having kind of RadNet like margins? Or was that operating more like you guys?

They did not have RadNet like margins and so just like the CML we expect margin improvement for that operation as we get it more and more fully integrated into the RadNet systems. But we don’t see very many operators out there with RadNet type margins. So almost all of the acquisitions that we do we expect to ultimately be even more delevering or more accretive however you want to pose it as they get more and more integrated into the RadNet systems. And our systems include staffing, purchasing, IT, other supplies and reimbursement. For example with the CML acquisition some of the revenue that we took over is going to benefit from the improved reimbursement that we’re seeing particularly in the Maryland marketplace. So there are a lot of benefits that RadNetization as we like to call it here accomplishes both on the topline and on the bottom line.

And we’ll go next to Omar Vaishnavi at BlueMountain Capital.

I had a couple of questions. You mentioned in this Barnabas press release that you sold one center to Barnabas. Can you guys talk to us about how much it was for? If there was any sort of multiple on that and when you’ll get the proceeds on that?

The multiple on that was 5x our EBITDA. We expect that transaction to close this quarter. In other words before September 30 and we will continue to participate through our joint venture in management services in that center’s performance. So while we sold the center and the physical assets, the revenue stream and upside profitability from that center will be future benefit down the road to RadNet.

Right. And can you guys also disclose how much proceeds you sold it for or no?

I’m sorry.

How much it was sold for. Was it $5 million, $10 million?

It was about $4 million.

Okay, $4 million. And then now you guys are net income positive and I believe if you look at it post the swap expiration, there’s an incremental bump from that as well that you’ll get next year and that’s going to increase your restricted payment basket. Would you guys consider above and beyond the sort of basket you have in your credit facilities right now if your net income keeps growing the way it was share buybacks, dividends or bond buybacks in the future or sort of any sort of capital structure related changes?

Well, I’m happy to say we’re not going to do bond buyback because we’re trading at par or maybe even a little bit above par. There’s a good news and a bad news to that. Then as far as buying shares back, I don’t particularly see that there’s a high likelihood here, but it’d all be driven by what the share price is and what we believe the inherent value of the company is. We will always look at opportunistic sales or of acquisitions depending upon the metrics and the importance that any particular opportunity presents itself in our core markets.

Let me expand on the share buyback answer in that we have not bought shares back even though we have a basket to do so right now partly because we think the best use of our capital for the shareholders is to go out and continue to grow the business particularly when you can acquire acquisitions at 3x to 4x EBITDA multiples and when you run the math and you look at the accretion for doing that relative to buying back our stock at almost any price, no matter how undervalued we feel, it’s more accretive to increase the EBITDA and the profitability of the company to do so. But to the extent that there are opportunities in the future to buy back stock or to the extent that we feel like that some of the acquisition opportunities or the pipeline slows down and we think that that’s a good use of capital, we’ll do that to the extent that we have the room in our baskets by virtue of the restricted payments basket in our bonds and any restrictions we have with our senior credit facility.

I’ll make one other comment along those lines. Again part of our focus is deleveraging too and it may be far better to create equity by paying down debt than it is buying stock back given that every dollar of debt that we pay off ultimately produces a dollar of value to the equity. And in a leveraged operation like we are with as much debt we have, that’s probably the best use altogether of our free cash flow and capital.

Okay. And the last question I had was on eRAD, you guys didn’t talk about it a lot. How has it been progressing? Is it still expected to be by the end of the year? And when do you guys think you’ll have a sense of how much it can really contribute to 2013 versus 2012?

I think by the time that we do our 2013 guidance which obviously would be with our first quarter close call - with our fourth quarter end of year close call, we should have a pretty good idea then. As we mentioned in the opening remarks, the full implementation of the voice recognition piece which is where the greatest part of our savings will be should be substantially complete by the end of the year so that in 2013 the majority of that benefit will be realized as part of our 2013 guidance. But then there are other elements of it on the risk side and on the pack side which we have just started to implement and which should be substantially complete by the second quarter of next year in which also come with significant savings. So I think by the time we are ready to give our full year results meaning the fourth quarter and full year for this year, we’ll be able to better quantify that or certainly incorporate it into our 2013 guidance.

And when you guys give 2013 guidance, given you guys have a lot of positive initiatives going on beyond just your normal operations, do you think for things like your eRAD and the M-Modal voice recognition, your JVs, will you guys try to give some color as to how much those initiatives are contributing versus just your core operations?

We might do it particularly with the IT side of it because that’s a little bit more readily calculable. Some of the other places tend to get a little bit murky in terms of how you identify those and we have generally not done that in the past.

And that does conclude today’s question-and-answer session. At this time I’ll turn it back over to management for any closing remarks.

Thank you, operator. 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.

And that does conclude today’s conference. Again thank you for your participation.