RadNet revising 2023 financial projections, adding capacity amid ‘heavy demand’ for imaging

Publicly traded imaging center operator RadNet Inc. is revising financial projections and adding capacity amid “heavy demand” for its services, leaders said Tuesday.

The Los Angeles-based group saw its revenues swell 14.3% in the first quarter compared to last year, up to $390.6 million. And when excluding losses from artificial intelligence, RadNet recorded adjusted quarterly earnings of $52.7 million, up 26.2% compared to the three months ending March 31, 2022.

With center volumes swelling, the company said it is now expecting to tally as much as $235 million in earnings this year—up from previous projections of $230 million.

“We have increased our guidance ranges for revenue and adjusted [earnings before interest, taxes, depreciation and amortization] to reflect the first quarter’s strong financial results as compared with our original budget,” President and CEO Howard Berger, MD, said in a May 9 announcement. “Though we remain vigilant about the economic environment, supply chain disruptions, inflation and the possibility of further variants of COVID-19, we have opportunities to expand our operations in all of our markets both organically and through new acquisitions and joint ventures.”

Berger and colleagues noted that both same-center and overall procedure volumes climbed in Q1, despite it traditionally being the company’s weakest quarter of the calendar. PET/CT saw the biggest gains, up 20.9% year-over-year across the company (20.5% on a same-center basis, only counting centers that were part of RadNet in both time periods). MRI, meanwhile, was up 16.7% (11.9% on same-center basis), CT climbed 16.8% (vs. 10.6%), and other modalities such as X-ray, ultrasound and mammography jumped 14% (or 9.3% at the same centers). “Cost and availability of labor” are an ongoing concern, Berger added, but RadNet is seeing softening in the hiring market, with more success filling and retaining employees.

In response to rising demand, the company is continuing its strategy of constructing new centers (rather than outfitting old ones). They are exploring additional joint-venture partnerships with hospital groups, too, he added, and are keeping an eye on imaging centers for sale in a shifting economy.

“We believe that market pressures from a challenging environment for labor, significant rising interest rates and a lack of availability of capital could accelerate acquisition opportunities in an industry that remains highly fragmented and that is mainly comprised of smaller operators who lack the economies of scale that we have achieved,” he said Tuesday.

When accounting for its AI business line and other factors, RadNet reported a Q1 net loss of $21 million, compared to $3 million in the black last year. Company leaders indicated in February that they anticipate losing money on AI in 2023, but they continue working to monetize the segment, including the Enhanced Breast Cancer Diagnostic service. EBCD, as it’s called for short, offers AI-augmented screenings for an additional $60 out-of-pocket fee. Projections for the AI business line remain unchanged, as RadNet expects to lose upward of $11 million in 2023 before turning a profit in 2024.

RadNet also faced several “one-time items” that hampered financial returns so far in 2023. Those included $4.1 million in noncash losses from interest rate swaps and $959,000 for leases at new centers that are under construction but have not yet opened. Other issues affecting its income included $12.2 million in employee stock compensation resulting from vesting options, $134,000 of severance for headcount reductions “related to cost saving initiatives” and $746,000 “deferred financing costs” pertaining to existing debts.

RadNet bills itself as the “leading” operator of freestanding, fixed-site diagnostic imaging services in America. All told, the company has a network of 350-plus centers in markets including California, Maryland, Delaware, New Jersey, New York, Florida and Arizona. It has bought up several vendors in the AI space recently, including Aidence (focused on solutions for pulmonary nodule management and lung cancer screening), Quantib (specializing in prostate cancer and neurodegeneration), and DeepHealth (breast cancer detection).