RadNet, Inc.
Q4 2008 Earnings Call Transcript

Published: 16 Mar 2009

[Operator:]

Good day ladies and gentlemen. Welcome to the RadNet Incorporated fourth quarter 2008 earnings conference call. (Operator Instructions). I would now like to turn the conference over to Mr. John Mills with ICR

[John Mills:]

Good morning ladies and gentlemen and thank you for joining us today to discuss RadNet’s full year and fourth quarter 2008 earnings results. On the call today from the company are Dr. Howard Berger, Chairman and Chief Executive Officer of RadNet and Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet. Before we begin today, we would like to remind everyone the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The following prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. For a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements, we refer you to RadNet’s 10-K for the 12-month period ending October 31, 2006, 10-KT for the 2-month transition period at the end of December 31, 2006, form 10-K for the 12-month period ending December 31, 2007, Form 10-K for the 12-month period ending December 31, 2008, and 10-Qs for the 3-month period ending March 31, 2008, June 30, 2008, and September 30, 2008, as filed with the SEC. With that I would like to turn the call over to Dr. Howard Berger.

[Dr. Howard G. Berger:]

Good morning everyone and thank you for joining us today. On today’s call, Mark Stolper and I plan to provide you with highlights from our full year and fourth quarter 2008 results, issue our financial guidance for full-year 2009, talk about some items that we feel are important to our stakeholders, and discuss in more detail our future strategy. After our prepared remarks, we will open the call to your questions. I’d like 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. 2008 was a year of many operating accomplishments for RadNet. We’re pleased with our strong revenue performance and with our many operating achievements which include among other things integration of important strategic acquisitions including Rolling Oaks in Westlake/Thousand Oaks, Victorville in the California-Inland Empire, 6 centers from InSight Health in San Fernando Valley and Simi Valley of California, and the Papastavros imaging centers in Delaware. The entry into breast disease management through the creation of a comprehensive breast and women’s imaging center incorporating breast oncology and breast surgery, our completion of our capital upgrade program with respect to our transition to digital mammography, and our elimination of the vast majority of the deferred capital needs of Radiologix and our numerous subsequent acquisition, and our repayment of over $13 million of outstanding debt in the fourth quarter of 2008 as we begin to focus on a deleveraging strategy. In 2008, we grew our revenues by 18% and exceeded the high end of our revenue guidance. The same center portion of this growth was 4.9% in 2008, something with which we’re very pleased. We continue to see the revenue benefits from our digital mammography transition, our BreastLink initiative, and other continued focus on our strategies of multi-modality facilities and geographic clustering. However, we were not satisfied with our operating margins, particularly in the fourth quarter, which is traditionally the quarter that is challenged with seasonality related to holidays, difficult weather conditions, and a general slowdown in physician office visits by patients. Although adding back a $2.3 million contractual adjustment we made in the fourth quarter relating to receivables recorded prior to 2008 would have put us above the low end of our adjusted EBITDA guidance, our goal was for significant improvement in our adjusted EBITDA margins in 2009. We believe we can achieve adjusted EBITDA margin improvement between 1% and 2% by the end of 2009. It has simply taken us longer to achieve the expense reductions and operating leverage we projected not only from the integration of some of the more recent acquisitions, but also anticipated expense reductions associated with the scaling of our business. We are currently addressing this aggressively. Throughout 2009 we’re confident that we’ll be able to reduce certain operating costs. First, we’re looking and are focused on center level and regional management staffing. We’re looking at more efficient scheduling and consolidation of operating functions. Second, we’re looking on savings through standardization of purchasing practices and center level protocols related to the use of medical supplies particularly consumables such as contrast materials and pharmaceuticals. Third, our entering into breast oncology and the consolidation of these operations into our Orange County facility requires us to absorb operating expenses that will not recur in 2009. Furthermore, we’re in the process of switching chemotherapy drug vendors for BreastLink which will result in material cost savings associated with delivering our oncology services. Finally, we will invest $2 million to $3 million in information technology in 2009 which is incorporated in our 2009 capital budget expenditures. As a result, we expect by the end of 2009 we will be on a unified picture archiving and communication system or PACS for all of our centers and by the end of 2010, we will be on a unified radiology information system or RIS. The results we believe will be material savings in radiology expenses company-wide as well as savings related to medical records, film storage, and film handling. Looking ahead, we’re excited about numerous opportunities which position us to substantially improve our results which include the following

[Mark D. Stolper:]

Thank you all for participating in our full year and fourth quarter 2008 conference call. I’m now going to briefly review our full year and fourth quarter performance and attempt to highlight what I believe to be some material items. I’ll also attempt to 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 fourth quarter performance. In my discussion I will use the term adjusted EBITDA which is a non-GAAP financial measure. The company defined adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization each from continuing operations and adjusted for losses or gains on the disposal of equipment, debt extinguishments, and non-cash equity compensation. Adjusted EBITDA includes other income, equity earnings in unconsolidated operations and subtracts minority interest in subsidiaries, and is adjusted for non-cash extraordinary and one-time events taking place during the period. With that said I’d now like to review our full year and fourth quarter 2008 results and discuss our 2009 guidance levels. For full year 2008, revenue was $502.1 billion which exceeded the high end of the company’s guidance range of $470 million to $500 million. Full year 2008 revenue increased 18% or $76.6 million from $425.5 million in 2007. Same center revenue, which measures revenue from operations only if they existed for the full years of 2008 and 2007 increased $20.1 million, an increase of 4.9%. Full year 2008 adjusted EBITDA was $98.4 million. This was an increase of 15.4% or $13.1 million from $85.3 million in 2007. 2008 adjusted EBITDA fell short of the company’s guidance range of $100 million to $115 million. Adjusted EBITDA was negatively impacted in the fourth quarter of 2008 by an approximately $2.3 million increase to contractual allowance reserves against 2007 and prior year receivables. We believe that our anticipated collection of these receivables may have been impacted by the economic climate, and we feel it prudent to take this reserve. Overall, we performed 3,014,042 total procedures in 2008 for our consolidated Imaging Center business as compared to 2,709,502 total procedures in 2007. This is an overall increase of 11.2%. MRI procedures increased 13.6%, CT procedures increased 7.4%, PET/CT procedures increased 12.3%, and routine imaging procedures; this includes x-ray, ultrasound, mammography and all other exams, increased 11.4%. The 3,014,042 total procedures in 2008 were consistent with our multi-modality approach whereby 78.3% of all the work we did by volume was from routine imaging. Our procedures in 2008 were as follows

[Dr. Howard G. Berger:]

As many of you have seen, our share price has experienced significant decline over the last few months. The management of RadNet is the larger shareholder group of the company with ownership of over 24% of our common stock, and I personally remain the largest shareholder of RadNet. We share the frustration of our shareholders and strongly believe that circumstances, many of which are out of our control, have made our shares remarkably undervalued. We are a company with tremendous opportunities. We have demonstrated that we can drive revenue and growth. This has been evident in both the revenue improvement in our acquisitions as well as consistent same center top line growth. We have shown that our revenues can hold strong in a challenged economy and based on strong per day volumes that we’ve seen in February and March, the months subsequent to the traditional seasonal fluctuations of December and January, we project our revenues to remain strong for the first quarter. What is now in store for our team is that we intend to demonstrate margin improvement and operating leverage. This will be our focus in the coming quarters. Our business is one that scales, and as we have discussed earlier on this call, we have already identified ways to eliminate operating costs in 2009 and beyond. The challenged economy and credit markets also bring unique opportunities. We believe there may be opportunities for us to be repurchasing debt from certain of our lenders at attractive discounts to par value. We will attempt to position the company to capitalize on these opportunities. Retiring debt at a discount immediately creates equity value for our current shareholders and allows us to deleverage our balance sheet more rapidly. Furthermore, our net operating loss carry-forwards allow us to execute these debt retirements free of any resulting tax burden. In summary, we remain optimistic and enthusiastic about RadNet’s future. What we do is essential to the health care system in good economic times and bad. Our millions of patients, thousands of referring physicians, and numerous medical groups and insurance companies with whom we do business depend on our services each and every day. These longstanding relationships built upon years of trust, high quality service, and the practice of good medicine will ensure the stability of our revenue base into the future. Our focus, simply put, in 2009, will be to drive margin improvement and deleverage our balance sheet while continuing to maintain and build upon our strong revenue base, and I remain highly confident that we can accomplish both of these objectives successfully. Operator, we are now ready for the question and answer portion of the call.

[Operator:]

(Operator Instructions). We’ll go first to Brian Tanquilut - Jefferies & Co. Brian Tanquilut - Jefferies & Co. First question; Howard, you talked about deleveraging and basically paying down debt with all the free cash flow that you guys are projecting for this year; I was just wondering what your thoughts are on acquisitions given that 2007 or 2008, you basically used most of your cash flow on acquisitions and now it’s delevering the balance sheet. So, just wondering where we stand on acquisitions?

[Dr. Howard G. Berger:]

Acquisitions will be a very small focus for the company in 2009. We will look at perhaps any strategic acquisitions that may come our way, but they will be always deleveraging and very accretive to the company. We are seeing continued pressure within the industry and multiples that some of these centers distressed and otherwise are potential being offered up at our quite remarkable and a substantial reduction over what we had seen last year, but I would imagine that the number of acquisitions that we will do this year will be very limited, and there are no acquisitions built into our forecasts for the guidance that Mark gave you for 2009. Brian Tanquilut - Jefferies & Co. Second question, the economy; are you seeing or hearing anecdotal evidence that physician office volumes are weakening and things to that nature, and so I was just wondering if you guys are seeing anything related to the economy as it relates to volumes or the up-tick in the bad debt; is that something we should expect will carryover over the course of the year?

[Dr. Howard G. Berger:]

With regard to volumes, we did like many other companies see slowing in the end of December and beginning of January which is traditional in our business and was made somewhat worse this year because of severe weather conditions primarily on the East Coast as well as how it actually fell out. They fell on both New Year’s and Christmas fell out on Thursday and was the worst possible day for us and resulted in a lot of offices being closed and reduced patient visits. However, our volumes for February and early here in March have rebounded strongly to pre-holiday level. So, while I believe that there will be some reduced office visits, we have not yet seen that trickle through to our centers at this point in time. I would remind the audience here that close to 80% of our business is driven by routine imaging; meaning x-ray, mammography, ultrasound, fluoroscopy, etc., and these less expensive procedures are still in very high demand and where there are fewer and fewer people outside the hospitals that are providing these much needed services. We also, as I mentioned, have recently signed two new capitation contracts here in California, which are also increasing our volumes in the California market. As far as bad debt is concerned, we did factor some bad debt reservations into our 2009 forecast as we anticipate the challenges in the economy may have some effect on our self-pay; however, we are instituting programs that we believe will counter or perhaps counter some of this going into 2009 with more aggressive collection processes which will actually start at the center level requiring greater controls on the copays at the time of the visit as well as most aggressive collections for copays and deductibles within the short period of time after people have been seen in our facilities. So, while we believe that there may be some additional burden here from bad debt, we think more of that may come from hospitals than the imaging centers where we can be much more effective than the new processes that we are implementing here in the second quarter to be aggressive about the self-pay portion of our business. Brian Tanquilut - Jefferies & Co. Howard, you talked about the RBMs and how if Medicare brings RBMs in; you don’t think that that’s going to be a big issues since you guys have been working with RBMs for years; just looking at the growth in PET volume, that number has obviously declined quite significantly over the course of the year. I’m just wondering what your thoughts are? Is that a sign that the RBMs are impacting PET/CT volumes or is just the general trend in that modality?

[Dr. Howard G. Berger:]

I think it’s more of a general trend in modality. Unfortunately, I think the nature of some practices in various parts of the country have not fully recognized the value of PET/CT scanning and have embraced it as rapidly as we think that it should. This may in fact change this year because Medicare has expanded the routine use of PET scanning now into I think another half a dozen or so different oncologic diseases which before were only able to be done through a Medicare sponsored program. These now can and will be ordered directly and routinely by physicians. I believe that we can anticipate somewhat of a growth in PET scan as a result of the increased approval for these applications, but I think the bigger challenge still is one of education of the referring physician community as to the merits of PET scanning earlier and earlier in the disease process which results in both better staging and better outcome, and I think that that’s something that we are beginning to implement more in the way of educational processes to bring this out to our referring physician. Brian Tanquilut - Jefferies & Co. Mark, last question, on the CapEx, should we think about that as your maintenance CapEx level going forward? Is that a sustainable CapEx level? Is that enough CapEx? Also, does that include any investments you would need to put into BreastLink if you get all these new contracts for BreastLink?

[Mark D. Stolper:]

The $35 million is a good number given the size of our business for CapEx going forward. I will tell you that not all $35 million of that number is maintenance CapEx where we’re anticipating about $20 million of that $35 million to be maintenance CapEx. The remaining portion should have some incremental revenue and EBITDA associated with it. So, I think for your assumptions going forward, you should $20 million to $25 million a year of maintenance CapEx is a good number, but we don’t see having to spend the $50 million or so a year that we did spend in 2008 and 2007, which was extraordinary in that a lot of that CapEx was associated with deferred maintenance that existed either at Radiologix or a number of the other acquired entities which we acquired subsequent to the Radiologix acquisition. Brian Tanquilut - Jefferies & Co. On BreastLink, do we have any assumptions in there for BreastLink, just in case all these other places start ramping up?

[Mark D. Stolper:]

Any increases in CapEx are built into this $35 million for BreastLink. BreastLink’s expansion is really more one of personnel than it is really equipment necessary to perform the oncologic and surgical procedures. So, very very limited CapEx is associated with BreastLink expansion.

[Operator:]

We’ll take our next question from Robert Mains - Morgan, Keegan & Co.

[Robert Mains:]

A couple of questions on the fourth quarter Mark. You did have an up-tick sequentially in bad debt as a percentage of revenues [inaudible] debt if I take out the $2.3 million. Is there anything else that happens in the fourth quarter seasonally or is that a run rate to use for ’09?

[Mark D. Stolper:]

Yes, that was more of a true-up, Rob, to an analysis that we did more than anything else. Just so you understand it how bad debt works; bad debt is just a portion of our contractual adjustments, and we track our contractual adjustments based upon historical trending analysis, and then what we do is we go into those contractual adjustments and determine how much of those contractual adjustments were related to bad debt versus just normal contracts between the gross revenue we bill out and the contractual numbers that the insurance companies reimburse us. What we do is we do generally twice a year a trending analysis on what part of our contractual adjustments are associated with bad debt, and ultimately what we do is we gross up our net revenue by that number and then subtract out that amount of bad debt on our income statement, so the fact that bad debt may be 1% or 1.5% of total gross charges is important as what is the total amount of contractual adjustments that we are taking against our billed gross revenues.

[Robert Mains:]

So when you talk about potentially some problems next year with self-pay, I should look for maybe a higher magnitude of bad debt than what you had in the first three quarters but not where it was in fourth?

[Mark Stolper:]

That’s correct, and where we make adjustments, it’s not so much to that bad debt number that you’ll see on your income statement, although that could go up or down depending upon the analysis, but more so to the overall collection percentage that we’re booking as net revenue against the gross billings.

[Robert Mains:]

Similarly in the fourth quarter, you talked about same stores. Same store revenue growth was well below the full year level in the fourth quarter. Is that mostly the weather type of thing you were talking about earlier?

[Dr. Howard G. Berger:]

Yes, it was mostly really the second half of December. We had very strong volumes in October and November, and then due to weather and then just the way holidays fell out the second half of December and as I mentioned heading into the first half of January, saw some what were to be expected to slowdown that were again made somewhat worse because of the severe weather that the East Coast encountered.

[Robert Mains:]

But if I heard you right, after the first half of January, things sort of returned to normal trend?

[Dr. Howard G. Berger:]

The end of January as well as the February volumes and into March have been very strong and consistent with where we were before the holidays.

[Robert Mains:]

When you talk about revenue impact from what’s going on in the broad economy, at this point, it sounds like that’s more speculative than anything that you have seen to date?

[Operator:]

Your next question comes from the line of Kevin Ellich with RBC Capital Markets.

[Kevin Ellich:]

I wanted to drill down on the volumes, and I don’t know if I missed this or not, but MRI growth of 19% seemed awfully strong while PET CT up only 2.7% in the fourth quarter was a little bit light. What’s going on the modality side?

[Dr. Howard G. Berger:]

I’ll answer that question. MR continues to be well in demand as our result show. There seems to be two things that we believe are affecting CT volume. Firstly, as more and more people gain comfort level with PET CT, quite often that is replacing routine CT because it is often unnecessary to do the CT scan ahead of a PET scan at a facility that has a PET CT scanner because you essentially not only get both scans at the same time, but the coordination of these done at the same time gives better result, so we are seeing, we believe, that kind of a transition, and I believe that’s good medicine. The other thing that we believe is affecting CT volume is in some of the areas where there is more radiology business managers’ oversight, there tends to be a tendency to try to decrease the CT scanning and convert it into ultrasound scanning. As a result, our ultrasound business has gone up fairly dramatically while we have seen less growth in CT, so we think the combination of both of those may have some impact. The third thing although I would downplay this dramatically is that last year there was a lot of notoriety about the radiation dosage coming from the multi-slide CT scanners, and there could be some pull back there from people getting CT scans as readily as they were in the past given what I believe is some misinformation about the radiation dose exposure and risk-reward ratio in CT.

[Kevin Ellich:]

Going back to your guidance on the revenue side, Mark, I was wondering if you could give us any details. You did talk about some of your assumptions, but could you provide us with what type of same store growth you are expecting?

[Mark Stolper:]

Our model predicts about 5% same store sales growth, which has been historically where we have been trending, and we are seeing some nice growth from some of the acquisition opportunities. It’s approximately 5%.

[Kevin Ellich:]

You guys have net operating losses still. Don’t you?

[Mark Stolper:]

Correct.

[Kevin Ellich:]

How much do you have left?

[Mark Stolper:]

A little north of $200 million.

[Kevin Ellich:]

Going back to the capex. How much of the capex that you guided for is related to the IT investments or realignment of the system?

[Mark Stolper:]

We expected IT this year to probably be in about the $3 million range.

[Kevin Ellich:]

Going back to the interest rate hedges, the cost of the debt that you locked in for the next three years that’s in the press release, is that all in or does that include the margin on top of the LIBOR?

[Mark Stolper:]

The way that credit facility works is that we pay a spread to LIBOR. The LIBOR hedges the LIBOR portion of the total interest expense, so the total interest expense is the LIBOR portion plus the spread, but what the hedges do is they lock in LIBOR at a particular rate. In this case, we’ve locked in LIBOR at 150 to 200 basis points lower than what we locked in LIBOR in the past with the previous hedges.

[Kevin Ellich:]

So, it accounts for the spread already, so for example, the one that you negotiated on January 29th going from 5.02% to 3.47%, the delta is the interest rate savings.

[Operator:]

Your next question comes from the line of Darren Lehrich with Deutsche Bank.

[Darren Lehrich:]

Mark, could you just confirm what the leverage debt to EBITDA is. You made some pro forma adjustments for your credit agreement. I just want to know what that was at your end?.

[Mark Stolper:]

Darren, we don’t publicly disclose the pro forma adjustments for the acquisitions because we don’t publicly disclose the EBITDA associated with those acquisitions, but obviously there are pro forma adjustments, and it has obviously increased our EBITDA with respect to accompanying calculations and such.

[Darren Lehrich:]

You referenced a 0.2x reduction in your leverage. Maybe if you could just talk to that point and frame it in terms of the actual covenant.

[Mark Stolper:]

That’s purely associated with the total debt that was outstanding at 2007 and our publicly reported EBITDA versus a total debt that was outstanding in 2008 and our publicly reported EBITDA then. The actual leverage ratios and the deleveraging was greater when you add in the pro forma adjustments that we made relative to the acquisitions that we made within the last 12 months, i.e., rolling out Papastavros, Middletown, NeuroSciences, and a number of others.

[Darren Lehrich:]

Your capex guidance, I just want to make sure I understand that. There is a portion of that that’s funded with cash and a portion of that that’s historically been funded with capital leases. Is that the case here for ’09 or is most of that contemplated to be cash?

[Dr. Howard G. Berger:]

The majority of this year’s capex will be cash.

[Darren Lehrich:]

Howard, you mentioned that your goal is to improve to the margins by 1 to 2 points coming out of ’09, and I just want to make sure I’m understanding the base level margins that you are referring to here. Should we be adjusting for that $2.3 million bad debt? That would be a 20% level for ’08, or are you referring it with the $2.3 million which would be about a half a point different. Maybe that sounds I’m splitting hairs; I’m trying to understand what the base is that you are using.

[Dr. Howard G. Berger:]

I believe the way that we are looking at it is factoring in the $2.3 million, which would get us to something slightly less than 20%, I think about 19.6% profit margins, and we would look to do 1 to 2 points better than that for the whole of the year 2009.

[Mark Stolper:]

Just a clarification on something I said earlier. Kevin had asked me with regards to same store sales, what our assumption is, and I said is 5%. It depends upon the guidance level. The low end of the guidance range was associated with a 3% same store sales. The high end is closer to 6%, if you go from $502 million to $545 million, so we’ve obviously assumed a range of same store sales depending upon whether we hit the low end or the high end of the guidance.

[Darren Lehrich:]

I’ll ask a question about the guidance as well. In more of the mid point of your EBITDA guidance mark, if we isolate out the non-cash amortization expense for the swap modification, do you think your income will be positive in ’09 using the mid point?

[Mark Stolper:]

Yes. Our model is predicting very close to breakeven this year. It could be a little higher or little lower than breakeven on a net income basis this year.

[Dr. Howard G. Berger:]

But just to clarify, part of that is affected by almost $8 million of interest expense as a result of the re-pricing of those hedges that we have to amortize out over the period through the end of this year and which will be a non-cash expense, but will affect the net income.

[Mark Stolper:]

If you adjust for the $8 million non-cash interest expense with this amortization that Howard talks about through November 15th of this year, our model is highly net income positive.

[Dr. Howard G. Berger:]

That does not recur. It goes away this year and is gone in subsequent years.

[Darren Lehrich:]

There is no further amortization of the loss?

[Mark Stolper:]

Correct. In other words, what we did with these swaps, there was a negative mark to market on the existing swaps. When we modified the swaps and extended them for 3 years, we essentially blended in a negative mark to market over that 3-year period, paid a slightly higher swap rate, and the accounting rules are such that the negative mark to market that is found our balance sheet in our accrued expenses essentially gets amortized on a straight line basis through the maturity of the original hedges that you are modifying, so the original two hedges that we modified would have matured on November 15, 2009, so this $8 million negative mark to market gets just amortized on a non-cash GAAP basis through interest expense through that period, so it creates significant negative impact to net income whereby it’s not a cash event.

[Darren Lehrich:]

With regard to the disclosures, you provided some additional detail in the year end press release here on your revenue mix by modality. Is this the disclosure that we should expect going forward in your quarterlies or is that just an annual disclosure that you’ll be making? I guess the reason I ask [inaudible], but it would be nice to have consistent presentation of your operating statistics so we can build our revenue models around that.

[Mark Stolper:]

This disclosure or additional disclosure is really an outgrowth of conservations I have had with numerous people including yourself Darren, so you can take credit for this, and yes we plan to provide this certainly on an annual basis. I believe we can provide it on a quarterly basis. That’s the intention.

[Operator:]

Your next question comes from the line of Jeff Osher with Harvest Capital.

[Jeff Osher:]

I didn’t see a cash flow statement. Can you guys just help me understand the 6.5 roughly of JV earnings? Is there any distribution to RadNet from those subsidiaries, and then can you give us a percentage on average that RadNet the parent owns of those JVs?

[Mark Stolper:]

On average, we own roughly about 40% of the unconsolidated JVs, and that ranges from as high as 49% to as low as something around 20% if I remember correctly. We do get distributions from the unconsolidated joint ventures, and over time, the distributions essentially mirror the net income or our portion of the net income that recognize as earnings and unconsolidated JVs.

[Jeff Osher:]

So if I wanted to reconcile EBITDA to an operating cash flow net of working capital changes, I should basically just back out what you guys are adding back in, the minority interest line?

[Mark Stolper:]

I didn’t follow that. Could you repeat that?

[Jeff Osher:]

I should back out the $6.5 million from the free cash flow, so 20 plus percent of your free cash flow, for example if it were to remain flat in ’09 versus ’08, of the $25 to $35 you guided to, what percentage of that is going to be in the minority interest that you are adding back in or the earnings from JV that you are adding back in that’s non-cash?

[Mark Stolper:]

It is cash. What I said before is we do receive distributions from the JVs that mirror the net income.

[Jeff Osher:]

Right, but you are adding back in your EBITDA calculation, and you guys define free cash flow as EBITDA minus capex?

[Mark Stolper:]

True, you are right, and the distributions from those JVs are part of the EBITDA, so that’s part of the free cash.

[Jeff Osher:]

Right, but you are adding back the 60% that you don’t own, right?

[Mark Stolper:]

No, we are not because these are unconsolidated joint ventures, so the operations of these, meaning that the income statements of these unconsolidated joint ventures are not in our financials. The only place that they are accounted for in our financials are is in that line called equity and earnings of joint ventures which is our portion, meaning our 40% of the net income of those joint ventures, so we are not double counting anything.

[Jeff Osher:]

Right, but they are not consolidated in your P&L?

[Mark Stolper:]

Correct because we don’t own 50% or more of them.

[Jeff Osher:]

Just one followup to the receivable question. Could you guys provide some kind of receivables schedule with regarding to aging, and if not, can you give us some feel for what kind of receivables net of 180 days exist that aren’t reserved against?

[Mark Stolper:]

We don’t provide a gross aging for our receivables. What I can say is our receivables aging runs based upon what payer class they are in. For example, let’s use Medicare. Medicare generally pays around 30 days from the time that they receive the bill, whereas we’ve got some payer classes albeit they are small that, for instance, personal injury and workers’ comp, that generally reimburse us significantly more than Medicare, but we may not get paid on personal injury and workers’ comp claim for 365 days or greater, so the vast majority of aging is obviously skewed towards our DSO which is about 60 days, meaning within the first 60 days, but we do have receivables that we collect on in the ordinary course of business that are greater than 60 days and in some cases with regards to payer classes, like personal injury and workers’ comp, it could be significantly greater 60d ays.

[Jeff Osher:]

Just to clarify the first one, so I make sure I model this correctly from a cash flow standpoint. In your Q through the first 9 months, you guys had $5.3 million of equity in earnings of JVs that was backed out from the cash flow, and you got $2.3 million to the good that was distributed from the JVs. When we look in the K, will those two numbers converge?

[Mark Stolper:]

Yes. There are always timing differences. That number at the end of the year, we received $5.2 million of distributions through the year, and we are expecting to receive more distributions in Q1, so over time they mirror each other.

[Operator:]

We have a follow up question from the line of Robert Mains with Morgan, Keegan & Company, Inc.

[Robert Mains:]

Mark, do you have available the same store procedure growth figures?

[Mark Stolper:]

I don’t have them here in this conference room, but I do have them, so we can take it off line.

[Robert Mains:]

There is one technical question. On the swaps, if remember, 2 of the 3 are not designated as cash flow hedges, is that still the case?

[Mark Stolper:]

Actually, two of the three were designated as cash flow hedges. One of them was not designated as cash flow hedge. The two that were designated as cash flow hedges are the two that we just modified, so the one that was not designated as a cash flow hedge was on a notional amount of $73 million. That is the one where we take the mark to market through interest expense, and that is the one that is expiring or maturing on April 30th of this year. That’s the one that we plan to let mature, and we are planning to essentially assume more LIBOR exposure and elect one month’s LIBOR in its place.

[Robert Mains:]

This mark to market stuff, we’ve only got essentially 4 more months?

[Mark Stolper:]

Yes.

[Operator:]

This concludes the question-and-answer session today. At this time, I would like to turn the call back to Dr. Berger for any closing remarks.

[Dr. Howard G. Berger:]

Again, thank you all for participating and taking time out of your busy day to listen to our earnings call. I’ll summarize by saying that I believe that 2009 is going to be a banner year for the company. We’ve worked very hard to get to this point. I’d like everybody to focus on what I believe to be the most important part of our operation here, and that is to continue to drive the revenue as we’ve demonstrated that we can. There are a lot of new initiatives here that we hopefully will be describing in the subsequent quarters that will continue to drive revenue in the existing centers, and I believe the challenge that we have that the management team is up to is to make certain that we expand our margins, be more diligent about how we manage our cash, and by the end of 2009, have a substantial improvement in the company’s overall EBITDA performance, net revenue performance, net income, and de-leveraging, and so we hope to be able to bring you these results every quarter as we go deep into this challenging 2009 environment. Thank you.