Medical Imaging Business Looks Good to Investors

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When investors scanned financials released last week by RadNet Inc., they saw a clean bill of health and sent the medical imaging firm’s stock soaring.

The Westwood company announced fourth quarter earnings that beat analyst expectations. It also revealed plans to refinance debt and said it has started cost-cutting to offset lower Medicare reimbursements.

That made RadNet shares jump 36 percent to close at $2.63 for the week ended March 5, making it one of the top gainers on the LABJ Stock Index. (See page 28.)

“The combination of the strong financial results and the very positive proposed refinancing transaction was met with enthusiasm by the investment community,” Mark Stolper, RadNet’s chief financial officer, told the Business Journal.

RadNet operates 250 outpatient imaging centers throughout the country that provide service such as MRIs, mammograms, X-rays and CT scans.

The company reported fourth quarter net income of $1.2 million (3 cents a share), compared with a net loss of $4 million (-10 cents) in the same period a year earlier. Revenue rose 12 percent to $178 million. Analysts had expected a loss of 1 cent a share on revenue of $173 million.

The refinancing of $200 million in debt is designed to reduce interest payments and extend maturities.

Also, RadNet benefitted in the quarter from some early enrollees of the Affordable Care Act who took advantage of their new coverage, Stolper said. The company also typically sees a surge in business late in the year from patients who have paid their yearly deductibles and seek medical coverage since their insurers will pick up much of the tab. RadNet also had a favorable comparison with the fourth quarter of 2012, when business was hurt by Hurricane Sandy.

But the company faces some challenges this year due to its reliance on Medicare reimbursements, which account for about a quarter of revenue. The government is cutting reimbursements this year for procedures such as CT scans and MRIs, which is expected to reduce RadNet’s annual revenue by as much as $22 million.

As a result, the company is attempting to cut costs by about $30 million. It is reducing staff by automating services such as transcribing medical records and also purchasing equipment that it was renting. Stolper said there are no plans to close centers.

RadNet also warned of a soft first quarter because the harsh winter has kept people from making medical appointments. But Stolper believes investors see it as a temporary problem.

“I think it’s viewed as a one-time, nonrecurring issue,” he said.

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