RadNet Inc (RDNT) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the RadNet Inc. second-quarter 2008 earnings conference call. (Operator Instructions). I would like to remind everyone today's conference is being recorded. Now I would like to turn the conference over to your host, Mr. Andrew Greenbaum.

Thank you. Good morning. One quick important announcement, that Mark Stolper, RadNet's CFO, cannot be with us this morning because happily he and his wife had their second child earlier this morning. So a big congratulations to them. But as mentioned, he won't be with us.

Thank you, good morning, ladies and gentlemen, and thank you for joining us today to discuss RadNet's second-quarter 2008 earnings results. On the call from the Company today will be Howard Berger, Dr. Howard Berger, Chairman and Chief Executive Officer of RadNet.

Before we begin, we would like to remind everyone of 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 recent 10-K for the 12-month period ended October 31, 2007; 10-KT for the two-month period, transition period ended December 31, 2006; 10-K for the 12-month period ended December 31, 2007; and 10-Qs for the three-month periods ended March 31, 2007, June 30, 2007, September 30, 2007, and March 31, 2008, as filed with the SEC.

With that, I would like to turn the call over to Dr. Howard Berger.

Thank you, Andrew. Good morning, everybody, and thank you for joining us today. Before I start, I would also like to add congratulations to Mark Stolper and his wife, Tracy, who delivered their second baby boy about an hour and a half ago, and mother and baby are doing fine. I'm sure all of you who are familiar with Mark would like to extend your congratulations on behalf of the Company, along with us. So I apologize for Mark's absence, but it's for a very good cause.

Today I plan to provide you with highlights from our second-quarter 2008 results, reaffirm our financial guidance for full-year 2008, and discuss in more detail some of our recently announced initiatives and their future contributions to our Company's growth. After the prepared remarks, we will open the call to your questions. I'd like to thank you again for your interest in our Company, and for dedicating a portion of your day to participating in our conference call this morning.

Many of you have heard us discuss the numerous acquisitions and initiatives we pursued over the last six months. We were very active during the prior two quarters, focusing on positioning our Company for the future. This quarter was no exception.

Our industry continues to be a dynamic one that is going through significant transition. The transition I speak about is a transition from an industry that has been dominated by mostly small, independent operators to one where scale, multi-modality offerings and operating acumen has and will continue to be of paramount importance for success.

Prior to the Deficit Reduction Act, operators were not as challenged to have efficient cost structures or have particularly strong volumes to survive. In the past, capital was inexpensive and readily available. Reimbursement was sufficient. All this changed with the introduction of the DRA last year. And the paradigm of success in our industry has changed with it.

Our team at RadNet has worked extremely hard over the last year and a half to position us as one of the few companies likely to be successful in the coming years in our industry. We have focused on growing and consolidating our existing markets. This has included the acquisition of smaller players in our markets, the expansion of existing centers, and the building or repositioning of certain centers to focus on new opportunities we are pursuing, such as women's health and interventional radiology.

We have stayed true to our multi-modality approach and our commitment to providing a one-stop shop to our referring physician and patient communities. We have deepened and broadened our relationship with our radiologist partners, some of whom compromise (sic) some of the largest and most capable groups in the country. We have refined and expanded the capitation model with our medical group partners in California, and we are in late-stage negotiations to add new capitation contracts to our operations.

We have made substantial investments to upgrade our equipment across the Company, including that of the businesses we have acquired in the last 12 months. This has included upgrading our sites with newer technology and attending to all of our acquired companies' deferred capital needs. We have been fully committed to digital technology, such as X-ray and mammography. By the end of 2008, our Company should be substantially fully digital in all modalities.

We have invested heavily in the information technology infrastructure, which we believe is a requirement as we continue to grow. This includes our migration to one teleradiology networking system, otherwise known as PACS, which should be completed towards year-end, and our conversion to a unified billing system, which we completed last year.

We've increased our capital base even at times when it was expensive to do so. We raised $60 million into our existing credit facilities and have employed the use of capital leases to make our capital investments in the last 12 months.

All of these accomplishments were the result of objectives we've pursued to position ourselves for future success. In addition to stretching our management team with numerous operational objectives, our business plan has required significant capital investment. As such, we made difficult choices along the way, including the decision to raise additional capital in a very unfavorable credit market, resulting in our debt becoming more expensive. We did so because we recognize that the opportunities we had and continue to have in front of us are too important and attractive. And at this point we have been able to accomplish all of these objectives, without diluting any of our shareholders, through the raising of equity capital.

This quarter's results begin to reflect some of the progress from our strategy and investments. In Mark's absence, I will also review the significant revenue and EBITDA improvement in the aggregate, and on same-center basis over the last year's corresponding quarter, as well as the first quarter of this year.

When we issued our 2008 full-year guidance in conjunction with our fourth-quarter 2007 results, we anticipated 2008 performance to ramp up throughout the year. Our second-quarter results show that we are now on pace to meet our 2008 full-year guidance.

Last quarter, I used the term inflection point to describe where we were as a company. This referred to the fact that I believe that our financial results did not yet reflect the contribution from any of our recent initiatives and acquisitions. I now believe, as illustrated from the second-quarter results, we have begun to realize a portion of the benefits of our hard work and have started to move along our anticipated ascending curve. We are eagerly looking forward to the coming quarters when we believe further contributions from our efforts will be realized.

We accomplished a great deal in the second quarter, including some of the following noteworthy achievements. One, we completed the integration of our digital mammography upgrade program in Maryland and Delaware. In the second quarter, we began to see increased volume resulting from greater scanning capacity and throughput from these conversions. We also began to receive the anticipated increased reimbursement for the digital mammograms. Our physician partners are continually becoming more comfortable with the interpretation, manipulation, and management of the digital studies.

Two, completed the acquisition of six Southern California imaging centers from InSight Health Corp. Four of the six centers were uniquely positioned in markets we already had significant presence and provided us unique consolidation opportunities on which we executed in this quarter. In the case of two in the Conejo Valley, the InSight facilities were able to be closed and most of that revenue was moved to existing RadNet facilities. We then redeployed much of that InSight equipment from these closed centers into the recently acquired Delaware centers, which were in need of upgrade.

Three, we completed the acquisition of Simi Valley Advanced Medical center, a Southern California-based multi-modality imaging center, into which we consolidated another recently acquired InSight facility in the same market. By moving the InSight revenue to this newly acquired facility, we eliminated the vast majority of the operational cost of the center and redeployed the InSight center equipment to another RadNet center in need of upgrade.

Four, we purchased a long-standing successful mammography practice in Van Nuys, California, and moved it into our newly acquired InSight facility in Encino, California. In conjunction with this, we repositioned the center as a fully digital women's center. This women's center gives us mammography and related capabilities in a market where we currently offered all the other modalities.

Five, completed the acquisition of an open MRI center in Ellicott City, Maryland. Although small in scale, the facility provides us capacity in the form of an open MRI, which we had not offered to date in that particular market.

Six, became operational in three new centers, which replaced older and outdated facilities, which were restricting growth opportunities in several key markets.

Seven, and most recently, and subsequent to the quarter end, completed our first tuck-in acquisition in Delaware since purchasing our Papastavros platform company last quarter. This acquisition of the NeuroSciences Imaging Center in Newark, Delaware, gives us new subspecialty capabilities in this market and is located in a medical complex which houses the largest physician practices of neurologists and neurosurgeons in the state of Delaware. The acquisition further eliminates our need to upgrade a nearby MRI scanner, thus decreasing future capital expenditure requirements.

In addition, we will upgrade the existing CT unit at that center to a PET/CT scanner, which will be available to service the expanding need for leading-edge functional PET neuroimaging, used in the diagnostic evaluation of degenerative brain diseases, such as Alzheimer's, as well as routine oncologic PET/CT applications in that market.

A common theme in many of these accomplishments is the concept of eliminating unnecessary capacity in our markets and consolidating scan volume into fewer, busier centers. In addition to eliminating competitors, when we consolidate acquired businesses into other RadNet centers, we eliminate the vast majority of the costs associated with the acquired revenue.

A further benefit is that we can relocate acquired equipment to other RadNet facilities, eliminating otherwise scheduled capital expenditures. We plan to continue to employ these consolidation strategies in the future as we see more and more of these types of opportunities.

Recent reimbursement and regulatory news has been favorable from both government and private payors. The passing of the Medicare Improvements for Patient and Providers Act in July replaced the scheduled 10.4% cut in the Medicare physician fee schedule with a 0.5% increase for the remainder of 2008. Additionally, the act will require the accreditation of imaging centers by 2012, clearly designed to address the need to weed out low-quality providers and those employing self-referral arrangements.

Furthermore, in late July, the Center for Medicare and Medicaid Services, otherwise known as CMS, proposed the 2009 Medicare fee schedule which incorporates a slight increase in imaging rates for next year. Additionally, CMS proposed hospital outpatient rates, otherwise known as HOPs, that are slightly favorable to RadNet in 2009.

Like CMS, we are observing that private payors are increasingly focused on stopping the abuses of self-referral and block-leasing arrangements through the creation of more strict preauthorization processes and credentialing. As an example, UnitedHealth's credentialing program is scheduled to go into effect later this year. We believe the trend to control [overutilization] in certain abusive imaging centers, settings, will continue and will ultimately have a positive impact on our volumes in the future.

At this time, I would have passed over the conference call to Mark to discuss the highlights of our second quarter, but in his absence, I'm sure I will do a somewhat inadequate job but my best to carry on in his behalf.

I'm going to briefly review our second-quarter performance and attempt to highlight what I believe to be some material items. I will 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 second-quarter performance.

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 adjusted for losses or gains on the disposal of equipment, debt extinguishment, and non-cash equity compensation. Adjusted EBITDA includes 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 like to review our second-quarter results. For the quarter ended June 30, RadNet reported revenues of $127.4 million. Revenue increased 19.1% from $107 million from the same quarter in 2007. Adjusted EBITDA during the second quarter of 2008 was $25.7 million. Adjusted EBITDA increased 15.6% from $22.2 million from the same quarter in 2007.

Overall during the quarter, we performed 771,374 total procedures, as compared to 671,717 total procedures for the same period of 2007, an overall increase of 14.8%. MRI procedures increased 13.5%, CT procedures increased 10.4%, PET/CT procedures increased 16.3%, and routine imaging procedures, which includes X-ray, ultrasound, mammography, and other exams, increased 15.6%.

On a same-center basis, the metric we use to track organic volume growth, which measures sites only if they were open for the full periods in both 2008 and 2007, MRI procedures increased 4.9%, CT procedures increased 0.7%, PET/CT procedures increased 5.1%, and routine imaging procedures increased 3.1%.

We are proud of our revenue and adjusted EBITDA performance and growth this quarter, not only because of the favorable comparison to the corresponding quarter of 2007, but because the quarter also represented a significant improvement over our results from the first quarter of 2008.

On a sequential-quarter basis, revenue increased in the second quarter by $12.7 million, or 11.1%. Adjusted EBITDA increased sequentially in the second quarter by $3.6 million, or 16.4%. This performance represents stronger organic volumes this quarter as well as the contribution of recent initiatives, investments, and acquisitions, including our digital mammography replacement program in our mid-Atlantic region, our breast oncology initiative, or BreastLink, and the acquisitions of Papastavros' group in Delaware and then the recently acquired centers in California from InSight Health.

Net loss for the second quarter of 2008 was $2.1 million, or $0.06 a share loss as compared to a net gain of $1.2 million, or $0.04 a share profit reported for the same quarter of 2007. Affecting 2008 net loss were certain non-cash expenses and one-time recurring items, including $690,000 non-cash gain on the fair value of interest rate hedges related to the Company's credit facilities, $693,000 of one-time expense related to payment of two settlements in business disputes, $579,000 of non-cash deferred financing expense related to the amortization of financing fees paid as part of our $405 million credit facilities drawn down in November 2006 in connection with the Radiologix acquisition, and the incremental term loans and revolving credit facilities arranged in August 2007 and February 2008, $602,000 of non-cash employee stock compensation expense resulting from the vesting of certain options and warrants, and then $647,000 non-cash expense from impairment on disposal of end-of-life equipment.

As compared to the same quarter last year, net income was lower due to the increase in some of the items just mentioned above during the second quarter of 2008. Additionally, we continue to experience $2.7 million of additional interest expense as a result of higher interest rates on our increased amount of debt.

Depreciation and amortization expense was greater in the second quarter of 2008 as compared to last year's quarter, due to a larger asset base resulting from acquisitions and capital expansion needs, and from $647,000 impairment on the disposal of certain equipment during the current quarter.

With regards to some specific income statement accounts, interest expense for the second quarter of 2008 was approximately $12.5 million. This was negatively impacted by $579,000 of non-cash amortization and financing fees and positively impacted by $690,000 from non-cash gain related to the mark-to-market of an interest rate hedge.

Interest expense was higher in general as compared to the same period last year due to increased debt, predominantly from two incremental term loans closed in August 2007 and February 2008, which totaled $60 million in incremental capital leases.

For the second quarter of 2008, our provision for bad debt was $7.1 million, or five point (technical difficulty) percent of revenue. This is down from 6.4% for the same quarter last year. Bad-debt expense has decreased as a percentage of revenue, partly as a result of the growth of imaging center revenue and improved collections.

The growth from the hospitals dilutes the contribution of the billings interpreted by certain of our -- which are performed by certain of our physician partners at several of our hospitals, for which we only receive a management fee. Hospital settings regularly have bad-debt expense that far exceeds that of freestanding imaging centers.

With regards to our balance sheet as of June 30, 2008, we had $478 million of debt. Included in this amount at June 30, we had a balance of $12.3 million drawn on our $55 million revolving line of credit. Since December 31, 2007, net accounts receivable increased approximately $13.5 million, resulting from increased business acquisitions and the credentialing of new physician staffing. We had net working capital of $9.9 million at June 30, 2008.

During the second quarter, we entered into capital leases of $3.6 million and repaid $4.7 million of notes and leases payable. We had cash capital expenditures net of dispositions of $8.4 million during the second quarter of 2008.

We are reaffirming our 2000 (sic) year-end guidance, which are as follows -- revenue, $470 million to $500 million; adjusted EBITDA, $100 million to $150 million; capital expenditures, $15 million to $20 million of maintenance expenditures plus growth expenditures of up to $25 million; and cash interest expense of $46 million to $52 million.

Although we did not break out our guidance by quarter, as we said on the last conference call we expected that revenues and adjusted EBITDA would increase as the year progresses. Our second-quarter results illustrated this and we are anticipating this trend to continue. This should be the result of the contributions from acquired operations and initiatives in progress that will come further online during the first -- that came online during the first two quarters and will come online during the remainder of 2008.

With regards to our liquidity and capital resources, in February 2008, GE arranged for an incremental $75 million as part of our existing credit facilities. The incremental facility consisted of $35 million as part of our second lien term loan and $40 million of additional capacity under our existing revolving line of credit. The incremental facility was used to fund the acquisitions of Papastavros Imaging, a portion of our digital mammography initiative, and our InSight acquisition and working capital.

With the recent increased size of our credit facilities, which we completed in one of the most challenging credit markets in recent history, we believe that our current capital structure provides us sufficient financial flexibility to effectively execute our growth plans in the near term. Additionally, the difficult credit market has significantly impacted the access to capital of our competitors, especially small operators. We believe this will result in further opportunity for us in the future.

We continue to investigate recapitalization opportunities for us to lower our cost of capital. As most of those on this call know all too well, the capital markets remain challenged within the worlds of both the equity and debt markets. As such, we continue to monitor the markets closely in order to capitalize on financing windows that may be favorable to us.

That would have concluded Mark Stolper's remarks. In conclusion, before we turn over for questions, I'd like to say that we remain optimistic and enthusiastic about RadNet's future. We've accomplished a great deal in a short time. Our focus in the third and fourth quarters will be primarily on maximizing the benefit from our recent initiatives and investments. Additionally, as the year progresses we will continue to look for ways to optimize our capital structure. We remain interested in ways in which we can lower our cost of capital, provide capital for expansion, and increase our operating and financial flexibility. We continue to dialogue with GE and other financial advisers regarding capital opportunities.

Operator, we are now ready for the question-and-answer portion of the call.

(Operator Instructions). Art Henderson, Jefferies & Company.

Good morning. Howard, could you talk a little bit more about the recent NeuroSciences acquisition, and the opportunity there, as well as giving us an update on any sort of early status on the BreastLink operations?

Yes. The NeuroSciences acquisition we consider to be very mid-Atlantic and particularly Delaware strategy. The acquisition involved a center which has two state-of-the-art MRI scanners, has been open for about three years, and which was owned and operated by a group of neurologists and neurosurgeons in the Delaware market. We have added to our physician staff in that market one of the more respected neuroradiologists in the Washington, DC/Delaware market, who is now the medical director at that institute.

The benefit here was that we've upgraded substantially our specialty capabilities in MRI, with particular benefit or capabilities in neuroradiology and ENT radiology. This center was approximately one mile from one of our multi-modality centers, which had older equipment and would otherwise have needed upgrading, so we will eliminate that. That investment could've been easily as much as $1 million for the new equipment, that we would have otherwise needed to spend.

But more importantly we now have what we think are expanded capabilities, both in terms of access as well as a very committed relationship with a large neurology, neurosurgical group that is expanding rapidly to accommodate the demands in that market, which extend well beyond the borders of the Delaware state line.

In addition, as I mentioned, we will be upgrading to PET/CT scanning. We think that the future for PET neuroimaging, particularly for detecting -- early detection of Alzheimer's and other degenerative brain diseases, will be very important in the near future.

In regards to the RadNet BreastLink, that is the breast cancer comprehensive center that we expanded in Orange County with the addition of breast surgeons and breast oncologists. The operation has been very positively received by our patients in the community, in Orange County and the West Los Angeles area, where the two centers are. We are further looking into some important relationships with payors that we will believe set a new paradigm for the management of breast cancer, as well as ways that we are getting more and more familiar with to reduce some of our operational costs.

We've already received inquiries from other areas here in Southern California that are very excited about this particular model, which we think has some unique expansion opportunities in association with some of our centers, which specialize in doing mammography and which we believe could readily be expanded to incorporate the breast oncology capabilities that we are refining our skills for down in Orange County. I don't expect to see a lot of that this year, but certainly going into 2009 I believe that those opportunities will begin to emerge more prominently here as the benefits to the patients and payors become more and more obvious.

That's helpful. If I could slip in one more question for you. Obviously you had a very strong revenue quarter. Your guidance is $470 million to $500 million. If we take, basically flatline the remainder of the year at what you did in the second quarter, add it up to what you did in the first quarter, it looks like you're at the high end of your revenue guidance. Is there something that we need to be thinking about from a seasonality factor in Q3 or Q4 that would cause the revenue to soften, or not go up as much as it should on a -- I would think it would on a trajectory level?

Other than the fact that the third quarter sometimes is challenged with vacation schedules, and the fourth quarter might have some impact towards the end of the year because of the Christmas holidays, nothing that we're seeing gives us any concern about the ability for us to reach the revenue guidance that we have directed you towards. There is some seasonality, but it certainly shouldn't have a material impact in the revenue guidance that we've given, Art.

Thanks very much.

Rob Mains, Morgan Keegan.

Howard, one number I missed, I didn't write fast enough. The number of scans that you did this year, it was 700-something.

I got to go back to my notes here. I think it was 771,000, I believe. Yes. The number of scans that we performed in the quarter was 771,374.

Thanks. And then a couple numbers questions I know that without Mark there you might not know the answer to, but I will try. I heard you say that the deferred financing fees would go into the interest expense line, and that the impairment goes against D&A. You also have this settlement decision, the $693,000 settlement. When you provide your breakdown that you typically do when the Q comes out, between salary and professional reading fees and G&A, is that going to be a G&A type item?

Which one?

The settlement that you did, that you had for the litigation, the $693,000.

Yes, I believe so.

Bigger picture, with the same stores, you saw a pretty nice increase from the first quarter to the second. I know there is some seasonality, but that should come out in the wash when you do a same-store calculation. You talked about some of the pressures that you're seeing on the smaller providers. Is what you're seeing, is it kind of -- do you feel it's volume and they're just finding their way to you, because other providers that might have been around a year ago aren't there, or do you think it's better execution on your part of capturing the available market?

I think it's better execution at this point in time. We haven't seen dramatic reduction in scanner capacity at this point in time. And I believe that that will happen probably as we go later and deeper into the year and the beginning of next year.

But I think at this point, part of the increase is really just better execution, along with the investment that we've made in our centers to upgrade facilities and improve the fleet of equipment that we have, which gives us better ability to access some of the backlog of patient demands that we have, as well as applications that the upgraded equipment is capable of doing today that we might not have been able to a couple of years ago -- excuse me, about a year or so ago, or two years ago.

Got you. Thank you.

Darren Lehrich, Deutsche Bank.

I do have two questions, one related to capital structure, the other just related to some of the investments you've been making on the mammo and PET side.

I guess just first, on the capital structure, I know, Howard, you and the team are sensitive to diluting shareholders. I guess I just want to explore management's tolerance even at these levels for raising equity. It seems like there may be somewhat of a chicken and egg here, despite the fact that your stock pricing probably where it should be. I guess I just want to get your off-the-cuff remarks in response to that related to your capital structure, and the potential for an equity raise even at these levels.

I think we would look at opportunities for anything that we felt makes sense. Part of the opportunities to look at equity capital would also somewhat depend on opportunities that we think we would need that equity for, in the way of further expansion opportunities, number one, number two, to potentially help provide some delevering which could then potentially get us a lower cost of funds if we were looking at recapitalization.

If I just maybe explore a little bit the PET/CT and mammo investments that you made, if there's any way at all you can maybe just share with us some of the productivity metrics that you track? I don't know if you have any in front of you, Howard, but maybe just share your thoughts on what kind of productivity levels you are seeing in terms of scans per day or whatever metric you may track in those two areas and kind of where you think you're headed.

The best example that I can give you of that is what we've looked at in the way of metrics for digital mammography in the Maryland market, where we had no digital mammography at the end of the fourth quarter of '07, and where we've now completed that.

During the second quarter, we looked at both reimbursement and volumes in the Maryland market. And we were able to track all of our payors and recognize about a $50 increase in the reimbursement for digital mammography over analog mammography. And we were up about 12% in volume comparing the run rate for the mammography we did in the second quarter, compared to last year's total volume.

So the benefits that we had hoped to get, both on reimbursement and throughput, have indeed been achieved, according to the expectations we had when we initially made that investment. Using specific numbers in volume, last year we did about 225,000 mammograms in the state of Maryland. This year we're on track to do about 250,000 mammograms. So not only did we get the benefit of increased reimbursement, but we also have achieved the increased revenue from the improved throughput that we got on digital mammography.

Somewhat longer term, we will also get a benefit from decreased cost as a result of that investment due to reduction of film and film handling. So we're very, very pleased with the decision that we made to invest in the digital mammography program.

That's great. Anything to share at all by way of example on the PET/CT side? I know you've made some investments there. Maybe just update us, if you would, on how many PET/CT units you have in service today, and where you think you might be by the end of this year.

I'd be guessing if I said. We really, I think, don't have any more PET/CTs in service today than we did in the first quarter, at least that I can think of. Maybe one more. And presently, I think we only are anticipating one further PET/CT going into service between now and the end of the year. We're pleased with the progress that we're tracking in our existing PET/CT scanners, but at this point in time, we're comfortable with that deployment.

Great. Thanks very much.

Gary Lieberman, Stanford Group.

Good morning. I was hoping that maybe you could talk a little bit about the consolidation that you've seen in your markets, and how it's progressed. Has it gone sort of at the rate you would have expected, faster or slower, and what you're looking at maybe over the next quarter or months?

I think we're not seeing a lot of consolidation in our markets as yet. I think there are a number of operators out there that have centers that are on the edge, and that are available, but we're not always interested in centers just for the sake of acquiring more centers. And I think some of those operators will probably wind up folding up some of their operations or being consolidated with other operators.

But in our given markets, given that we're the dominant player, there really isn't a lot of other consolidators that they could look towards. And I'm speaking mostly about our upper New York and the area just outside of New York, Maryland, Delaware, and California. So unless we're the ones doing the consolidating, I don't believe we're going to see that many transactions in those markets.

That being said, I have been made aware of a couple of operators that have filed for bankruptcy here in California. What happens with those centers, we're not interested in them, but what happens with those centers is somewhat up for grabs at this point in time. But I think that we will be seeing more and more of this, probably if not by the end of this year, the beginning of 2009.

Maybe just a quick follow-up, you've talked in the past about perhaps seeing a little bit of benefit from some of your negotiations with payors, from some of your market share. Could you just give us an update in terms of where you are on that front?

We're in discussions constantly with payors in our major markets, California, New York, Maryland, about pricing as we go into the future. None of the conversations that we're having are about decreasing reimbursement.

Whether or not we get increased reimbursement is really open for discussion at this point in time, but certainly we expect to see more business from these payors as we continue our dominance of the market, as well as a realization that pricing adjustments are something that we are seriously considering.

Great, thanks a lot.

Art Henderson, Jefferies & Company.

Howard, just to go back on Darren's question earlier, it seems to me like business is going very well here. Everything seems operationally to be running on all cylinders. Yet the stock is radically undervalued, in my opinion. And it seems to stem from the capital structure issues. I just want to understand real quick, would you or are you considering raising straight equity in this environment at this price, or is it something different? Could you put some arms around -- put your -- give us some detail around that issue? If you can.

I don't think I can at this point. We're certainly going to review all of our options, but nothing at the present time is anything that I feel comfortable discussing.

But is it -- could you give us a sense of timing? Is this something that you would consider doing something financing-wise within the next three months, or is it something much farther out?

I think part of that may wind up being what happens to the credit markets. Partially the decision to do some refinancing is certainly out of our hands, given the circumstances surrounding the credit markets, which do not appear to be really improving significantly at all. So the only way potentially for us, given the current circumstances, to delever, which would wind up being a means to perhaps tap into less expensive debt, would be a equity raise.

But again, at this point in time, until I think we have really explored these in more detail and looked at the consequences of continuing with the current capital structure versus other alternatives, I don't think at this point there's anything more I can say about that, Art.

That's fair. One question for you. Could you -- do you happen to have what your sort of blended interest rate is at the moment on your debt?

I believe it's a little over 10%. I think it's probably about 10.3% is what I think Mark has told me. But we can do a follow-up with you on that when Mark's available.

Thank you.

Rob Mains, and this is our final question.

On operating cash flow, could you give an update on where you stand in the quarter and where we might be for the rest of the year? The reason I ask about the rest of the year is that I recall in the first quarter there was an issue that you had some receivables that were associated with some doctors who had to get re-credentialed. Just want to know whether you've caught all that up or whether there's going to be more operating cash flow coming in maybe third quarter or fourth quarter.

We've caught up with some of that. It's a constant process in our business here that we have what we call credentialing holds. When we buy a new center and have to apply for new provider numbers for the physician groups, because we're not purchasing their accounts receivable, we have to go through that process, which is a rather lengthy one. And in the case particularly of some recent acquisitions we've done out here in California, we are experiencing that process.

But I think this will just be a normal part of our business that we're going to have to live with, given the nature of the credentialing process, primarily for Medicare, which requires re-credentialing when you bill under a new provider name. That being said, there is significant credential holds still, some of which were there in the first quarter or end of the fourth quarter, and now we have caught up with that but it's been replaced by new ones and then some, that we look towards the end of the year to potentially unblock those credentialing holds. So we would expect the cash flow from those credential holds to improve significantly, probably in the fourth quarter.

I can't remember if you gave this and I missed it, what operating cash flow was just in this quarter?

I'd have to defer that to Mark. So I'll have him follow up with you on that.

Great, thanks.

This does conclude our question-and-answer session. I would like to turn it back over to management for any additional or closing remarks.

Thank you all for joining us again, and we will look forward to talking with you again after the announcement of our third-quarter results. The Company remains very enthusiastic and optimistic about the future, not only of our Company but opportunities within the imaging space, which remains very dynamic, challenging, and in an enormous paradigm shift. Thank you all, and again, congratulations to Mark and his wife, Tracy.

Once again, ladies and gentlemen, this does conclude today's question and answer -- I mean today's conference. We thank you for your participation. You may now disconnect.