RadNet Inc (RDNT) Q4 2020 Earnings Call Transcript

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RadNet Inc (RDNT 0.25%)
Q4 2020 Earnings Call
Mar 8, 2021, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the RadNet, Inc. Q4 and Full Year 2020 Financial Results Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet, Inc. Please go ahead, sir.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Thank you. Good morning, ladies and gentlemen and thank you for joining Dr. Howard Berger and me today to discuss RadNet's fourth quarter and full year 2020 financial 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 US 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-party 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 on 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 included 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, 2020 to be filed shortly. 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. Berger

Howard G. Berger -- President and Chief Executive Officer

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 fourth quarter and full year 2020 results, give you more insight into the factors, which affected this performance and discuss our future strategy. After our prepared remarks we will open the call to your questions. I'd 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. Before we start I would like to say on behalf of myself and the entire team at RadNet we hope all of you and your loved ones are healthy and staying safe.

We are extremely grateful for all of our stakeholders including our employees, business partners, lenders and shareholders and wish you all well during this challenging time. Let's begin; I am very pleased with our performance in the fourth quarter. Continuing with the recovery of our procedural volumes that began in the third quarter we recorded the highest quarterly revenue and adjusted EBITDA in the company's history this fourth quarter. The turnaround of our business has been quite remarkable from its low point in mid-April when our procedural volumes dropped by 72% from pre-COVID levels. In the fourth quarter, our revenue grew by 2.5%, which was the result of several factors. First, during 2020, we significantly expanded our 3D mammography program on both coasts.

As a result, our mammography volumes increased by 11.7% during the fourth quarter relative to the same quarter in 2019. Much of the increase in mammography volumes brought in an associated reimbursement premium for the tomosynthesis 3D technology. Second, the increased revenue was the result of reimbursement increases from private and capitated payers as well as improved collections particularly around patient post treatments. In addition to the record revenue performance, our adjusted EBITDA in the fourth quarter of 2020 was $50.7 million as compared with $46.8 million in the fourth quarter of 2019, an increase of 8.1%.

While the increase in revenue attributed to -- contributed to the growth in adjusted EBITDA, an improved adjusted EBITDA performance was also the result of cost saving measures we instituted during the COVID-19 period. Since the onset of COVID-19, we aggressively focused on reducing expenses, consolidating underperforming sites and changing key operational metrics both at the same level and within our corporate support departments. The operation improvements we made will continue to benefit the business into the future and are reflected in the 2021 guidance range as we announced earlier today in our financial results press release.

From a margin perspective, our adjusted EBITDA margin was 16.4% in the fourth quarter of 2020 as compared with 15.6% in the fourth quarter of 2019, an improvement of 0.8% or 80 basis points. Our adjusted earnings were also very strong. Adjusted for one-time and extraordinary events during the quarter, our adjusted net income was $10.2 million or $0.20 per diluted share as compared with $9.9 million or $0.19 per diluted share in the fourth quarter of 2019. Throughout the COVID-19 period, we have focused on strengthening our balance sheet by managing our liquidity and financial leverage. At year-end 2020, we have a cash balance of $102 million and our net debt leverage ratio was reduced to under four times adjusted EBITDA, a level similar to that of year-end 2019 prior to the onset of COVID-19.

We believe that our strong balance sheet positions us to be aggressive in 2021 with respect to growth initiatives and will include tuck-in acquisitions, de novo centers and continued capital spending to drive same center performance. While it is noteworthy to highlight the strong financial performance of our last two quarters as our business began to recover from the worst of COVID-19 impact throughout 2020, we made some significant progress in furthering our long-term operating plan. Here are some of the highlights. In March of 2020, we completed our acquisition of DeepHealth, a leading artificial intelligence and machine learning company initially focused on solutions for the medical interpretation of mammography exams.

DeepHealth's development has focused on screening mammography, specifically 3D breast imaging, where the large line of cases and the difficult nature of their interpretation placed significant demand on radiologists. We are more certain today than ever before that artificial intelligence will transform the diagnostic imaging and radiology industry. Machine learning, big data applications and automation algorithms will allow us to deliver our services more cost effectively, efficiently and accurately. We spend almost 20% of our globally billed net revenue to the radiologist interpretation of our images. We believe AI will create workflow efficiencies and a key -- improve the accuracy of image interpretation and mammography and in other modalities will perform, which can materially benefit all of the RadNet stakeholders.

In the fourth quarter of 2020 we submitted for FDA approval of our first AI mammography product, which is screen triage product for radiologists. We hope to receive approval sometimes toward the middle of the year. By the end of the year, we anticipate submitting for FDA approval on a second AI product for more advanced mammography diagnostics and look forward to keeping you informed of our progress on these fronts. Related to our DeepHealth acquisition in August of 2020, we announced a collaboration with Hologic to advance the development of artificial intelligence tools in breast health. The collaboration will enable new joint market opportunities and further efforts to build clinician confidence and develop and integrate new AI technologies. As part of the collaboration, RadNet has been upgrading its entire fleet of the largest mammography systems to feature the Hologic Clarity HD and Quorum 3D imaging technologies and we'll share with Hologic certain data produced by RadNet's fleet of high-resolution mammography systems.

In 2020, we furthered the expansion of our health system joint venture businesses and have probably established partnership with Adventist Health to create an outpatient imaging joint venture in Simi Valley, California to initially include 3D outpatient facilities. In addition, we assumed operational management of the Adventist Health's Nancy Reagan Breast Center. Also in October RadNet announced its third joint venture with Dignity Health/CommonSpirit in Phoenix, Arizona initially established with eight acquired facilities we plan to significantly expand our offerings in the greater Phoenix area in the coming years through a combination of new site development and the acquisition of existing radiology providers.

The process of expansion has begun and we anticipate allocating significant focus in financial and management resources on this new market over the coming years. In August of 2020 we completed amendment to our credit agreement to increase the amount of the revolving commitments there under by $57.5 million to a total of $195 million. While this was done out of an abundance of caution and a concern for our liquidity position during the global pandemic, the expansion of available credit position allows us to have funds at our disposal to grow the company more aggressively in the coming years and are available for accretive acquisitions.

At this time, I'd like to turn the call back over to Mark and discuss some of the highlights of our fourth quarter and full 2020 performance. When he is finished, I will make some closing remarks.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Thank you, Howard. I'm now going to briefly review our fourth quarter and full year 2020 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 fourth quarter and full year of 2020 performance. I will also provide 2021 financial guidance levels, which were released in this morning's financial results press release. 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 and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment and non-cash equity compensation.

Adjusted EBITDA includes equity and earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests and subsidiaries that is adjusted for non-cash or extraordinary and one-time events 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 now like to review our fourth quarter and full year 2020 results. For the three months ended December 31, 2020 RadNet reported revenue of $308.5 million and adjusted EBITDA of $50.7 million. Both were the highest quarterly levels in our company's history. Revenue increased $7.7 million or 2.5% over the prior year same quarter and adjusted EBITDA increased $3.8 million or 8.1% over the prior year same quarter.

The increase in revenue and adjusted EBITDA was the result of a combination of better reimbursement from the expansion of our 3D mammography offerings, improved reimbursement from private and capitated payers, enhanced cash collections and significant cost reductions as detailed by Dr. Berger in his earlier remarks. For the fourth quarter of 2020, as compared with the prior year's fourth quarter, aggregate MRI volume decreased 1.8%, CT volume increased 2.4% and PET/CT volume decreased 2.8%. Overall volume, taking into account routine imaging exams inclusive of x-ray, ultrasound, mammography and other exams decreased 0.5% over the prior year's quarter. In the fourth quarter of 2020, we performed 1,977,086 total procedures.

The procedures were consistent with our multimodality approach whereby 76.7% of all the work we did by volume was from routine imaging. Our procedures in the fourth quarter of 2020 were as follows: note that the CT volumes for 2019 have been restated to account for a change we made as of January 1 of 2020 and how we account for one of our CT, CPT codes. The comparative numbers that follow are in apples-to-apples basis. 276,482 MRIs as compared with 281,646 MRIs in the fourth quarter of 2019; 172,728 CTs as compared with 168,706 CTs in the fourth quarter 2019; 11,063 PET/CTs as compared with 11,381 PET/CTs in the fourth quarter of 2019; and 1,516,813 routine imaging exams compared as 1,524,608 million of all these exams in the fourth quarter of 2019.

Adjusted net income versus net income adjusted in each period for one-time or extraordinary items was $10.2 million for the fourth quarter of 2020 or $0.20 per diluted share as compared with $9.9 million or $0.19 per diluted share for the same period in 2019. These per share values are based upon weighted average number of diluted shares outstanding of $52.2 million -- excuse me 52.2 million shares in the fourth quarter 2020 and 50.6 million shares outstanding in the fourth quarter of 2019. Affecting net income in the fourth quarter of 2020 were certain non-cash expenses and non-recurring items including the following: $2.3 million of non-cash employee stock compensation expense, $2.7 million of severance paid in connection with headcount reductions related to cost savings initiatives, $657,000 loss on the disposal of certain capital equipment, $750,000 of non-cash gain from interest rate hedges, $4.2 million loss of the impairment of intangible assets associated with trade names the company has discontinued, $4 million gain on the extinguishment of certain debts and $1.1 million of amortization of deferred financing costs and loan discount related to our existing credit facilities.

With regards to some specific income statement accounts overall GAAP interest expense for the fourth quarter of 2020 was $12.4 million. This compares with GAAP interest expense in the fourth quarter of 2019 of $11.5 million. Cash paid for interest during the period, which excludes non-cash deferred financing expense and accrued interest was $8.3 million as compared with $10.2 million in the fourth quarter of last year. For the full year of 2020, the company reported $1,098,104,000 of revenue, which is inclusive of $26.2 million of provider relief funding we received under the CARES Act. Adjusted EBITDA was $139.5 million and net loss was $14.8 million. Due to the impact of COVID-19 revenue decreased $56.1 million or 4.9% and adjusted EBITDA decreased $24.7 million or 15% as compared with 2019.

For the year ended December 31, 2020 as compared with 2019, MRI volume decreased to 11.9%, CT volume decreased 6.8% and PET/CT volume decreased 4.1%. Overall volume taking into account all routine imaging decreased 12.9% for the 12 months of 2020 as compared with 2019. In 2020, we performed 6,867,021 total procedures. The procedures were consistent with our multimodality approach whereby 76.1% of all the work we did by volume was from routine imaging. Our procedures in 2020 were as follows, again like the assumption of the comparison of the fourth quarter procedure volume, the CT volumes for 2019 have been restated to account for a change we made as of January 1, 2020 and how we account for one of our CT CPT codes.

The comparative numbers that follow are also at an apples-to-apples basis. 976,633 MRIs compared with 1,108,496 MRIs in 2019, 620,547 CTs as compared with 665,539 CTs in 2019, 41,567 PET/CTs as compared with 43,341 PET/CTs in 2019, and 5,228,274 routine imaging exams as compared with 6,068,928 of all these exams in 2019. Net loss for 2020 was $14.8 million or negative $0.29 per diluted share. This compares to net income of $14.8 million or $0.29 per diluted share in 2019. These per share volumes are based on weighted average number of diluted shares outstanding of 50.9 million shares in 2020 and 50.2 million shares in 2019.

Affecting net income in 2020 were certain noncash expenses and non-recurring items including the following: $12.4 million of noncash employee stock compensation expense, $4.4 million of severance paid in connection with headcount reductions related to cost savings initiatives, $1.2 million loss under disposal of certain capital equipment, $6 million of noncash loss from interest rate hedges, $4.2 million loss on the impairment of intangible assets associated with trade names the company has discontinued, $4 million of gain on the extinguishment of certain debts, and $4.4 million of amortization of deferred financing costs and loan discounts related to our existing credit facilities. With regards to some specific income statement accounts overall GAAP interest expense in 2020 was $45.9 million.

Adjusting for the non-cash impacts from items such as amortization of financing fees and accrued interest, cash interest expense was $39.5 million in 2020. This compares with GAAP interest expense in 2019 of $48 million and cash paid for interest of $46.3 million in 2019. With regards to our balance sheet as of December 31, 2020 unadjusted for bonds and term loan discounts we had $563.7 million of net debt, which is total debt at par value that's our cash balance. Note that this debt balance includes New Jersey Imaging Networks debt of approximately $53 million for which RadNet is neither a borrower nor guarantor. This compares with $672.4 million of net debt at December 31, 2019. As of yearend 2020 we were undrawn on our $195 million revolving line of credit and had a cash balance of $102 million, which was substantially up from $40.2 million cash balance at yearend 2019.

At December 31, 2012 -- excuse me, 2020, our accounts receivable balance was $129.6 million, a decrease of $25.2 million from yearend 2019. The decrease in accounts receivable is mainly from improved cash collections including additional efforts and resources dedicated to patient collections at the time of service. Our DSO was 36.2 days at December 31, 2020 lower by 8.5 days when compared with 44.7 days as of that date one year earlier. Throughout 2020, we had total capital expenditures, net of asset dispositions and the sale of imaging center assets and joint venture interests of $86 million. This amount excludes $7.4 million of capital expenditures of New Jersey Imaging Network. Approximately all of our capital expenditures were paid for in cash and we recognized $828,000 in proceeds from the sale of equipment.

Capital expenditures in 2020 were higher than we originally budgeted as a result of additional investments we made in 3D mammography capacity in conjunction with a Whiterabbit AI rollout and some opportunities we saw to take market share away from some of our competitors in selected markets during the COVID-19 period. At this time, I'd like to review our 2021 fiscal year guidance levels, which we released this morning in our financial results press release. For total net revenue, our guidance range is $1.25 billion to $1.3 billion. For adjusted EBITDA, our guidance range is $180 million to $190 million. For capital expenditures, our guidance range is $70 million to $75 million. For cash paid for interest, our guidance range is $39 million to $44 million. And for free cash flow generation, which we define as our adjusted EBITDA, less capital expenditures, less cash paid for interest, our guidance range is $60 million to $70 million.

These guidance levels are built on a number of assumptions. First, we entered 2021 on the strength of a strong recovery from COVID-19 as indicative of our performance levels during the second half of 2020. For the second half of 2020 we exceeded $600 million of revenue and $96 million of adjusted EBITDA. Our guidance ranges for 2021 are built with this run rate in mind and the assumption that our business will continue to strengthen as COVID-19 restrictions are lifted in the states in which we operate. We believe there's upside to our guidance ranges, which could result from accretive tuck-in acquisitions we expect to complete during the year, further benefit from the cost reduction measures implemented in 2020, increases in reimbursement from private and capitated payers and the expansion of our joint venture initiatives.

Additionally, achieving growth in the Arizona marketplace through our Dignity Health joint venture will be a major focus throughout 2021, which could include both de novo centers as well as acquisitions. In 2021 we will also complete or upgrade to 3D mammography and continued development of our AI solutions. Sometime around the middle of 2021, we hope to receive FDA approval for our initial mammography AI product submitted in the fourth quarter of 2021 and we anticipate filing with the FDA for its review a second mammography AI offering by yearend.

I'd now like to turn the call back over to Dr. Berger who will make some closing remarks.

Howard G. Berger -- President and Chief Executive Officer

Thank you, Mark. In conclusion, the challenges encountered during the COVID-19 pandemic created a seminal event for RadNet. COVID-19 required us to reevaluate every aspect of our business, a business that has grown primarily in the past through acquisitions. COVID-19 allowed us to pause and analyze all of our procedures and processes in order to achieve more optimal performance. The pandemic also gave us the opportunity to make decisions that would otherwise have proven more difficult in more normal times. We were able to consolidate some of our centers that were in close proximity to other centers in ways that preserve patient access, convenience and our procedural volume.

The regional centralization of our scheduling departments and preauthorization teams afforded us the ability to more effectively manage our capacity without losing business or negatively impacting our customer service. In addition, we were able to exit non-core businesses and activities that were distracting our management teams for more core functions. As we now approach the end of the first quarter of 2020 we are optimistic for the remainder of the year. In particular, we look to make substantial progress in deploying artificial intelligence in our business, especially with regards to screening mammography.

These added tools should improve our diagnostic accuracy and result in earlier disease detection and better compliance among patients. We are also working -- guarantee to expand a number of our health system joint ventures and seek to establish new ones. Our strong cash position at the end of 2020 leading into this year along with the availability of a $195 million revolving credit facility will provide us the financial capabilities to pursue accretive strategic acquisitions and execute on all of the facets of our operating plan.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Brian Tanquilut with Jefferies.

Brian Tanquilut -- Jefferies & Company -- Analyst

Hey, good morning guys. Congratulations on a good quarter and obviously a tough year, so congrats on navigating all that. I guess my first question for both of you guys Howard and Mark, as I look at the numbers you posted in the quarter, obviously, it looks like you've seen a good bit of recovery already. And Mark, I appreciate you mentioning the conservatism in guidance, but how are you thinking about the recovery that's remaining or the opportunity remaining to see volumes pick up for pent up demand, and what kind of cadence over the course of the year are you embedding in your guidance as it pertains to that?

Howard G. Berger -- President and Chief Executive Officer

Good morning, Brian and thank you. I think there were a number of issues that occurred in 2020 that will continue to help drive volumes into our centers along with the normal efforts that we make from a marketing and contracting standpoint and just what has traditionally been a 2% to 3% annual organic growth in volumes. Notably the pandemic has created an additional effort on the part of payors to further encourage and help direct business away from hospitals. A number of the major payors have either reiterated or announced their reimbursement preferences for outpatient imaging centers to the point where they may not pay for some of the routine imaging that are done in hospital systems, both at not only higher cost, but now with the pandemic still upon us, a less comfortable place for patients to go.

So we believe both of those issues will create additional volume directed to outpatient facilities in general and ours in particular. In addition to that, it's clear that some of our recovery to more normal volumes and in fact having exceeded that so far in the early part of this year is delayed treatment and doctor visits that were put upon everybody in 2020, notably during the last nine months of 2020, many health systems went to the extent of not performing elective procedures, which is one of the reasons why our MRI volume and others were affected so much.

We expect those to be lifted, most of the health systems have already done that but we expect with that additional need for these essential services will be resurrected in 2020. Alongside of that we believe that the additional volume that will come to us will be a result of people preferring to go to the outpatient and ambulatory centers along with the fact that there are more articles appearing in the literature that the way healthcare leads to greater costs and more morbidity in the system. So I think all of those factors will help drive our revenues and are somewhat factored into our guidance for 2021.

Brian Tanquilut -- Jefferies & Company -- Analyst

Yeah, appreciate that. And then I guess Howard while I have you, obviously, mammography is an area that you've been focused on and you talked about AI a little bit in that space. Can you just walk us through what the strategy is there and what sort of investment and expansion that we should be watching out for going forward?

Howard G. Berger -- President and Chief Executive Officer

Okay. Well, I think the primary reason why we're focused on mammography is that depending upon whose articles you read or what statistics the marketplace does not do a particularly good job at this time in the compliance for our patients to get their annual or biannual mammograms. So we've begun both through our Whiterabbit relationship as well as some of our own internal measurements and analytics to reach out to patients and improve their compliance. In addition, there is an estimate that anywhere from perhaps as much as 30% to maybe even 50% or 60% of all the women who should be getting mammography are not.

Therefore, since there's about 40 million mammograms done annually, there's a good argument to believe that perhaps 20 million to 30 million more mammograms should be done on an annual basis. So, we believe that given the scale that we have and the analytics that we're capable of using to drive better compliance and reach out to, first time women getting the mammograms after the age of 40 will help drive that business. To that end, as I mentioned in my remarks, we had gone through a significant upgrading of our mammography systems through a relationship with Hologic to not only get to the 3D tomosynthesis throughout our entire fleet but to elevate to their newest technology with high resolution detectors and faster and better management for reading their scans.

We hope to couple that with the continued effort in our artificial intelligence through the DeepHealth division, which in an article that we published back in November demonstrating that artificial intelligence is able to detect breast cancer one to two years earlier than even some of the most qualified mammographers are capable of doing. So I think all of those give us a good reason to think that our mammography, which was up as we reported even in the fourth quarter, up almost 12% has that opportunity to continue in 2021. I also want to mention that in most households the mother or the women are very much the determinant of where healthcare is accessed by the rest of their family. So encouraging more and more of that mammography business, we believe will also help us with other downstream imaging and procedures that we can do in our centers.

Brian Tanquilut -- Jefferies & Company -- Analyst

Okay. That makes a lot of sense. And then I guess shifting gears Howard you obviously entered the Arizona market through the JV with Dignity. How are we thinking about or how should we be thinking about your expansion plans there? You've expanded the credit facility, so should we be thinking that you'd be acquiring more in that market specifically or are you open to further expansions from a geographic footprint perspective?

Howard G. Berger -- President and Chief Executive Officer

I think we'll be doing both Brian. We already have designs on at least two of our new imaging facilities that'll be on campuses of two of the largest Dignity health systems. We are in conversation with other medical groups that are closely aligned with Dignity about helping to manage their imaging in a more effective way and driving business into the joint venture and we believe that there are acquisition opportunities that are available to us to expand our footprint and have similar kind of opportunities and results like we've experienced in other markets that we have entered.

The best example of that being when we entered the New York Metropolitan marketplace; believe it or not its eight years ago at this point we have become the largest operator of independent freestanding imaging facilities and a lot of our growth opportunities and improved performance are based on those kind of metrics. So Phoenix, which has I think a population of well over 5 million people has some very attractive and unique situations for us. And as I've mentioned in prior earnings calls and conferences, the opportunity for us to enter new markets will follow the pattern that we've demonstrated over the last couple of years of expanding it with joint venture partners with large health systems and I think the investment and involvement in Phoenix very much fits that profile.

Brian Tanquilut -- Jefferies & Company -- Analyst

Got it. Mark, quick, last question for me. How do you think about the sustainability of margins because they're obviously very strong in the quarter? I know you've laid out your cost initiatives but just your quick thoughts on that? Thank you.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Sure. With the initiatives that we completed in 2020 in evaluating really every aspect of how we do business both at the regional levels, the federal levels as well as in all the corporate support functions, we did pull significant amounts of costs out of our cost structure that will certainly impact margins positively here in 2021. We having over 16% margin in the fourth quarter was a significant improvement not only over the prior year but over prior quarters. We expect -- again, if you look at our guidance and look at the implied margin there, we expect to have somewhere around 15% blended margins for 2021 and why that's a little bit lower than the fourth quarter here is, there is some seasonality as you're well aware Brian in our business with respect to the first quarter. There's always some seasonality related to weather conditions in the Northeast as well as the issue with deductibles.

Having said that, we've had a robust start other than some of these weather conditions here in the first quarter of 2021. So we do expect some margin enhancement here in 2021 versus I would even say versus 2019 because 2020 is not a good year to compare to because of COVID where our margin was incredibly depressed. So I think there's some real good opportunity for margin enhancement. Also as we adopt AI technology particularly around mammography and then develop or license other AI technologies for other modalities into the future, we have the ability to make our radiologists more productive, potentially use fewer radiologists and lower the costs significantly of delivering the professional interpretation of our scans and that could be a real game changer into the future with respect to our margins.

Brian Tanquilut -- Jefferies & Company -- Analyst

Awesome. Thanks guys.

Howard G. Berger -- President and Chief Executive Officer

Thanks Brian.

Operator

We go to our next question from Mitra Ramgopal with Sidoti.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Yes, good morning. Thanks for taking the questions. I just wanted to follow up on the AI comments earlier. Obviously, it seems like you're getting some nice traction on the mammography side and with the FDA approval likely and the upgrade to 3D. I was just wondering if AI platform could be expanded, the areas beyond mammography for you?

Howard G. Berger -- President and Chief Executive Officer

Good morning, Mitra. Yes, there's four core areas that we think as an outpatient provider that primarily as we see a shift to population health would be beneficial not just for the company but hopefully for the populace. If you look at the various cancers that are most significant in volume you deal with breast cancer, prostate cancer, lung cancer and colon cancer those that come for about 80% of all of the cancers and each of those have screening tools that exist right now that I believe can be demonstrably improved through application of artificial intelligence. We've already demonstrated some of that and have indeed put our capital to work as regards to mammography.

So once we get some good traction on that, we plan and are already looking at some initiatives for at least prostate along with colon and lung cancers down the road. We think if anything that concerned as a great tool for putting some definition behind what population health needs, we believe that diagnostic imaging will be at the forefront of that and that tools in these areas can have a very prominent effect on both diagnosing earlier as well as and obviously leading to lower cost and reduced mortality. So we think it's incumbent upon us as the leader in this industry as well as just generally what's good for the population to focus our attention on these tools and provide programs for the insurers, health insurers as well as employers to give some real new definition to population health.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Okay. Thanks. That's very helpful. And Howard, I know you talked earlier about the increasing preference of payors to shift some of these procedures to the outpatient setting. I'm just wondering if that's also leading now to increased conversations or opportunities as it relates to more JVs?

Howard G. Berger -- President and Chief Executive Officer

I think it is. And these are slow to develop and take a long time. The health systems are large and to get their attention as well as deal with other local and geographic issues take a lot of work. But we think that the marketplace is ready for this. And I think in a very specific way, COVID has helped focus people's attention on that given that the general consumer -- healthcare consumer is more reluctant to go into a hospital or health system today if they have the availability of comparable or even better access to outpatient imaging.

So I think more and more of the hospital systems are recognizing the need to make this shift and in addition to issues related to reimbursement we can focus on a more strategic relationship in an approach to population health. I think we're getting a lot of good conversation surrounding these opportunities. So again, I think that is unique in terms of the number of centers it has, are in joint ventures. As we've mentioned before over 25% of our centers now are in joint ventures. And we looked either to expand that number as we go forward given that I think the joint venture arrangement affords a lot of opportunity for both long-term stability and growth initiatives with our healthcare systems.

I'd be [Indecipherable] if I didn't mention here that during the COVID period one of the additional benefits from our joint ventures was that all of our health systems reached out to us and afforded RadNet employees the opportunities to get their vaccinations for COVID as part of the frontline essential healthcare workers. And so while that is not necessarily a easily monetized benefit it was a significant benefit to the RadNet employees that gave them the comfort and the confidence to continue to provide these services, which clearly has not been identified as an essential service. So I think these initiatives and the benefits that we provide were more demonstrated during the COVID period than perhaps at any other time in our history.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Okay. Thanks for the additional color. And then quickly on the capitation business, if you can you help us in terms of how you're thinking about that? You obviously despite the pandemic you saw a really nice growth there. And I'm just wondering if we should continue to expect double-digit top line in that piece of the business going forward near-term?

Howard G. Berger -- President and Chief Executive Officer

Yes, I believe that will be the case Mitra. Particularly out here in California where we have the greatest penetration in capitation, I think more and more of our medical groups and related insurers are looking at not just capitation but potential new risk sharing models given our geographic access and aggressive services we offer are exciting proposition. So hopefully you'll be hearing more about that later this year with initiatives that may not be conventional in terms of what we have traditionally been doing in the way of capitation but expanding the potential reimbursement models that may move a little bit further away from the traditional fee-for-service. So again I think -- it's in a unique position to do those sort of a lot of the reasons that we've always talked about.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Yeah. I'll add that during 2020 our capitation business was really a shining star. And unlike the other books of business that we had that were significantly impacted from COVID-19, i.e., the fee-for-service business, our capitated contract, our capitated revenue was up over $14 million from 2019. And that was really because the enrollments in these HMO patient, in these HMO program was stable and even slightly increased in 2020 even despite COVID-19. Many of the workforce that lost their jobs during 2020, many of them were put on furloughs and still had their health benefits. And so, the enrollment within HMO and you're aware in California most of these HMO patients are then managed by medical groups through these capitated contracts.

And we sub-capitate from these medical groups and our revenue dollars are associated with the number of enrollees in these programs and because the number of enrollees per state was slightly growing in 2020 our revenue was up not only because of the enrollees but also because from price increases that we had built into many of these contracts on an annual basis. And then furthermore the incidence of imaging meaning the use of imaging under these contracts, the utilization was significantly lower in 2020 so that the profitability of our capitated contracts in 2020 was drastically up relative to prior years. So it's really a great book of business, one that we're looking to expand.

We continually have conversations with new medical groups here in California as well as taking on and assuming the responsibilities -- financial responsibilities for more lives that might be part of other medical groups that we do contract with here in California that help other geographies that we could potentially capitate for. So it's a business we like. We have no costs of billing and collecting. We have very little patient bad debt and we get paid in the month that we render the services so that we have no costs of carrying receivables. So it's really a unique part of our business.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Okay, no, that's great. And then quickly Mark I don't know if you could help with -- what's a good tax rate to use for 2021?

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Yeah, 2020 was jumping all over. There were lots of ins and outs related to transaction. So, it's really hard to tell from 2020 what our effective tax rate is. If you assume for your modeling purposes of a federal tax rate of about 21% and a blended state tax rate of about 5%, so you get into the 26% to 27%. That's a good proxy for our tax provision. As you're probably aware, we're still burning off a pretty substantial net operating loss carry-forward. So -- the federal part of that tax provision isn't paid in cash but it still hits our income statement with respect to our earnings per share.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Okay. Thanks again for taking the questions.

Howard G. Berger -- President and Chief Executive Officer

You're welcome. Thanks Mitra.

Operator

We'll go to our next question from John Ransom with Raymond James.

John W. Ransom -- Raymond James & Associates -- Analyst

I want to congratulate you guys on having the shortest prepared remarks of any company I covered. So you get us to take the word.

Howard G. Berger -- President and Chief Executive Officer

Say that again John, we're having a little trouble hearing you.

John W. Ransom -- Raymond James & Associates -- Analyst

Oh. Sorry, I'll take it off. Is that better?

Howard G. Berger -- President and Chief Executive Officer

Yes. That's better.

John W. Ransom -- Raymond James & Associates -- Analyst

Is that better? Yeah. Sorry. Okay. So I just wanted to give you guys the award for being the most succinct management team I cover in terms of your prepared remarks. So congratulations.

Howard G. Berger -- President and Chief Executive Officer

Is that succinct or did we put you to sleep?

John W. Ransom -- Raymond James & Associates -- Analyst

No, no. It's actually a compliment. You guys were succinct. It's a sincere compliment.

Howard G. Berger -- President and Chief Executive Officer

Okay.

John W. Ransom -- Raymond James & Associates -- Analyst

So just a few things. If we remember right, so DaVita Medical Group sold to United and that's a big as you know IPO group in California as having those practices in the hands of United, which is probably more aggressive with rep scores and the like. Has that been part of the better pricing that you've seen in California on the IPA contracts or is that just a coincidence?

Howard G. Berger -- President and Chief Executive Officer

I don't think at this point John that it has translated into any additional benefit or opportunities for us. The marketplace here in California is not so much controlled by United Corporate but really here the local management and officers here in California that we've known for quite some time. So even without United entering the picture I think we've had ongoing discussions with the various groups that have now been aggregated under United into opportunities to further expand capitation. Maybe at some point there might be more of a national opportunity that we would look at with United that could be not only for capitation but other fee-for-service businesses particularly in terms of mammography that that could be exciting for us.

John W. Ransom -- Raymond James & Associates -- Analyst

Okay. You guys obviously came through the awful mess with flying colors. And this is kind of I'm trying to find a glass half full question or glass I think they ask questions but don't take it the wrong way. But being so exposed to California, New York that were kind of extreme examples of lockdown states, has that caused you to maybe rethink some of your geographic concentration or does it -- are you thinking like gosh it couldn't get worse than this and look how well we did?

Howard G. Berger -- President and Chief Executive Officer

I get often asked the question, John, about why we're only in five or six states, now actually seven with Arizona. And there is -- I make the analogy for those of you who are old enough or who had read widely about history that when they caught the famous bank robber, Willie Sutton, they asked him why he robbed banks? And he said because that's where the money is. To some extent, I think our strategy follows along with that and while we can suffer through situations like we did here through the pandemic and the lockdowns, the fact of the matter is to combine a population of the United States that is in New York, and New Jersey, and in California, we're probably talking, I'm going to say, about a third of the population or somewhere in that area. So, I think we have to take a good with the bad. There's seasonal issues that we get confronted with like we were in February with some inclement weather, but it's where the people live. It's where the lives are. We're very much a volume-driven business. And my preference would be to stay in those markets where we can become the major outpatient player and benefit from large volumes and access to our centers, which gives us some very unique contracting capabilities.

John W. Ransom -- Raymond James & Associates -- Analyst

Right. Okay. Fair enough. And then lastly, can you give an update, if any? We don't see a lot of portfolios trade in this business. But where do you think the private equity/competitive strategic bid is for let's say a substantial play for all that versus where a RadNet would be? I mean is the market going to pay two to three or four times higher than you're willing to pay for say what some of the can be with a nice market and something like $20 million of EBITDA or are you going to be consistently out-bid in those situations just given your history?

Howard G. Berger -- President and Chief Executive Officer

I think we're aware of all the transactions that go on in the imaging space and we see the size of these transactions not so much in terms of the dollar amount, but in terms of the multiples that people are paying. And I think we look at each one of these in a very specific way. I think if a set of assets were to come up that are very strategic for us it would be worth taking a close look at those even if they tended to be at higher multiples and we may have paid in the past for. So I think while that -- the aggressive PE approach for acquiring some of these imaging assets has been a bit of a head scratcher for us. Nonetheless I think it helps define how valuable the RadNet strategy is that should have some of that benefit in order to us in terms of our attractiveness to -- for the stock market and shareholders.

But I would say that we're more optimistic about how we can continue to leverage our facilities and have the consolidation and I'm rambling here a little bit so I apologize but consolidation is a major force inside of healthcare. And I think there's no better poster child for that than imaging particularly outpatient imaging space. I like the luggage that we have with our platform gives us enormous opportunities many of which that we're working on this year to further create efficiencies and streamline our business. So scaling up related circumstances is certainly something that we would be very serious about.

John W. Ransom -- Raymond James & Associates -- Analyst

Okay. And sorry one more I just forgot to ask you, in your hospital JV that mean your legacy was gosh are unaffiliated freestanding centers are one third to one half the price of what it would cost to get you get it done in a hospital. And of course, you pointed rightly to all the players that are now steering people away from hospital settings for routine scans. When you do a joint venture with a hospital, I'm assuming there is some contracting work. So is the -- so let's say the rate is just make up the number of $1,500 for an MRI at the hospital and it's $400 at RadNet, is the hospital affiliation price $600 or is it a little better, a lot better or how does that work considering obviously they have more leverage with the payers than say RadNet in a given market?

Howard G. Berger -- President and Chief Executive Officer

It varies from market-to-market. In some markets the relationship with the health system has in fact allowed us to get better rates than we would have on our own stand-alone basis. But I think the primary benefit of a relationship with the health systems is not so much for rate lift, it's more having a seat at the table with the relationship with the health system on a shoulder-to-shoulder basis and where the health system can actually drive volume into the outpatient centers and that happens in two ways. Number one, when the health systems see that we are joint ventured with -- excuse me, when the health insurers see that we're joint ventured with the health system they know that there is less of a necessity for them, the health insurers on the pricing side of this.

And that the health systems are shoulder-to-shoulder with us and helping drive the business away from the hospitals into the outpatient centers. The other thing is that all of our health systems bar none are in the business of acquisition of practices, physician practices. And once they're under the health system it's easier for them particularly with the access that they get afforded with the RadNet locations to direct that business into the outpatient marketplace. So both of those benefits have been I think a very important part of our strategy with the health system joint ventures there, and have created benefits that we would not have enjoyed without them.

John W. Ransom -- Raymond James & Associates -- Analyst

That's it from me. Thanks so much.

Howard G. Berger -- President and Chief Executive Officer

All right. Thanks John. Stay safe.

John W. Ransom -- Raymond James & Associates -- Analyst

Yes, sir.

Operator

There are no further questions at this time.

Howard G. Berger -- President and Chief Executive Officer

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. Our management will continue its endeavor to be a market leader that provides great services with appropriate return on investment for all stakeholders. Thank you for your time today. And I look forward to our next call. Stay safe and healthy.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Howard G. Berger -- President and Chief Executive Officer

Brian Tanquilut -- Jefferies & Company -- Analyst

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

John W. Ransom -- Raymond James & Associates -- Analyst

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