Mark Stolper - EVP & CFO Howard Berger - Chairman, President and CEO.

Brian Tanquilut - Jefferies & Company Bill Bonello - Craig Hallum Capital Group.

Good day, and welcome to the RadNet Inc. Fourth Quarter 2014 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet Incorporated. You may begin..

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 2014 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 U.S. 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, and our ability to complete successful refinancing in the future 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 include 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, 2014 to be filed later today.

Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it was 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..

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 2014 results, give you more insight into 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. 2014 was a breakout year for RadNet in many ways. First, I'll focus on our financial performance.

At the beginning of 2013, we set our original 2014 guidance levels including revenue and EBITDA, the key performance metrics of our business. Throughout 2014, as we observe better than anticipated performance from our regional operations, we raised our revenue and EBITDA guidance after each of the first, second and third quarters.

In the end, our full-year 2014 revenue and EBITDA not only significantly exceeded our original expectations, but our revenue even exceeded our high end of our financial -- excuse me, of our final revised guidance levels. There were a variety of factors that drove this performance. I'll start by discussing revenue.

As a backdrop to our revenue discussion, I'd like to remind everyone that going into 2014 we faced approximately $22 million on Medicare reimbursement cuts caused by material changes in Medicare's 2014 physician fee schedule. Despite this, our 2014 revenue increased over 2% from 2013. There were several reasons for this.

First, revenue in 2014 was enhanced by new capitation contracts, which we commenced in the second half of 2014, including one with the DaVita HealthCare Partners, which we announced in July. In all, capitation revenue increased over $11 million in 2014 as a result of the partial year contribution of these newer contracts.

Our 2015 guidance, which Mark will discuss later in his prepared remarks, incorporates a full-year's contribution from these newer 2014 contracts, as well as revenue generated from an additional new contract we've been ramping up in the first quarter of 2015.

Capitation will remain an important component of our business, which serves to support our organic same-center operating model. In general, I believe capitation, which incorporates the assumption of managing of utilization risk, will be a key component of being an effective healthcare provider under the dynamically changing Affordable Healthcare Act.

We believe RadNet, with our scale, multi-modality approach in geographic clustering is perfectly positioned to capitalize on these changing contracting landscape. After all, we've had a great head start in California where we've had over 20 years of capitation experience in the most progressive healthcare contracting market in the United States.

Besides the growth in our capitation business, our strong 2014 revenue performance was also enhanced by larger patient volumes from state and privately-managed healthcare exchanges as part of the Affordable Care Act. This was especially the case in California where approximately 1.4 million Californians enrolled for healthcare under these programs.

The increased demand for imaging by these patient populations resulted in incremental procedural volumes and created the need for us to make additional capital investments to expand capacity. In some cases, we were able to replace or add equipment to existing RadNet facilities.

In other cases, we have built satellite or adjacent locations to supplement some of our larger multi-modality facilities whose ratings, call centers and patient service coordinators were challenged with unanticipated demand.

With respect to our 2014 EBITDA performance besides increased revenue about which I just spoke, our 12.1% increase in 2014 EBITDA was also driven by the execution of the $30 million of cost saving initiatives we announced in the fourth quarter of 2013 and commenced at the beginning of the 2014.

These initiatives were broad-based and included savings from our roll out of voice recognition transcription, renegotiating of purchasing and equipment service contracts, employee staffing efficiencies and changes to benefit programs, efficiencies from variety of corporate insurance programs eliminating of lease expenses on equipment we purchased that we were previously renting among other things.

I command my management team for its identification and many of these opportunities and its commitment to executing on these programs. We recognize we must continually refine, reengineer and sometimes reinvent the way we do business in order to remain the leader in our industry. Besides our financial performance, 2014 was the similar year for RadNet.

In that for the first time in our 30-year history we expanded our operations in a meaningful way beyond the borders of United States. Some of you may have seen our recent announcement about our management contract in the Middle East nation of Qatar.

In partnership with a prominent equipment manufacturer and a local partner, we won a contract with initial term of five years from the Ministry of Health in Qatar to manage the national screening program focused on breast and colorectal cancer.

Besides taking RadNet outside its traditional borders, the contract is noteworthy and added as indicative of the fact that our company and our brand are beginning to be recognized internationally.

As in the case of the contract in Qatar, RadNet's core competency used to manage our own business are able to be leveraged in the form of management services that can be sold to other operators, partners and in this case, a foreign nation. This opens up a new and seemingly limitless opportunity set for RadNet.

Furthermore, the Qatar opportunity and others that may come about in the future like this are capital-light opportunities, and that they don't require estimate material investments and capital equipment or facilities.

These opportunities are also not reimbursement-dependent and are not subject to the Medicare setting rates or negotiations with private bidders. Second, last week we announced our most prominent information technology contract since we acquired eRAD.

We entered into an agreement to provide eRAD's Radiology Information System or RIS to Assuta Medical Center, Israel's largest private medical center with eight locations across the country.

In winning this contract, we beat out other leading RIS solutions, and we'll be integrating eRAD with cutting-edge information solutions, including electronic health record system, patient portals and customer relationship management solutions.

We are working with Assuta on a go live date later this year, and our association with and endorsement from Assuta has already surfaced other opportunities for eRAD.

The last point I will make about our 2014 performance before I discuss our thoughts on 2015 is that our EBITDA was lowered by about $1 million in 2014 because of additional expenses we incurred throughout the year associated with winning the contracts in Qatar and Israel, as well as additional expenses related to our increased presence at the Annual Radiology Convention in Chicago, otherwise known as the RSNA.

Putting 2014 behind us, I have many reasons to remain optimistic and excited about RadNet's future as we look ahead to the rest of 2015 and beyond. We entered 2015 with momentum in all aspects of our business. We've had three straight quarters of same-center procedural volume growth.

We spent the better part of the year fine-tuning our operations and executing on cost savings and efficiency initiatives. We repaid almost $24 million of debt and produced over $30 million of free cash flow during 2014. We were relatively quite on the acquisition front having spent less than $9.5 million on acquisitions.

Through our roll out of eRAD, we made great strides in getting all of the RadNet facilities onto a single IT platform. We initiated the concept of selling our core competencies to hospital and health system partners and a foreign nation as part of management services offering.

We signed new capitation agreements and increased our capacity to service large patient volumes in selective RadNet markets. These are all important accomplishments, which position us uniquely in our industry for the upcoming quarters and years.

Our industry continues to be challenged with reimbursement pressure, utilization controls and the continuing need to reinvest in equipment and facilities to remain competitive and provide the quality patient services possible in today's delivery system. Our industry remains right with opportunity.

We continue to compete with mom-and-pop and smaller freestanding operators, as well as the outpatient departments of local hospitals. The smaller operators have continued to struggle. The lack of scale and/or their often unhealthy balance sheets have caused many to go out of business or look to be consolidated.

Their lack of ability to invest in the latest technologies is causing them to fall behind in quality and service offerings. While local hospitals remained as competitors, the pricing they charge private payers and patients and their much higher cost structure make them less attractive outlets for imaging.

Utilization managers and private payers are more frequently seeking to direct imaging to freestanding centers and lower cost providers. We believe we are beginning to benefit from these programs of the more progressive payers.

And I am convinced that there is no rational for why a hospital may charge a patient or his or her insurance company often three times more for procedure that would be better served in the freestanding outpatient setting.

In 2015, we will continue to be open to making strategic acquisitions that fit our criteria of multi-modality centers in our existing markets at three to four times EBITDA purchase multiples.

We will also look to expand and reshape our ventures with hospitals and health system partners like those we recently created with Barnabas Health System and the Kennedy Health Systems in New Jersey.

The result of our momentum we brought into 2015 and our optimism about the quality and number of opportunities we are seeing are reflected in our guidance levels for 2015.

Despite what we expect to be a very soft first quarter because of severe winter conditions affecting our Mid-Atlantic and Northeast operations, we anticipate overall 2015 increases to revenue, EBITDA and free cash flow. We are also projecting lower cash interest expense as a result of our 2014 refinancing transaction and lower capital expenditures.

At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our fourth quarter and full-year 2014 performance. When he is finished, I will make some closing remarks..

Thank you, Howard. I'm now going to briefly review our fourth quarter and full-year 2014 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 performance. I will also provide 2015 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, each from continuing operations, and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments, bargain purchase gains and non-cash equity compensation.

Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interest in subsidiaries, and 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 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 2014 results. For the three months ended December 31, 2014, RadNet reported revenue and adjusted EBITDA of $185.6 million and $32 million, respectively.

Revenue increased $7.2 million or 4.1% over the prior year's same quarter, and adjusted EBITDA increased to $150,000 or 0.5% over the prior year's same quarter. For the fourth quarter of 2014, as compared with the prior year's fourth quarter, aggregate MRI volume increased 9.4%, CT volume increased 16.3%, and PET/CT volumes increased 3.9%.

Overall volume, taking into account routine imaging exams, inclusive of x-ray, ultrasounds, mammography and other exams, increased 10.5% over the prior year's fourth quarter. In the fourth quarter of 2014, we performed 1,257,539 total procedures.

The procedures were consistent with our multi-modality approach, whereby 77.3% of all the work we did by volume was from routine imaging.

Our procedures in the fourth quarter of 2014 were as follows; 163,039 MRIs as compared with 149,020 MRIs in the fourth quarter of 2013; 116,384 CTs as compared with 100,082 CTs in the fourth quarter of 2013; 5,888 PET/CTs as compared with 5,666 PET/CTs in the fourth quarter of 2013; and 972,228 routine imaging exams, which include nuclear medicine, ultrasound, mammography, x-ray and other exams, as compared with 883,057 of all these exams in the fourth quarter of 2013.

Net income for the fourth quarter of 2014 was $4.2 million or $0.10 per diluted share compared to net income of $1.2 million or $0.03 per share reported for the three month period ended December 31, 2014, based upon a weighted average number of shares outstanding of 44.2 million and 39.6 million shares for these periods in 2014 and 2013, respectively.

Affecting net income in the fourth quarter of 2014 were certain non-cash expenses and nonrecurring items, including $431,000 of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock. $265,000 of severance paid in connection with headcount reductions related to cost savings initiatives.

$468,000 gain on the disposal of certain capital equipment and $1.3 million of amortization of deferred financing fees and discounts on issuance of debt related to our existing credit facilities. With regards to some specific income statement accounts, overall GAAP interest expense for the fourth quarter of 2014 was $10.2 million.

This compares with GAAP interest expense in the fourth quarter of 2013 of $11.2 million. The decline in interest expense was primarily related to refinancing transaction, which we completed at the end of March of 2014, where we repaid our 10 3/8% senior notes and replaced them with a second lien term loan, which carries a lower interest rate.

Under the terms of our second lien term loan, we're paying LIBOR plus a spread of 700 basis points with a 1% floor on LIBOR. So effectively, we are paying 8%, a savings of over 200 basis points on what was $200 million of senior notes.

When we completed the refinancing transaction, we projected annual cash interest savings to RadNet of approximately $5.1 million. For the fourth quarter of 2014, bad debt expense was 4.6% of our service fee revenue compared with 4.2% for the fourth quarter of 2013.

For the full year of 2014, RadNet reported revenue and adjusted EBITDA of $717.6 million and $126.5 million respectively. Revenue increased $14.6 million or 2.1% over 2013 and adjusted EBITDA increased $13.7 million or 12.1% over 2013.

For the year ended December 31, 2014, as compared to 2013, MRI volume increased 4.8%, CT volume increased 8.5% and PET/CT volume increased 0.4%. Overall volume, taking into account routine imaging exams, increased 6.4% for the 12 months of 2014 over 2013. In 2014, we performed 4,815,515 total procedures.

The procedures were consistent with our multi-modality approach whereby 77.6% of all the work we did by volume was from routine imaging. Our procedures in 2014 were as follows.

620,696 MRIs compared with 592,050 MRIs in 2013, 433,943 CTs as compared with 400,027 CTs in 2013, 23,537 PET/CTs as compared with 23,448 PET/CTs in 2013 and 3,737,339 routine imaging exams as compared with 3,509,965 of obvious exams in 2013.

Income before income taxes excluding the loss on early extinguishment of senior notes related to our refinancing transaction completed in March of last year was $19.6 million compared to $5.9 million in 2013. This was an increase of $13.7 million or 233%.

Net income for 2014 unadjusted for the $15.9 million loss on early extinguishment of senior notes was $0.03 per diluted share, compared to net income of $0.05 per diluted share in 2013, based upon a weighted average number of diluted share outstanding of 43.1 million and 39.8 million shares in 2014 and 2013 respectively.

Affecting net income in 2014 were certain non-cash expenses and non-recurring items including the following.

$2.5 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock, $1.2 million of severance paid in connection with headcount reductions related to cost savings initiatives; $1.1 million loss on the disposal of certain capital equipment and $5.7 million of amortization and write-off of deferred financing fees and discount on issuance of debt related to our existing credit facilities and refinancing transaction.

With regards to some specific income statement accounts, overall GAAP interest expense in 2014 was $42.7 million. Adjusting for the non-cash impacts from items such as amortization of financing fees and accrued interest, cash interest expense was $41.6 million in 2014.

This compares with GAAP interest expense in 2013 of $45.8 million and cash paid for interest of $41.8 million. For 2014 bad debt expense was 4.5% of our service fee revenue compared with an overall blended rate of 4.2% for the full year of 2013.

With regards to our balance sheet as of December 31, 2014 and unadjusted for bond and term loan discounts, we had $597.3 million of net debt, which is total debt less our cash balance. As of yearend 2014, we were drawn $15.3 million on our $101.25 million revolving line of credit and had a modest cash balance.

At December 31, 2014, our accounts receivable balance was $148.2 million, an increase of $14.6 million from yearend 2013. The increase in accounts receivables mainly from increased patient volume and a slightly higher net day sales outstanding or DSO.

Our DSO was 61.5 days at December 31, 2014, higher by 4.4 days when compared to 57 days as of that date one year ago. At yearend 2014, our accounts payable and accrued expenses were $97.8 million, which was $8.5 million lower than yearend 2013.

Throughout 2014 we repaid $23.9 million of notes and leases payable and had total capital expenditures net of assets dispositions and sale of imaging center assets and joint venture interest of $53.2 million. Of this $53.2 million, $41.7 million was paid in cash and we recognized $1.1 million in proceeds from the sale of equipment.

It should be noted that over $12 million of our $53.2 million of capital expenditures related to purchasing equipment in the first quarter of 2014 that we previously rented under certain operating lease arrangements.

I'll now discuss how RadNet performed relative our 2014 original and revised guidance levels, which we released first upon our fourth quarter and full year 2013 financial results and then as revised upon announcing our third quarter 2014 results. First for revenue; our original guidance was $730 million.

We raised that guidance at the end of the third quarter from $730 million to $745 million. Our actual results exceeded the guidance range and was $747.4 million. For adjusted EBITDA, our original guidance range was $110 million to $120 million. We increased that at the end of the third quarter to $123 million to a $128 million.

Our actual results were $126.5 million within the guidance range. For capital expenditures, original guidance was $38 million to $42 million. Our revised guidance was $50 million to $52 million. Our actual results were $53.2 million. For cash interest expense, original guidance was $30 million to $40 million.

Our revised guidance was $40 million to $42 million. Our actual results were $41.6 million. And finally for free cash flow generation, original guidance range was from $30 million to $40 million, revised to $30 million to $36 million after the third quarter and our actual results were $31.7 million.

Essentially we met or exceeded our 2014 finance on operating guidance in virtually all categories. At this time I’d like to review our 2015 financial guidance levels, which we released this morning in our financial results press release. For our 2015 fiscal year, we announced the following guidance ranges.

For revenue, our guidance range is between $745 million and $765 million. For adjusted EBITDA, our guidance range is between $123 million and $133 million. For capital expenditures, our guidance range is between $40 million and $45 million.

For cash interest expense, our guidance range is between $34 million and $38 million and finally for free cash flow generation, our guidance range is between $40 million and $50 million. As reflected in our guidance, we are optimistic about 2015.

Despite pricing cuts to Medicare, which we announced last November of approximately $6 million, we’re anticipating increased revenue, EBITDA and free cash flow for 2015.

We’ve significant growth drivers built into our plan, including benefiting from capitation contracts we signed in late 2014, revenue from a recently announced breast disease management program in the Nation of Qatar and continuing confidence about our ability to drive same center procedural volumes.

Our refinancing transaction in March of last year will result in lower cash interest expense for 2015, and our capital expenditures will be lower in 2015 than in 2014. As per my comment earlier regarding the approximately $12 million of extraordinary spending in 2014 related to the purchase of equipment we were previously renting.

The combination of the lower cash interest expense and capital expenditures will increase our free cash flow in 2015. As mentioned a few moments ago by Dr.

Berger, our guidance also incorporates what we're projecting to be a soft first quarter in 2015 due to the severe winter weather conditions that have existed in the Northeastern and Mid-Atlantic parts of the United States through January, February and into March of this year. I’d like now to turn the call back to Dr.

Berger, who will make some closing remarks..

Thank you, Mark. I'll leave you with some more specifics about where I believe we are headed in 2015. I believe growth will come from four principal initiatives. First we’re in the process of expanding within California to meet patient demand through the construction of three new centers.

Although we have not completed many de novo centers over the past several years we have allocated a portion of our $40 million to $45 million capital budget in 2015 for expansion projects to include these new facilities. I would expect us to benefit from the contribution of these new facilities mainly in the second half of 2015.

Second, we're working on other international management services and information technology projects in the Middle East and elsewhere.

This will be a new and exciting avenue for growth opportunities and I’m hopeful we will be able to complete another project like Qatar or the issue to health during the year and have been awarded the contracts in Qatar and Israel we’re building international recognition and a credible track record.

We intend to leverage both to build and pursue other international opportunities. Third, we’re exploring new methods of contracting and new types of payor relationships from our Orange County California Breastlink Operations, which I believe could create a new paradigm of how breast disease is managed and reimbursed.

Payors have been impressed with the effective low-cost outcomes we’ve been able to demonstrate particularly around keeping patients out of hospitals and lowering re-admission rates. We eventually hope to move payors towards a capitation or risk-based payment system.

And finally would be difficult to discuss growth, while ignoring acquisitions as a continuing part of our strategy. Our industry remains challenged and scale and breadth of services continues to allow us to separate ourselves from our competition. We remain one of the only industry players capable of and interested in making acquisitions.

As a practice we don’t knock on doors, instead we let industry pressers drive opportunities to us.

These opportunities continue to come our way with activity levels seemingly have accelerated in the latter part of 2014, which we believe are primarily the result of the new Medicare physician fee schedule that was announced in a spinal form in November.

We will remain disciplined in our approach and we’ll always be mindful of our leverage, liquidity and overall business strategy when we identify and evaluate opportunities.

By the way to those of you that may have thought that I was getting some kind of endorsement fee from Kelloggs, I assure you I have not, although I have added special K to my diet. Operator, we’re now ready for the question-and-answer portion of the call.

And again I’d like to take this opportunity to thank all our shareholders for their continued support and the employees of RadNet for their dedication and hard work. Management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders.

Thank you for your time today and I look forward to our next call. Good day..

[Operator Instructions] We got Brian Tanquilut with Jefferies..

Hey, good morning guys. Howard, congratulations on a good year. First a question for you, so CMS came out with guidelines, read in their announcement in the last few months about CT screening for lung cancer.

So I just wanted to hear your thoughts on that and how RadNet is planning to take advantage of that opportunity, or if that is a realizable opportunity for you guys and if you see any volumes related to that already?.

Good morning Brian. Well I think that this is a good opportunity and a very prudent step for Medicare to acknowledge the potential value and importance CT lung screening. What we’re doing for that is gearing up with what we plan to see as additional CT volume that is somewhat unexpected.

Meaning that prior to that announcement, CT volume has not had the same kind of growth much like MRI has and other parts of our imaging for a variety of reasons.

But I think this somewhat takes the lid off of that and for the population that will qualify for this and I’m certain will be adopted by the private payors, I think this represents a potential large increase of volume for us but, which I think will be slow in being adopted in various parts of the country.

I would only also be remissive, I didn’t point out that since this now is a CPT code that will be recognized by Medicare in our capitation contracts and to the benefit of those medical groups and payors, we will cover that as part of our capitation agreement with them.

So it again shows the benefit of I think capitation as a way of not only holding down utilization, but benefitting from the long-term increases that we see coming from imaging with the adoption of new technologies.

I think that by the way in addition to part of our CapEx is allotted for in 2015 breast tomosynthesis will additionally result in some increased volume, which is a little bit hard to predict at this point.

I think you might hear from us perhaps after this second quarter what the impact to that has been or more likely what we think it will be as we get more experience with both of these modalities being better embraced and implemented throughout our centers..

Got it.

And then just to follow-up on the last comment Howard, so as we think about volume expectations for the year, 2014 benefitted from reform, so just wanted to hear your thoughts on both your same-store views and also how much reform you're baking into the guidance at this point?.

And when you say reform Brian, are you talking about kind of a care act and help exchanges. Well I think again it varies by region. We're expecting and that's why we've allocated a nice portion of our CapEx in 2015 towards the new three centers that we're building here.

California is unique not only in size of its population, but as a result of the adoption of Health Exchange, the California Health Exchange here and the Affordable Care Act, for the Affordable Care Act in large increases and enrollment, which we're expecting to continue to see the benefit of this year and that's part of the reasons why we're expanding here in California.

We're really not expanding new centers or de novo centers on the East Coast where I believe the adoption of the Affordable Care Act has not been as prominent as it has been here in California although I think it has contributed slightly to some of our regions, particularly in Maryland where we have far greater penetration.

I think in addition to these reforms, we're just getting more and more confident as we Mark had mentioned and I think I had mentioned in somewhere in March that where I think you might see increased volume from us is, or to us, is out of the hospitals.

We're getting more and more attraction, we're getting more and more engaged in conversation with payors throughout all of our regions about the need and the desire to start creating relationships as well as new plans or plan design that will not only encourage the direction out of the hospitals, which are substantially higher in every market that we're in, in their cost.

But I believe will also raise an element of consumerism by the payors to address this directly to the enrollees and their physicians to make certain that they understand as this becomes particularly important as the high deductable plans are more and more embraced and people want to make that deductible dollar go further.

It seems somewhat senseless that in an era where the deductible are increasing to perhaps as much as on an average of $5,000 a person per year, they can make those dollars go a lot further by being more judicious in their selection of both quality and lower cost alternative.

So I expect to see quite a bit of that in 2015 and that may wind up being a bigger impact particularly on the East Coast for improving our volumes in 2015..

And Brian back on your question about volumes and reform, we just saw an accouchement fairly recently that the federally run exchanges that are making an extension to the deadline sign up for 2015 healthcare to April 30 and California just matched that.

Originally the end of the open enrollment period was scheduled to end on February 15 and so that's now been extended to April 30. California is hoping to have at the end of the enrollment period 1.7 million people having enrolled in these programs. So we'll see.

If they get to that number, where it gives us confidence and excitement around these new patient populations, which really help drive our same center performance and growth in 2014 and so that helps us in 2015..

Okay.

Mark, are you willing to provide us your comments on what same store was assumed in the guidance?.

Yes sure and that's why we have a $10 million swing in or EBITDA in terms of the low and the high end of guidance. What we assumed on a same center basis if we hit sort of a flat same center store revenue model, which means that increases in same center volume should counteract or fully mitigate any decreases in reimbursement.

We kind of hit the midpoint of our guidance range. If we get to a point where same center volume increases more so than pricing decreases, we exceed that and we get to the point that would get closer to the high end volume.

If for some reason same center volume are challenged and we also do expect some price erosion in our business including the $6 million Medicare hit that we'll be taking in 2015, that would be the reason why we would be towards the bottom end of our guidance..

One more quick question for your Mark, how should I think about debt pay down this year given your comments about M&A?.

Sure, well as you might remember in conjunction with our refinancing transaction of our 10 3/8% senior notes in March of last year, we also amended our first lien term loan to increase the mandatory amortization portion from 1% to 5%. So built into our capital structure is about $20 million of mandatory debt pay down on the first lien in 2015.

We're expecting and anticipating somewhere between $40 million and $50 million of free cash flow after CapEx and after cash interest expense in 2015. So we think in the absence of any M&A events of 2015, we could potentially pay down north of $40 million, $50 million of debt.

Having said that, there usually is not an absence of M&A in our marketplace particularly because this remains a consolidating industry and industry that's under significant utilization and pricing pressure and an industry that's still very much a cottage industry of fragmented operators out there.

So there will be M&A activity in 2015 as always it's just hard to model that out as many of these opportunities are buying area in the sense they either happen or don't happen and deals come back to life after they die and so we always have a pipeline of opportunities that we're working on, but it's very difficult to predict which ones get to the finish line in the end of the day.

So it's a difficult question to answer..

Okay.

Mark one follow-up to that, thank you very much, how much acquisitions have you baked into your guidance?.

None..

Okay. Got it. All right. Thank you..

[Operator Instructions] And we'll go to Bill Bonello with Craig-Hallum..

Good morning, guys. A couple of follow-up questions thanks a lot, the first one is just, it looks like the midpoint of your guidance assumes that even that merger would be about last year-over-year, can you just tell us a bit about the puts and takes on margin this year and what you see longer term as opportunity for margin expansion..

Sure. Yes, we did assume flat margins year-over-year. In this business, if you followed last five, 10 years, we generally have some pricing compression both from Medicare and/or some of the private payers. A little of the private payers have been much more stable.

And in some cases, we had increases in that book of business as well as in our capitation business. It's very difficult to project any type of margin expansion in this business because of the pricing pressure that we see.

So, we believe that we're doing a good job or an effective job in managing our operations if we can continue to make our business efficient as indicated our $30 million cost savings program that we executed on in 2014.

If we can continue to drive cost efficiencies in our business and that's good enough to keep up pace with the pricing pressure of our business, I think that that's a reasonable assumption for us to bake into the future..

Morning, Bill. It's Howard..

Good morning..

I think Mark has hit on a point, which I think is important. We -- in 2014, some of our initiatives were the result of roll out of our eRAD solution, which gave us lower -- more efficiencies and lower cost in things like voice recognition and scheduling and report turnaround time.

Some of the initiatives that we have not baked in and which potentially could help margins are continued roll out of our eRAD product into areas which we began looking more closely into once we knew we were able to complete the roll out.

By the way, the roll out will be complete pretty much by the end of the second quarter here throughout all almost 275 RadNet centers.

But we're now looking into other things that we believe can help create efficiencies with patient portals that will reduce the amount of need that we have for medical records, referrals -- not referrals, retrievals, things like remote patient scheduling, much like you would with the airlines and hotels be able to do yourself, eligibility that will reduce the amount of time we spent on having to get the patient information regarding co-payees and deductibles, as well as authorizations.

Those are programs that we began working on in 2014 and which we began rolling out in late 2014 and will throughout in 2015; and we think ultimately will create an improvement and lower cost for us at both at the center level with things like call centers and medical records.

So, I think those are places where margin could be benefited much like it was in 2014 like a little less, easily visible and more slowly as we cautiously roll out these very exciting new products in eRAD..

Sure. That's very helpful. And then, on a different topic, Howard, you talked about -- a little bit about the payer environment and the opportunity for payers to implement benefit designs that would direct patients or encourage patients to lower cost settings.

I'm just curious, have you already assumed that kind of benefit design put into place, or is this something that you're hoping that payers will start to put in place this year, perhaps, to become effective in the next contracting cycle? And may be to carry on with that, how wide spread do you think this could be, because it seems like one of the biggest untapped opportunities from you is for payers to become more aggressive in trying to utilize low cost providers..

Yeah. I believe this is not just a hope and a prayer. We're actually in conversation virtually in every market that we're in with payers in both planned design and methods that will direct patients into the outpatient centers.

I think as -- what's happening, which I think is getting us much more excited and confident about our business model is that there is a shrinking pool of outpatient providers in the markets that we are in, primarily because of either providers being absorbed with consolidators like us or perhaps even going out of business.

As their pool shrinks and the networks narrow, the payers have to become a little bit more circumspect about their willingness to continue to drive the pricing down just because Medicare has set new levels.

And what we're doing is detaching or unbundling ourselves from the Medicare fee schedule with virtually every payer that we have, and talking about the need for perhaps even better reimbursement, or certainly at least a more conscious effort on their part to direct it away from hospitals which they are now reluctantly admitting are severely more expensive to their patient population.

And I think this becomes, as I mentioned earlier, result of their recognition of the higher deductable and the change in plan.

So, some of the planned design has come about not as a result of any great wisdom at the payer level, but simply by the consumer choosing the higher deductibles and trying to keep their cost down, which has then resulted in they're becoming more engaged and the payers being a little bit more sensitive to the need to make that deductible dollar go further.

Everybody benefits in that situation..

Excellent. Great. Thanks. And then, if I can just ask one last question. You touched on very quickly when you're talking about growth drivers, breast tomosynthesis and that something you highlighted on the last conference call.

Could you just give us a sense of where you're at there in terms of implementation and may be where you expect to go?.

Yes. Built into our budget this year we'll be probably somewhere at least 10 to 20 tomosynthesis units at a minimum throughout all of our markets. There is an eighth market that we're in where we aren't getting asked and where we see the benefits of doing tomosynthesis.

What we're really trying to determine and which the new fee schedule, now that tomosynthesis has become a new CPT code, what we're really trying to determine is the appropriateness of when to do tomosynthesis and what the patient cost or experience will be with that.

So, we will do in 2015 -- over five million plus exams that we'll do, probably close to a million of those exams will be mammography, which we have to determine in any given market where the demand for tomosynthesis will be the greatest, both not only from the patient request, but from where we think it enhances the overall clinical care.

So, I would say that we're likely to spend our $40 million to $45 million in CapEx, I would imagine somewhere between $5 million and $10 million of that will be for breast tomosynthesis.

And part of our ability to make those dollars go further is our leverage with being a large purchaser of these systems, and getting I think better pricing on that in the average operator out there..

Thank you very much..

Thank you, Bill..

[Operator Instructions] It appears we have no further questions at this time. I'd like to turn the conference back over to today's speakers for any additional or closing remarks..

Thank you all for your participation today. And we look forward to the next earnings call for the first quarter of 2015..

This does conclude today's conference. Thank you for your participation..