Lumexa Imaging Holdings, Inc. (LMRI) Earnings Call Transcript & Summary

Great. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the facilities and managed care analyst here at Barclays, and we're pleased to welcome on stage Lumexa Imaging CEO, Caitlin Zulla; as well as Tony Martin, CFO. Welcome.

Thank you.

Thank you.

Caitlin, Tony, seeing that you just took Lumexa public just a few months ago, recently announced preliminary fourth quarter results and issued guidance, why don't you start with an overview of the business, growth strategy and recent results?

Sure. Thank you so much, Andrew. So honored to be here. Yes, we went public 3 months tomorrow, so almost our anniversary. So what Lumexa Imaging is? We are one of the largest national scale platforms of outpatient imaging. We have 189 centers located in 13 states, think great MSAs like Dallas, Charlotte, Atlanta, Denver. Markets that are growing 2x the average population growth rate affords us a really strong commercial payer mix. As I said, we run outpatient imaging centers. They're called IDTFs, independent diagnostic testing facilities. They are at a different price rate, lower price point than HOPDs. So in every case, we're the value-oriented provider in the market, 60% lower cost than hospital outpatient departments. And then as you think about how we've gotten to be our size, we've grown through de novos and acquisitions. De novos, we completed 9 this past year. We did a tuck-in acquisition, and then we've already opened our first de novo of 2026.

Great. Let's turn to the industry backdrop. You've emphasized advanced imaging as a key demand tailwind, and it's a disproportionate driver of revenue and margin relative to routine modalities. What are you seeing today in referral patterns and clinical indications that give you confidence this remains a multiyear trend?

Yes. So in our outpatient centers, we do advanced imaging, which is defined as MRI, CT and PET scan. And we also do routine, which is characterized as diagnostic and screening mammo, our ultrasounds and our X-rays. When we think about what is driving the industry? So outpatient imaging is a dynamic industry. Radiology writ large is. So maybe starting from the top, Radiology is $140 billion TAM, growing at a 3% CAGR. Outpatient imaging, $33 billion TAM, growing at a 7% CAGR. A lot of that fueled by the site of service shifts that you've heard from ambulatory surgery center companies as well. And advanced imaging is the biggest driver of that growth. Advanced imaging is growing 2x the rate of routine, and it has about a 3.3x revenue premium. What's driving that advanced imaging are our aging population, increasing chronic conditions, complex care, increased screening mandates and then, of course, novel treatment paradigm. So our Alzheimer's and cancer treatments often require advanced imaging to start the treatment and then throughout it. And Andrew, in your initial question, you asked us a little bit about kind of guidance and results. And so last year was a strong year for advanced imaging. Our prerelease from last Monday shared that advanced imaging has grown 11% quarter-over-quarter for fourth quarter, 7.7% year-over-year, further illustrating that strong demand.

Great. And routine volumes, particularly in x-ray, has been a bit softer in recent quarters with limited impact to financials. How are you thinking about managing that mixed noise in your results? And how do you communicate your volume growth?

Sure. Tony, do you want to talk a little bit about routine?

Sure, sure. Yes. As Caitlin described, advanced is growing much faster, twice as fast as the other modalities, and the higher reimbursement means we're very happy that this trend is happening. That said, on the routine side, there's important modalities for us, too. There's mammography, ultrasound, x-ray. But not all of those are kind of created equally. I think one of the things we'll do more as we get our disclosures updated for public company life is make sure we kind of describe the distinctions between the 2. For example, X-ray, that's not a high reimbursement or high-margin business. So to the degree that doesn't grow very much, that's fine with us. It's not economically significant to us. So that's an example of something we're kind of digging into a little bit more detail about our modalities and how they work, I think, will be helpful. Also, X-ray not performing doesn't mean anything about the other modalities. It's not a harbinger that we're going to have trouble getting MRI business or anything. They're different referral patterns. So that's something we look forward to sharing a little bit more about with people, so they can understand the real drivers and what to worry about and what not to.

Great. And within that growth algorithm, same-store revenue growth is split roughly 2/3 volume and 1/3 rate with rate being driven in part by the acuity mix. What are the most important operational actions you're taking to drive the volume component, whether through sales efforts, deeper referral relationships, AI or anything else?

Yes. So I completely agree, same-site growth is very important to the business. So maybe I'll highlight 2 things we're doing. First, on the sales and marketing component, we have 120 amazing sales reps that are deeply embedded in the communities we serve, and they're focused every day on highlighting the value we provide to our referring physicians, namely, our patients love the care they receive. We have a patient NPS of 91. We do everything we can to get patients in same day, next day. We have an incredible network of subspecialized radiologists who are reading at an incredibly high quality. And of course, we've invested in the best machines that provide the best images. And so an example would be, in Q4, we know that it's orthopedics busy season. And so we're able to work with our sales team and make sure that they're focusing on our orthopedic relationships and kind of the output of that was we had a 400 basis point improvement in orthopedic referrals compared to the rest of the year. So we have that targeted focus. And then technology is one of the most exciting parts of our industry. As we like to say, if you need an MRI, you need to go to a place that's got an expensive machine behind a magnetic safe wall that has a tech who's certified to take care of you. And AI makes every part of that better. And so an example would be how we can improve the efficiency and the volume throughput of our sites. So there's technology called FastScan technology that truncates the amount of time it takes to do an MRI exam. For example, for a Siemens MRI on your ankle, it reduces it from 22 minutes to 8 minutes, better for the patients. They're in the tube, obviously, a meaningfully less period of time. It's a better image for a radiologist. And then it unlocks incremental 40% capacity as we think through our scheduling throughput. And so through the end of last year, we had about 50% of our machines with FastScan technology, and then we're continuing to deploy throughout this year. We'll get up to 66% by the end of 2026. And then there's other things like virtual MRI, which extends the ability for a tech, who's not in the facility, to support running the machine. We are early days in a pilot in one of our markets, and we've seen a meaningful improvement in the amount of downtime we have from like a tech callout and an opportunity to expand hours from our site. So fun exciting stuff on the technology side as well.

Great. We'll definitely dig more into that later. But first, I wanted to touch on some of the commercial employment trends. Last Friday, the BLS released a pretty weak jobs report with negative February headline numbers and downward revisions to prior months. Commercial mix is an important part of your business, which supports not only the higher pricing, but also the higher modalities, but it also introduces cyclical volume dynamics. Have you seen any impact from changes in consumer confidence or employment trends on commercial mix or utilization? And how are you positioning the business in the event of a broader slowdown?

Sure. So as I referenced, we are in strong markets that have a high commercial payer mix. The exact amount of 63% of our revenue is from commercial payers. In comparison, 19% is from Medicare. That's both your fee-for-service and your MA, all in that 19%. MA obviously reimburses us on a fee-for-service basis and then 3% Medicaid. As we think through what we've seen at the start of the year, continued strength, there is a standard deductible reset that always happens with health care services business, but continued strength. And then as we think through any additional possible dislocation, I mean, we are the value-oriented operator for imaging in every market. And so there's an opportunity for us to continue to highlight the lower cost care we provide compared to certainly inpatient departments, but then also the hospital outpatient departments, which I referenced are about 60% higher.

Right. And between advanced and routine imaging, do you view one as being more economically sensitive versus the other?

Yes. Good question. I mean, certainly, for your advanced imaging, right, your MRI, your CT, your PET scan, if you are looking at a surgery or you are facing a cancer diagnosis or cancer treatment or Alzheimer's, I mean, those are certainly not elective procedures. I mean, very similar to the surgery center business. A lot of what we saw had a consistent demand because it was not elective. Compare that to potentially X-ray, it will be interesting to see how that begins to change, if at all. But as Tony said, that's something that we do. It's just kind of a part of being part of the community. It's not a real driver of our financial performance at all.

Great. Let's move on to the joint venture strategy. JVs can be strategically powerful, but they also introduce complexity and reduce the visibility into underlying performance if they're not consolidated. So what's the best way for investors and analysts to track system-wide performance and cash generation tied to JV activity?

Yes, Andrew, we've received that question a bit over our last 3 months. And so Tony, I know you spent a lot of time thinking through this.

Sure, sure. Yes. Our business is fundamentally the same, whether in either model. In a joint venture model, the health system takes a bigger role in managed care contracting and where the business is sourced. But we have fundamentally the same role, similar economics. So first and foremost, there's nothing mysterious about that business. And we're really eager to pull the curtain back on anything of financial nature about it. I have taken some steps recently with a deck we posted to our IR site in the last few days to kind of clear up some of those points and provide a little bit of a road map on where some of this data can be found in our S-1 and in our forthcoming 10-Q, 10-K reporting, because it will be available and it will be transparent. And just as an example, to kind of describe how the business is doing, we'll show a combination of consolidated metrics, which are the majority of our sites, the ones that we consolidate. And then we'll show system-wide metrics that additionally pick up all the JV sites, which is really the full scope of what we operate. So you'll see both, so you can have a good idea about how the whole company is functioning. But then as an example of just the transparency we'll have on the joint ventures themselves, the amount of debt they have is explicitly disclosed. And just as an example, if our pro rata share of their $70 million or so of debt were on our books, it would affect our leverage ratio by 0.1x. It's not a big difference, but the number will always be there for people to see. And then other metrics like revenues and expenses will be disclosed in aggregate at a minimum for those joint ventures. And then there's also a clear path to seeing the earnings we accrue from them as compared to the cash we receive from them quarter-to-quarter and year-to-year, so that people can see the correlation of that and there's no mystery behind that either. So perhaps a lengthy explanation to show our commitment to having transparency around that, because there's really nothing mysterious.