NightHawk Radiology Holdings, Inc. Q2 2008 Earnings Call Transcript

NightHawk Radiology Holdings Inc. (NHWK)

Q2 2008 Earnings Call

July 30, 2008 4:30 pm ET

Executives

Andrea Clegg - Vice President of Finance

Dr. Paul Berger - Chairman and CEO

Tim Murnane - COO

David Sankaran - CFO

Analysts

Shelley Gnall - Goldman Sachs

David Veal - Morgan Stanley

Kemp Dolliver - Cowen and Company

Nicole Viglucci - Accipiter

Alan Robinson - Royal Bank of Canada

Presentation

Welcome to the NightHawk Radiology Holdings second quarter 2008 Earnings Call. During today's presentation all parties will be in a listen-only-mode. Following the presentation the conference will be opened for question (Operator instructions). As a reminder, this conference is being recorded today on Wednesday, the 30th of July 2008.

I'll now turn the conference over to Ms. Andrea Clegg, Vice President of Finance. Please go ahead.

Andrea Clegg

Thank you. Good afternoon everyone and thank you for joining us. I would like to welcome you to the NightHawk Radiology conference call to discuss the company's results for the second quarter 2008. By now, you should have received a copy of the press release, which was sent out a short while ago. And if anyone still needs a copy, you can access it on the Investor Relations section of our website at www.nighthawkrad.net.

On the call this afternoon we have Dr. Paul Berger, our Chairman and Chief Executive Officer, Tim Murnane, our Chief Operating Officer, and David Sankaran, our Chief Financial Officer. After management completes their prepared remarks, we'll open the lines for your questions. Please note this afternoon's conference call is being recorded and will be available for three weeks on our website.

I want to remind you that management will be making certain forward-looking statements in their remarks. All statements, other than statements of historical fact that address activities, events or developments of the company, believes, anticipates, intends, estimates or projects and similar expressions are forward-looking statements. These forward-looking statements are based on assumptions and assessments made by the company's management based on factors they believe to be appropriate in light of their experience.

However, these forward-looking statements are subject to risks and uncertainties that could cause actual results and business decisions to differ materially from those contemplated by these statements. We describe these uncertainties and risks in the Risk Factor section of our periodic reports filed with the U.S. Securities and Exchange Commission. The company undertakes no duty to update or revise any forward-looking statements made during this call, whether as a result of new information, future events or otherwise.

Finally, we'll be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found on our corporate website under the heading Investor Relations.

At this point, I'll turn the call over to Dr. Berger, our Chairman and Chief Executive Officer.

Dr. Paul Berger

Thank you, Andrea. Good afternoon, everyone and thank you for joining us. First, I would like to introduce you all to David Sankaran, our new Chief Financial Officer. David has been on board for two months now and he has immediately made a positive impact on the organization. Later in the call, he'll provide you with some insight into his initial observations on where our opportunities lie to increase shareholder value.

As stated in our earnings release, I'm very pleased with the progress we have made in the second quarter and we are seeing a definite positive impact from our business initiatives. During the quarter, we increased our revenues, margins, and earnings sequentially, strengthened our management team and Board of Directors, and maintained our commitment to creating shareholder values by returning over $18 million to shareholders through the repurchase of $2.2 million shares. Last quarter, I told you we identified key areas, where we were underperforming, namely sales execution, position scheduling and overhead spending. I'm pleased to report that we are making progress on all three fronts.

Tim and the rest of the management team have very quickly diagnosed the problems, developed improvement plans and are executing on them. Already their efforts are delivering results in terms of improved sales effectiveness, competitiveness, and improved customer service and satisfaction levels, as well and ultimately better financial performance. I'm confident that you'll share my enthusiasm for the programs that Tim and David will outline for you.

So, it's in my view, we are riding the ship and importantly we are also focused on where that ship is headed. As I have discussed with you before I continue to be very excited by what lies ahead for the Radiology Industry and for NightHawk. We are actively stacking out a unique competitive position in our market. Our strategy is to offer a comprehensive differentiated high value suite of services to radiology groups nationwide. Simply put, as pressures increase and the landscape changes in the world of radiology, NightHawk will be there to help our customers with high value solutions to a broad set of problems.

Our industry leading platform of cutting edge technology combined with by far the widest service offerings in the industry and our world class team of over 125 highly qualified affiliated radiologists uniquely positions us to help our customers succeed. This strategy takes advantage of our existing investments in technology infrastructure, management and business expertise and customer and physician relationships. This will allow NightHawk to prosper in a changing marketplace and deliver superior returns to our shareholders.

Our financial results also demonstrated improvements, as David will discuss in detail. Revenue was $42.8 million and adjusted earnings were $0.18 per share both in line with our plan and the consensus expectations. GAAP net income was $0.09 and beat consensus by $0.02. Investors have requested that we discuss free cash flow, which was a healthy $5.9 million for the quarter. David will also discuss this further in his presentation.

In summary, I'm pleased with the progress our new management team has made over the last few months. We have made significant inroads on many fronts in the energy and enthusiasm and the entire management team is stronger than it has ever been. No doubt we have more work to do. However I'm confident that we have built the right team to ensure that our operations run smoothly and optimally in order to enhance our competitive position, as the market leader and grow shareholder value.

With that, I would like to turn the call over to Tim.

Tim Murnane

Thanks, Paul. I'm pleased to report that we have made considerable progress in the key areas of needed improvement described three months ago. Sales execution, customer service and satisfaction and cost reduction. First sales, as mentioned a quarter ago, Chris Anthony joined NightHawk, as Vice President of Sales and has had a very positive immediate impact.

To start, we reorganized our sales force in May, which resulted in additional quarter carrying people in the field in order to broaden our sales reach and improve our responsiveness to customer needs and competitors overtures. We have replaced some of our weak sales performers with the group of very experienced and knowledgeable sales people, who have been fully trained and are already delivering excellent results. We are now very happy with the quality, energy level and competitive spirit of our sales team.

We also implemented a new sales compensation plan, which is helping us focus on closing new business and retaining our current customers. Finally, we implemented a comprehensive training program, which has had the cross selling improvement effect needed. These efforts have resulted in strong growth in our sales pipeline and then better predictability over new business closing. In fact, we exceeded our internal targets in both categories in our new business closings and pipeline improvement includes several contracts in each product category offered by NightHawk.

Importantly as we look at our new contract bookings during the first half of the year about one-third of the dollars came from replacing a competitor, about one-third from selling a new contract to a new teleradiology user and about one-third from selling additional services to a current customer. This tells us that there is still opportunity for good growth in our market for all our product offerings.

The second area of improvement focuses on service levels and customer satisfaction. As I outlined in our last call, in the latter part of 2007 and early 2008, we experienced service difficulties primarily related to physician scheduling. These difficulties manifest themselves in longer turnaround times and scheduled gaps and these service problems did result in some customer loss.

Put simply, service problems for some of our customers opened the door to competitors' offers of lower prices and some customers accepted those offers. In addition, some customers, who came to NightHawk through acquisition and had very low historical pricing chose not to renew, when they were offered higher renewal prices. In particular, this occurred with some acquired Radlinx customers, where many of them had very low priced, low margin in buying those contracts.

While our volumes reflect the loss of these contracts our average pricing and related margins actually improved due to this loss of low priced business. Clearly improving customer satisfaction and improving customer retention are imperative. And I'm pleased to report that since our last call, we have fully implemented the physician scheduling system that I described at that time. This implementation has resulted in important delivery improvements for our customers.

Most important delivery metric for our customers is study turnaround time. In this business, turnaround time requires daily analysis of trend in order to maximize results. From Q1 to Q2, our average turnaround time improved 12% and is currently better than customer expectations.

While, average time is important, outlier studies with long turnaround times are an even more critical measure. In this regard, we also cracked a percentage of studies for which the turnaround time exceeds customer expectations. This critical metric improved by 24% from Q1 to Q2. While I'm very pleased with these early results, we expect to see additional service delivery improvements during the coming months.

An additional benefit of our scheduling improvements has been the reduction in Physician On-Call Pay. In the second quarter, we reduced these costs 80%. This is a direct result of a combination of actively managing the scheduling system and process combined with the cooperation and flexibility of our physicians in meeting our scheduling requirements. So, by removing the scheduling inefficiencies, we have been able to quickly improve service to our customers, while reducing the cost of delivery.

Overall, with regard to customer losses, we have significantly improved customer service and account management, are more competitive in pricing and cross selling and as a result the rate of customer loss has declined over the past two months. We expect to see further improvement in customer retention, as our service levels continue to improve.

The final area of focus is our cost structure. In May, we implemented a series of cost reductions that met the targets outlined one quarter ago. We reduced debt count by $37 and reduced other spending in several areas of the company, as we described in our last call and included in our plan a quarter ago. These actions will result in annual savings of $3 million.

Looking forward, we continue to evaluate opportunities to reduce cost in all areas of the company. Overall I'm pleased with the progress that we have made but there is still significant opportunity for additional improvement over the coming months and I look forward to updating you on our continued progress during our next call.

With that I'll turn things over to Dave Sankaran.

David Sankaran

Thanks, Tim. I'm glad to be here today to update you on our financial progress. In my first few months I have learned a lot about our market place and our company and while we certainly have some blocking and tackling to do operationally. I'm enthusiastic about the overall market we participate in and about our unique industry leading competitive position.

To my eye the opportunity to create additional shareholder value is tangible. Yes, we have to continue to optimize our business practices, improving competitiveness and customer satisfaction and I'm confident we have the team to succeed. In addition, I'll simply echo what Paul said. We are working hard to create a substantial differentiated leadership position in a growing and evolving market and I look forward to sharing with you the results of our opportune in coming months.

With that said, let me update you on our Q2 financial result. Our second quarter revenues were $42.8 million up $4.8 million or 13% from last year and up $1.1 million sequentially. Essentially all of the increase from the prior year relates to the acquisitions of our Business Services Group and ERS an off-hours emergent read business last July. Thus organic revenue was essentially flat with the prior year.

Looking at revenue growth our view of the data show that the off-hours preliminary market continues to present an opportunity to grow annual volumes by a mid teens percentage to-date. However, our Q2 results showed overall volume growth of only 7%. To be clear, our overall volume increase was limited due to the impact of lost customers on volumes of around 11%.

As Tim mentioned, we are well aware that customer service problems have impacted customer retentions then we have numerous initiatives underway, which are resulting in better customer service. So, we expect to see the results and improved customer retention in coming months.

One other thing when looking at the impact of lost customers it's important to note that the impact is cumulative meaning customers that we lost in each of the past four quarters will show up in this calculation. Said another way the impact on this quarter's growth compared to the June quarter last year reflects the impact on volumes from all customers lost from July of last year until June of this year. So, this metric tend to be a lagging indicator.

And while the percentage impact is indisputably too big, we have seen a moderation in customer losses in the past two months, as we improve our service levels and improve our sales and customer management effectiveness. Simply put, we have to continue our strides in these areas in order to get our growth rates back to the industry growth rate.

Finally consistent with prior quarters, we did experience pricing pressure with overall average prices declining 3% from the year ago period. Prelim pricing fell 6% from the year ago level and this Prelim pricing decline is consistent with recent quarters experience and remains within our expected range of 4% to 7% decline this year.

On the other hand organic finals pricing actually increased 20% from prior year. This large increase in finals pricing is due to the turnover of some plain film low cost, low margins former Radlinx customers that Tim discussed earlier. Another key revenue metric that we track relates to our strategy for penetrating our customers with new service offering. In this area, we continue to see the positive impact from our finals and business services offering.

During the quarter the revenue from these new services combined was $8.6 million or 20% of total revenue. Finals revenue grew 22% to $4.9 million representing 11% of revenue. The acquisition of Business Services and the continued enhancement of our finals read capabilities are critical elements in our overall growth strategy.

Before I continue I want to spend a minute discussing our adjusted pro forma basis of presentation. To start, we do of course publish GAAP results on our press release and our SEC document. Having said that internally our management and board analyze our results in a number of ways, including looking at a cash basis income statement and viewing our results on an ongoing basis, which normalizes for onetime items to provide a clear picture.

First, similar to other companies, we removed significant non-cash items such as stock compensation and intangible amortization. We also removed the impact of unpredictable non-cash items such as adjustments to our non-cash IB&R malpractice reserve. Any adjustment to this reserve is driven solely by third-party actuarial report. For example, in the second quarter, we actually had a credit to income from a small favorable adjustment to this reserve. But to be fair and consistent with our prior practice, we did exclude this credit from our adjusted earnings.

Finally given that we are making some adjustments to our cost structure, we have had a couple of discrete charges related to cost reduction effort and acquisition integration activities. These activities are expected to result in savings in the future, but they also typically result in onetime charges.

For example, we had a reduction in force of 37 employees in the second quarter. This action carried with it a severance charge of nearly $200,000. We also had some fixed asset charges of approximately $300,000 during the quarter that included the cleanup and integration of computer assets acquired from Radlinx and TDS.

Like many companies, we prepare our adjusted earnings analysis without these types of charges. We'll of course fully describe these to our investors and give you the details on each of these adjustments so that you have the same insights into our numbers that we do. For your reference, we include a comprehensive reconciliation of each of these items in our press release and on our website.

With that said, let me continue with the details on the quarter and turn to our expenses. An adjusted professional services expense, which excludes non-cash compensation and non-cash IB&R malpractice reserve adjustment, increased 8% to $16.8 million for the quarter. These costs are virtually all variable cost of services and thus we expect this item to move largely in line with the overall change in volume and to a lesser extent due to mix plus as expected the 8% increase is tightly correlated with the 7% overall increase in read volume that we experienced. Also, as Tim outlined, we did see a positive sequential reduction in on-call fees due to improved scheduling effectiveness.

Adjusted sales, general, and administrative expense excluding stock compensation and the other items detailed earlier was $14.2 million compared to $10.8 million in the second quarter of 2007. Of the $3.4 million total increase $2.7 million is related to our Business Services acquisition plus organic SG&A increased by about $700,000 or 6%, primarily related to increased payroll and facilities related costs.

As I mentioned earlier, we reduced headcount by 37 during the quarter and the resulting savings will come out of our SG&A run rate. Importantly, we actually added sales personnel, while lowering our overall staffing principally in administrative functions. And as Tim mentioned, we are continuously evaluating our opportunities for efficiency, our operations for efficiency opportunities and additional cost reduction. As part of that effort, we recently completed an analysis of our facilities usage and are taking actions to lower our overall lease and facilities related costs. For example; in August we'll consolidate our Coeur Dalene, Idaho facilities into one single facility. This move alone will result in $200,000 in annual savings. We are also evaluating abandoning some acquired and other underutilized facilities this quarter and these actions could result in further cost reductions.

These moves would result in onetime charges for write-offs the remaining lease obligations on associated fixed asset and in keeping with the reporting basis I outlined earlier, we'll detail both the nature and the amount of any such charges and we'll exclude the charges from our adjusted net income.

Adding it all up, second quarter adjusted earnings were $5.5 million or $0.18 per share in line with our expectations and with consensus. GAAP net income was $2.8 million or $0.09 per diluted share and it was $0.02 better then consensus. Finally, we also look carefully at adjusted EBITDA, which was $11.8 million for the quarter improved from $11.5 million last year. As a percentage of revenue, adjusted EBITDA margins were 27.6%.

I want to point out that we also included a complete cash flow statement in our press release today with new disclosures in keeping with my focus on measuring cash flow and with respond to investor request. The key metrics that I focus on our operating cash flow and free cash flow on both of these measures Q2 was a strong quarter. First our operating cash flow from the quarter was $7.5 million a 70% increase over the prior year and a 29% sequential increase. Among other drivers of this performance was better working capital utilization.

Finally free cash flow was also very strong at $5.9 million for the quarter up 81% from prior year and up 38% sequentially. Beyond free cash flow, there were two significant cash items during the quarter. First we paid the final earn out related to our acquisition of Radlinx in the amount of $6.5 million and second we purchased $2.2 million shares of our common stock for a total of $18 million in cash upon the closing of the tender offer.

Turning to our outlook, our second quarter results were right in line with our expectation. So, we are leaving our full year guidance unchanged. With regard to the quarterly flow, I can't tell you they are consistent with historical seasonality. We expect higher sequential volumes and revenue in Q3 and then slightly lower in Q4.

Finally, I know some of you have updated your models for the impact of our share repurchase and some have not. Walking through the detail the calculation is pretty straight forward. First the tender was completed on June 19th so there was virtually no impact on Q2.

Looking forward to the impact on Q3 and Q4, first we lose the after tax interest income on $18 million of cash spent on the repurchased, which equals about $80,000 per quarter, then we lower our diluted shares by $2.2 million. After this reduction for shares repurchased, we are estimating a diluted share count of approximately $29.6 million for each of Q3 and Q4. Finishing the map, the overall impact of the share repurchase is $0.01 per share for each of Q3 and Q4.

With that, we'll be happy to take your question, operator.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, this time we'll begin our question-and-answer session. (Operator Instructions) Our first question is from the line of Shelley Gnall with Goldman Sachs. Please go ahead.

Shelley Gnall - Goldman Sachs

Hi, thanks for taking my question. First congratulations on an inline quarter. I guess the revenue was a bit lower than my expectations. I'm just wondering if you could talk a little bit about the volumes understanding that there are some contracts lost during the quarter, 7% is that's also remain with your competitors' result, I'm wondering if you can give us an update on what industry growth is looking like to you now? And this is still the sort of 11% to 13% we have heard about in the past, any thoughts on update there?

Tim Murnane

Yeah. Hi, Shelley, it's Tim. Looking at the same side growth statistics looking at what our overall growth would have been if we had done better on customer losses. It pretty quickly leads me to look at the overall growth of 7% we did suffer an impact on volumes this quarter from previously lost customers were around 10% or 11%.

So, you are quickly arriving the mid teens, which I actually alluded to on in my prepared remarks. So, nothing that we see today, we just to believe that if we are successful on all fronts of our business, it's something in the mid teens per volume growth. This is a reasonable target to think of.

Shelley Gnall - Goldman Sachs

Okay. And then it was also my understanding that implied in the guidance was sort of maintenance of organic volume growth essential volume growth sort of to be 11% to 13% range. I'm just wondering there is the 7% that you are parting this quarter. I know you just spoken to some expectations for the third and fourth quarter on volumes. But I guess do the contract losses you have seen so far put your volume expectation for the year at risk or I guess, where will you makeup the shortfall is that due to the new sales initiative?

Tim Murnane

Well, the first answer is no. It does not put our overall view of where our volumes and revenue range ends up for the year at risk. And you answered the question of the second one that you posed to me which is there a number of levers that will ultimately result in our revenues. We are out winning new business and in fact in a very short period of time our pipeline and the quality of the pipeline is improving.

So, our new business acquisition is running ahead of the plan that was contemplated as shortest two to three months ago. And on the other hand, we are still seeing a little bit of the impact from the customer service problems in lost customers. So, some of the levers will be higher, some will be lower. But quite clearly, we are managing all of those to a kind of revenue growth that we expect.

Shelley Gnall - Goldman Sachs

Okay, great. And then, I guess it seemed that you are implying maybe the headwinds expanded sales on the Business Services front? Can you comment on how many customers are not using those Business Services?

Dr. Paul Berger

We are not disclosing the actual count of customers for competitive reasons on the Business Services front. What I can give you is the color on what we are doing with the product line and there are a couple of aspects to that. First, the whole focus of the sales force and I'll probably stop and let Tim describe most of it is around approaching our customers with comprehensive solutions and really being able to offer them a complete suite. And actually, I'll stop there. I actually ask Tim to give you a little bit of color on what Chris Anthony and the sales team are doing in terms of optimizing our opportunity there.

Tim Murnane

Yeah. What we have tried to do is to retrain the sales force so that they understand that there is a complete suite of products and that all of them are depending on who the customers are available to meet the customer needs. In the case of NBS, we did close without disclosing the exact number. We did close a number of contracts. Double-digit number of contracts in the second quarter that are directly related to NBS and without that capability we would not have been able to close those contracts.

Shelley Gnall - Goldman Sachs

Okay, great.

Operator

Thank you. Our next question is from the line of David Veal with Morgan Stanley. Please go ahead with your question.

David Veal - Morgan Stanley

Hey, thanks. I guess kind of a bigger picture just based on what we saw in the quarter. I mean, by our calculations and correct me if I'm wrong the final read business was more or less flattish sequentially. I wonder if you could talk about where your customers' heads are at these days given that there are some numbers out there saying that CT volumes were down last year, there is a word on additional cuts. What do your customers think of these are they still willing to carve out especially final read volumes?

Dr. Paul Berger

Hi, David this is Paul. The issue is simply one of we are very optimistic still and that's related to the fact that our pipeline is actually stronger than it's ever been with respect to the finals work. There are some issues of prices, issues and those sorts of things. But as we go forward and look at our pipeline it's stronger with respect to finals then it's been in the past. And the issue of where it was and where it is today is related to some of the fact that there is some of this crisis management going on. But overall we think it's an optimistic and stronger looking forward.

David Veal - Morgan Stanley

So, it's fair to say that the radiology groups are still engaging for the daytime business?

Dr. Paul Berger

Again the daytime business is more or less, as I see it crisis oriented and focused. There is some interest on people using technology, which will integrate them and have them focusing in a way that they are on unified networks that helps them with their efficiency and provides an opportunity for some of that daytime finals work to be coming on our way.

David Veal - Morgan Stanley

Okay, that's it from me. Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Kemp Dolliver with Cowen and Company. Please go ahead.

Kemp Dolliver - Cowen and Company

Hi, thanks. If I could run through some of the usual statistics the breakdown of your customers and also the sites served 1500 in the press release is that still a hard number, is that an estimate? And also just being run through the composition of the volume growth rate when you are done with the first set of stats?

David Sankaran

Yeah. I'm just looking, this is Dave. We are looking for the number of customers and number of sites its close to 800 is the number right now for customer groups and then they are serving our 15,00 hospitals with still demand.

Kemp Dolliver - Cowen and Company

Okay, great. And just taking some of your comments it looks like the same store or the same state, I'm sorry, same site volumes were up about 18% then you took on 11% reduction in clients and then the balance was acquired is that math about correct?

David Sankaran

Well, I think you got the elements right. They are same site store growth. We acquired new customers and then unfortunately for us we have had some attrition and then we acquired a very small amount of volume at ERS today that I referred to. I think I gave you those numbers in the prepared remarks I can't tell you that the acquisition, the impact on volumes of acquired customers, new customers to us outweighed the impact of the lost customers.

Kemp Dolliver - Cowen and Company

Right. And I may have missed this previously but could you just quickly describe what the ERS exactly as I know it's related to the Midwest Radiology, but could you just give some color on the contract?

Dr. Paul Berger

The ERS is a group of radiologists functioning out of the St. Paul Radiology and they provide teleradiology services for a number of hospitals in their region and we acquired that operation not the radiologist but the operation itself.

Kemp Dolliver - Cowen and Company

Okay, great. The last question is just at the end of the quarter, what was the numbers of radiologists on staff is it 118?

Dr. Paul Berger

We have under contract 130 and actively providing services to-date 123.

Kemp Dolliver - Cowen and Company

That's great. Thanks.

Dr. Paul Berger

Thank you.

Operator

Thank you. Our next question is from the line of Nicole Viglucci with Accipiter. Please go ahead.

Nicole Viglucci - Accipiter

Hello.

Dr. Paul Berger

Hi, Nicole.

Nicole Viglucci - Accipiter

Hi, thanks. Just a question on the guidance. I think you reiterated guidance but I believe your prior guidance did not include the Dutch tender.

David Sankaran

That's correct Nicole and that's why I tried to walk through the math of that. We for that…

Nicole Viglucci - Accipiter

Since effectively you are raising guidance $0.02?

David Sankaran

When we outline guidance we did not know that size of tender. So we told you we would clarify that once it was closed. We are sure enough it is an impact of a penny a share each in Q3 and Q4.

Nicole Viglucci - Accipiter

Okay. So just to confirm that would be a raise in guidance kind of $0.02 for '08?

David Sankaran

Well it's not contemplated in the earlier one. So, it wouldn't be fair to count it as upside, I think that's right.

Nicole Viglucci - Accipiter

Just want to make sure you are not reiterating the same guidance and now including the share repurchase?

David Sankaran

I'm not trying to pocket $0.02 now.

Nicole Viglucci - Accipiter

Okay. And then on the organic, could you just went through the organic metrics again so organic volume growth was zero?

David Sankaran

Total organic revenue was pretty flat. When you look at the components of what drives it in organic of course as I mentioned a moment ago would include same store growth which I think is up looking at my data that we had for prelims was close to 9% or 10%. And then of course you have the impact from gathering new customers not acquired new customers but once you got out and do the hard work. And that was about the same as the amount of customers we lost. So, those are kind of the dynamics that result in the overall 7%.

Nicole Viglucci - Accipiter

Okay. And organic pricing?

David Sankaran

Organic pricing, let's see if I have do ask one another question. I look up just the organic pricing?

Nicole Viglucci - Accipiter

No that was flat, sorry.

David Sankaran

They are exactly the same as it was. Overall it was 3% acquired it looks like its 4% overall decline.

Nicole Viglucci - Accipiter

…3%, okay, decline?

David Sankaran

That's for pricing.

Nicole Viglucci - Accipiter

Volume increased 3%, pricing decreased almost 4% that's little under basically flat revenue growth organically.

David Sankaran

Yeah, sorry. The pricing of organic was also 4%, kind of like our overall pricing.

Nicole Viglucci - Accipiter

I guess organic pricing was down 4%, organic volume up 3%, and organic revenue, flat?

David Sankaran

To be flat, yeah.

Nicole Viglucci - Accipiter

Thank you.

Operator

Thank you. And our next question is from the line of Alan Robinson with Royal Bank of Canada.

Alan Robinson - Royal Bank of Canada

Good afternoon. Can we expect any more Radlinx contracts that are up for renewal during the current quarter? And what about the acquisitions subsequent to the Radlinx acquisition, do we expect any renegotiated contracts there?

Tim Murnane

Yeah, this is Tim. I'll discuss the first part. I mean, if you look at the Radlinx situation in 20-20 hindsight we probably could have done better at the time of the acquisition. We didn't extend some of the contracts, the doctors just after the acquisition that were covering those sites.

So, the service was impaired to some degree. We think we have mitigated that in large measure at this point. Those sites are being covered very well now. We do tend -- I mentioned earlier that the, in the last couple of months, this is a more general answer to your question, in the last couple of months, we have seen a real improvement in our lost customer, just to give you some idea.

We basically began to implement the changes that we discussed here in May. And in June our lost customers were down 20% from May and July months-to-date another 30% from June. So we are making good headway. And I wouldn't tell you today that there might not be another Radlinx customer within that group going down the road. But I think that we have made very good headway in mitigating the lost customer problem. And I look forward to talking with you some more about that in three months from now and letting you know how we have done.

Alan Robinson - Royal Bank of Canada

Okay, fair enough. Also lets see your refer to reiterating your revenue guidance. Are there any changes to the components of the revenue guidance for 2008, it seems that there is a possibility Business Services might have been a little light in the first half, are you maintaining the range of $16 to $17 million for that?

David Sankaran

Yeah, I still think, this is Dave. I think that number will be pretty close.

Alan Robinson - Royal Bank of Canada

Okay, so no changes there. And then finally in terms of sales expansion opportunities, are you targeting any overseas expansion opportunities at all, is there anything in the pipeline for you there?

Dr. Paul Berger

We have talked about it and we are always, this is Paul. We are always interested in those sort of things but in the immediate term effecting 2008, the answer is that's unlikely.

Alan Robinson - Royal Bank of Canada

Okay, thanks. That's all.

Operator

All right. Thank you. We have a follow-up from the line of David Veal. Please go ahead.

David Veal - Morgan Stanley

Just a question for David I guess. David one of the big fears among investors, whenever we get a new CFO that at some point there was a big to clear the decks after from the prior CFO. I guess could you give us an update on your process? The deep dive you have been able to do on the books and how comfortable you are with the guidance that's out there now?

David Sankaran

There are a couple of elements to your question like one is with regard to the accounting here in the books and unequivocally this is a pretty straight forward business to account for and we have a really competent experience team, we are lucky in that regard that was part of the calculus from you taking the Job. So, in terms of longevity and having solid audit team and a solid internal accounting group, we feel extraordinarily comfortable with those.

From the guidance prospective we are absolutely continuously updated our look at the markets and then our own operations and recently completed an outlook and that's what lead us today to saying that we were comfortable with the range that we have there for the last three months.

So, I think the company did a good job of trying to get their hands around the business that was evolving and issuing guidance three months ago that was consistent with the pipeline and the other aspects of the business that are going to drive that and to be fair with your question in the 60 days I have been here I have done a pretty deep dive on that and that led to this conversation today.

David Veal - Morgan Stanley

So, you are pretty through your process then and based on what you know today, no new surprises?

David Sankaran

As much as I can tell you the answer to that today, yeah I think, I have been doing everything I can to get comfortable with that.

David Veal - Morgan Stanley

Sounds great. Thank you so much.

Operator

All right. Thank you. There are no further questions at this time. I'll turn the conference back to Dr. Berger for any closing comments.

Dr. Paul Berger

Thank you very much everyone for attending the conference. We always look forward to communicating with you as best we possibly can. If you have any questions do not hesitate to give us a call. Thanks.

Operator

All right. Thank you. And ladies and gentlemen this does conclude the NightHawk Radiology Holdings second quarter 2008 earnings conference call. If you would like to listen to a replay of today's conference you can do so by dialing 1-800-405-2236 or 303-590-3000 and put the access code 11117506. Those numbers again 800-405-2236 or 303-590-3000 and put the access code 11117506. We would like to thank you very much for your participation today. You may now disconnect. Have a very positive rest of your day.

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