RadNet, Inc. (RDNT) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the RadNet, Inc. Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Stolper, Executive Vice President and Chief Financial Officer at RadNet. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's third quarter 2026 financial results. On this call, we have also invited Kees Wesdorp, President and CEO of Digital Health; and Sham Sokka, Chief Operating and Technology Officer of Digital Health, who will share additional information about the progress of the Digital Health operating segment. 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, successfully selling and licensing Digital Health solutions, the anticipated timing, completion and benefits of the pending acquisition of ONRAD, 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 from the SEC from time to time, including RadNet's annual report on Form 10-K for the year ended December 31, 2025. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made or to reflect the occurrence of unanticipated events. And with that, I'd like to turn the call over to Dr. Berger.

Thank you, Mark. Good morning, everyone, and thank you for joining us today. On today's call, Mark, Kees, Sham and I plan to provide you with highlights from our third quarter 2026 results, give you more insight into the factors which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest in the company and for dedicating a portion of your day to participate in our conference call this morning. Let's begin. I am very pleased with the performance in the third quarter. Total company revenue and adjusted EBITDA were both quarterly records. The company revenue increased 22.1% to $683 million (sic) [ $638 million ] from $522.9 million in last year's third quarter, and total company adjusted EBITDA increased 23.8% to $105 million from $84.9 million in last year's third quarter. Total company adjusted EBITDA margin expanded 23 points to 16.5%. Growth in the quarter was broad-based, driven by our continuing initiatives to create and fill capacity at existing centers, new center openings and the continued shift in our business mix towards advanced imaging, tuck-in acquisitions, higher reimbursement from commercial payers, the expansion of our health system joint ventures and strong revenue growth in the Digital Health segment. Within the Imaging Center operating segment, we continue to experience increasing demand in advanced imaging, MRI, CT and PET/CT, which is both a function of broader industry trends as well as the many initiatives and investments we have been implementing designed to expand capacity at our centers. During the third quarter, imaging volumes increased 19.9% in aggregate and 8.9% on a same-center basis as compared with last year's third quarter. Disproportionately higher growth in MR, CT and PET/CT relative to routine imaging contributed to a 232 basis point shift in RadNet's advanced imaging procedural volume mix, increasing from 28.2% of total procedural volume in last year's third quarter to 30.6% in this year's third quarter. This favorable mix shift, together with continued operational focus on controlling costs contributed to a 25.3% increase in Imaging Center segment adjusted EBITDA and a 511 basis point improvement in Imaging Center segment adjusted EBITDA margin as compared with last year's. Also within imaging centers, the joint venture relationships continue to expand. At the end of the third quarter, 161 of our 439 centers or approximately 37% were held within health system partnerships. During the quarter, we expanded an existing partnership with the University of Maryland Medical System, which including, among other things, the contribution of additional imaging centers into a newly restructured joint venture. Health systems like the University of Maryland continue to recognize that cost-effective freestanding outpatient imaging centers are essential to their long-term strategies, and we continue to see a healthy pipeline of additional health system partnership opportunities. In addition, health systems have growing interest in implementing Digital Health tools to more effectively manage imaging volumes and provide their radiologists and administrative staff with solutions to make them more productive and accurate. We are also particularly excited about the opportunities for growth and expansion made by our recently announced agreement to acquire ONRAD. ONRAD through its more than 130 contracted radiologists provides teleradiology final read interpretations and in-hospital professional radiology staffing, including interventional radiology to more than 225 hospitals across 26 states. With hospitals and health systems accounting for more than half of U.S. diagnostic imaging volume and imaging demand outpacing the supply of trained radiologists, ONRAD gives RadNet an established platform to serve hospitals directly while expanding what we can offer our existing joint venture partners. ONRAD is a capital-light, high-margin business that has grown revenues between 10% and 20% over the last several years and adjusted EBITDA margins exceeding 30%, and we expect it to add $190 million to $200 million of revenue and $60 million to $65 million of adjusted EBITDA in its first year of operation after closing. Upon closing, ONRAD will become the foundation of RadNet's third reportable operating segment, Radiology Professional Services. Combining ONRAD's professional services with our DeepHealth AI-enabled technology and our imaging center operating expertise will allow us to address the entire continuum of diagnostic imaging inside and outside the hospital under one company. The inbound interest from current joint venture partners and potential new partners and customers has exceeded our expectation, and we look forward to opportunities that could result once the acquisition is closed. Given the positive trends we experienced throughout the quarter and the strong financial performance we delivered, we elected to again increase our 2026 full year guidance ranges for imaging center revenue, adjusted EBITDA and free cash flow. The Imaging Center segment has now outperformed our projections in each of the first 3 quarters of this year. In the Digital Health segment, we are raising our adjusted EBITDA guidance as a result of effective expense management and faster-than-projected integration of acquired operations. Mark will review the details of our updated guidance in his remarks. Finally, we continue to remain a strong liquidity position and modest financial leverage. We ended the third quarter with a cash balance of $750.6 million and a net debt to adjusted EBITDA ratio of 1.66x. This continued financial flexibility positions us well to continue to invest in our organic growth and to pursue attractive acquisitions across our operating segments in the coming quarters. I'd now like to turn the call over to Kees and Sham, who will do a deeper dive into the Digital Health performance and provide a status update on many of our AI and enterprise imaging initiatives. Kees, please go ahead.

Thanks, Howard. Good morning, everyone. The third quarter was defined by a record quarter of new business for the Digital Health segment, continued ARR growth and preparation for a very strong fourth quarter as we scale our solutions across RadNet and with external customers. We closed approximately $71 million of total contract value in the third quarter, bringing us to roughly $108 million of total contract value for the first 9 months of the year. The quarter includes a long-term enterprise agreement with a fast-growing U.S. teleradiology service provider of approximately $53 million in total contract value, covering our enterprise informatics and clinical AI portfolio and therefore, a strong validation of our integrated platform strategy. In addition to this $53 million contract, we booked approximately $55 million year-to-date, split between roughly $32 million in North America and $23 million in Europe and the rest of the world. We had a healthy mix of wins across our Enterprise Informatics and Clinical AI business. And our funnel continues to build as well. Our clinical AI and enterprise informatics pipeline has grown from roughly a little over $100 million in total contract value at the start of the year to more than $300 million in total contract value today. Our customer base now exceeds over 3,000 accounts and total procedure volume across our AI and informatics solutions reached over $18 million for the quarter, up more than 170% year-over-year. Annual recurring revenue, ARR, ended the quarter at $112.6 million, up 67% from September 30, 2025, and nearly 7% versus June 30, 2026, showing solid organic growth. Excluding the GLEAMER acquisition, ARR grew 21% since September 30, 2025. External ARR, the ARR generated outside of RadNet, more than doubled since September 30, 2025, to $73 million and now makes up 65% of our ARR base, up from 52% end of year 2025. Digital Health revenue for the quarter was $32.9 million, up 33% as compared with last year's third quarter and 1.5% versus Q2 2026, split between $16.2 million of AI revenue, up 51% from last year's third quarter, of which 31% is GLEAMER and $16.7 million of enterprise imaging revenue, up 18.6% from last year's third quarter. External revenue was $21.4 million, up 49% from last year's same quarter and is 65% of segment revenue versus 58% in Q3 2025. This was strong performance despite some challenges we faced during the third quarter. First, seasonality as the summer is typically a slow period for go-lives and new business. Second, the migration of legacy iCAD customers from perpetual and on-premise licenses to cloud subscriptions, which lowers upfront revenue, but raises the quality of the revenue base as a SaaS business. And third, a degree of capacity constraints in our implementation and service organization, which we have solved in Q3 as we make ourselves ready for the record Q4. Turning to profitability. Adjusted EBITDA for the segment was $3 million for the quarter, up 21% from $2.5 million in the second quarter, with margin expanding from 7.6% to 9.1%. As compared with last year's third quarter, adjusted EBITDA was down from $3.5 million, reflecting, as we've also mentioned in the previous calls, investment in 2025 and early 2026 in our commercial services and implementation organization and the temporary margin dilution from the GLEAMER acquisition. GLEAMER continues to perform ahead of plan. 8 months into the integration, the legacy GLEAMER portfolio exited the third quarter at approximately $31 million of ARR, 1 quarter ahead of the year-end target of more than $30 million we shared on our last call. GLEAMER added 63 customers in the quarter, demonstrating continued momentum. And profitability is following the same trajectory we delivered with the iCAD and See-Mode acquisitions, from a $4 million to $5 million negative EBITDA margin at the time of acquisition to close to breakeven today, even after allocating the DeepHealth team's integration cost. Accordingly, we remain on track to capture cost synergies in 2027 alongside cross and upsell revenue synergies as our team sell one integrated portfolio on the DeepHealth Radiology AI suite. I will now hand over to Sham, who will talk about the impact we are having with our portfolio.

Thanks, Kees. Good morning, everyone. Our growth is supported by an industry-leading portfolio with recent new product introductions and regulatory approvals, and we expect that momentum of product releases and regulatory clearances to continue as the year progresses. For instance, in the breast domain, we received FDA clearances for breast arterial calcification assessment in June, a way to identify early-stage cardiac disease and breast ultrasound in July and alongside prior exam integration in our Mammo Dx solution. We are seeing strong interest in the unique combination we can offer with what we believe is the most comprehensive screening and diagnostic platform for breast imaging. Also note that customers can pursue reimbursement for breast ultrasound under the existing Category III CPT code for quantitative ultrasound tissue characterization, the same code under which we have been receiving reimbursement for a material portion of our thyroid ultrasound AI since the start of the year. In September, we also received FDA clearance for our next-generation chest X-ray solution, the first built on our proprietary foundation model and already used by European customers under CE mark on more than 2.8 million examinations a year. Across the portfolio, we now hold 28 FDA clearances and 26 CE marks covering more than 100 clinical findings across routine and advanced imaging with additional submissions pending in lung, neuro and prostate. Nearly 100% of our cleared findings are CADe/CADx approvals, which are more strongly regulated and can be included to create draft reports. The strategic thread here is how we are transforming radiology workflow. When every study, order or clinical history runs through our AI-powered solutions, we can automate and streamline the radiology workflow. By combining our clinical AI, our AI orchestrator, viewer and Reporting Pro, we automate case assignment, triage and report generation, reducing reporting time, for instance, by up to 30% as these solutions are used together. In light of this, we have spoken before about our thyroid ultrasound solution, which continues to show what is possible. Over 90% of the automated draft reports are accepted by RadNet radiologists for final sign-off without changes at all. We are now extending this approach to breast ultrasound and x-ray, which brings me to our progress within RadNet. Within RadNet, we made good progress this quarter across our strategic operational programs. Our AI-powered Reporting Pro solution, which serves as the base platform for draft reporting is now in the phase of accelerated deployment with over 30% of RadNet exams covered today. We remain on track for full deployment across RadNet by end of Q1 2027, driving radiologist productivity and cost savings as we replace more conventional reporting solutions. We are well underway to have more than 75% of RadNet studies processed by our clinical AI by Q3 2027 with today over 50% coverage. In October, we began rolling out breast ultrasound AI across RadNet. We also started deploying breast arterial calcification, Mammo Insights, which improves mammography quality and simplifies compliance and our Brain AI solutions. GLEAMER's X-ray AI is now live across RadNet, already processing more than -- more than 60% of our exams of our facilities with 90% coverage of eligible x-rays at those sites. We have initiated the deployment of automated draft reporting for X-ray, RadNet's highest volume modality with more than 2.8 million exams a year. Together with the deployment of breast ultrasound, thyroid ultrasound, automatic draft reporting, these are large stepping stones toward our goal of greater than 50% imaging volume report automation by Q3 2027 across all imaging volumes. Our smart patient registration tool within Operation Suite, which has now completed the pilot phase and preparing for scale rollout with close to 30 centers now live and further regions to follow, delivering front office productivity gains, automating nearly 1/3 of patient registrations with higher patient satisfaction. Finally, we've started preparation with ONRAD to roll out our Digital Health solutions further, extending the same platform we are deploying at RadNet. Kees, back to you.

Thanks, Sham. Looking ahead to the fourth quarter, we're very confident and we are on track for more than $140 million of ARR by year-end, roughly 87% growth over 2025. We see a clear bridge from our Q3 ARR of $112.6 million, driven by new external customers and RadNet go-lives. We expect fourth quarter revenue to grow about 20% sequentially as those go-lives come through in our seasonally strongest quarter. We're very confident in delivering this record quarter. For the full year, we are accordingly reaffirming our revenue guidance of $135 million to $145 million, and we are raising our adjusted EBITDA guidance to $10 million to $13 million. We will be showcasing the full DeepHealth portfolio at RSNA in Chicago at the end of this month, and we look forward to welcoming many of you at our booth. It is very encouraging and gratifying to see the demand for demos and meetings well ahead of the show. At this time, I'd like to turn the call back over to Mark, who will discuss key financial highlights from the third quarter.

Thanks, Kees. I'm now going to briefly review our third quarter performance and attempt to highlight what I believe to be some material items. I will also give some further explanation for certain items in our financial statements as well as provide some insights into some of the metrics that drove our third quarter performance. I will also provide an update to 2026 financial guidance levels, which were amended in conjunction with last evening's financial results press release. In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishments and noncash equity compensation. Adjusted EBITDA includes equity and earnings of unconsolidated operations and subtracts allocations of earnings to noncontrolling interest in subsidiaries and is adjusted for noncash or extraordinary and onetime events taking place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is included in the earnings release. I will also be using a second non-GAAP measure pertaining to the Digital Health segment called annual recurring revenue, or ARR. We use ARR as a key operating metric to evaluate the scale, growth and health of the recurring component of our digital health business. We define ARR as a key subscription economy metric, representing the predictable normalized annualized value of contracted recurring revenue generated from active customer contracts. ARR includes subscription fees, recurring support fees and contracted usage charges and excludes onetime or nonrecurring fees such as implementation fees, hardware sales, professional services, consulting and onetime training. ARR is determined based on the contractual terms of active customer arrangements and is not calculated by reference to revenue recognized under GAAP, deferred revenue or another GAAP financial measure. ARR is not a forecast of future revenue, which may be affected by contract start and end dates, cancellations, renewal rates, customer usage and other factors. With that said, I'd now like to review our third quarter results. While I won't recap all the financial information that's contained in last night's earnings report, here are some highlights. For the third quarter of 2026, total company revenue was $638.3 million and total company adjusted EBITDA was $105 million, both quarterly records. Revenue increased 22.1% and adjusted EBITDA increased 23.8% as compared with last year's third quarter. Adjusting for unusual or onetime items, adjusted diluted earnings per share was $0.30 in the third quarter as compared with $0.24 in last year's third quarter. The Imaging Center segment results were driven by strong aggregate and same-center procedure volumes, especially in advanced imaging, which Dr. Berger spoke about in his prepared remarks. Overall procedure volume, including routine imaging, increased 10.8% in aggregate and 3.2% on a same-center basis. The upgrades we have made in the last few years to faster MRI scanners, the use of TechLive remote technologists and refinements we've made to our operations to move more patients efficiently through our centers have contributed to the capacity growth for advanced imaging. In the case of PET/CT, we continue to benefit from the greater utilization of prostate PSMA and brain amyloid studies, which during the third quarter represented almost 26% of our PET/CT volume. PET/CT now represents 10.2% of our payments, up from 8.8% for the full year of 2025. And MRI represents 38.6% of our payments, up from 37.7% for the full year of 2025. Despite continued pressure on salaries from labor shortages, particularly with technologists and radiologists, Imaging Center segment adjusted EBITDA increased 25.3% to $102 million, and we continued our streak of quarters with increasing adjusted EBITDA margins within our Imaging Center segment relative to prior year periods. With respect to Digital Health, I'll just highlight a few additional items to expand upon Kees and Sham's previous comments. Digital Health revenue, inclusive of intersegment revenue increased 32.6% to $32.9 million from $24.8 million in last year's third quarter, and segment adjusted EBITDA was $3 million as compared with $3.5 million in last year's third quarter, reflecting continued investment in commercial and implementation headcount and the temporary margin dilution from recent acquisitions. Aside from revenue from the acquisitions of GLEAMER and Cimar, which contributed approximately $6.3 million of revenue in the third quarter, revenue from the EBCD program increased 16.9%. Prostate and neuro products grew 31.7% TechLive revenue increased 48.2% and enterprise imaging workflow revenue increased 10.4%. We remain on track to reach our full year revenue and ARR goals for the segment, which implies a ramp in both revenue and adjusted EBITDA in the fourth quarter, which is supported by newly signed contracts, a pipeline of new business opportunities and a schedule of customer implementations through the end of the year. We finished the quarter with a strong cash and liquidity position. At quarter end, we had $750.6 million of cash on the balance sheet and full availability of our $282 million revolving credit facility. Continued improvements in revenue cycle, particularly in the area of patient collections have allowed us to maintain DSOs or days sales outstanding at 31 days, which we believe to be one of the best in the industry. This continues to provide the cash flow we require to fund our growth and expansion in both operating segments. With regards to our financial leverage, as of September 30, 2026, unadjusted for bond and term loan discounts, we had $590.2 million of net debt, which is our total debt at par value less our cash balance. Note that this debt balance includes RadNet's ownership percentage or 49% of New Jersey Imaging Network's net debt of $1.4 million for which RadNet is neither a borrower or guarantor. At quarter end, our net debt to adjusted EBITDA leverage ratio was 1.66x. Given the strength of our third quarter results and the positive trends we continue to experience, we elected again to increase our 2026 full year guidance ranges for revenue, adjusted EBITDA and free cash flow for our Imaging Center segment. Total net revenue guidance for the Imaging Center segment increased to a range of $2.385 billion to $2.435 billion, an increase of $15 million at both the low and high ends of the range as compared with the guidance we provided after our second quarter results. Adjusted EBITDA guidance for the Imaging Center segment increased to a range of $350 million to $363 million, an increase of $5 million at both the low and high ends of the range. We increased our capital expenditure guidance range by $5 million at both ends to $170 million to $180 million, which is reflective of additional growth investment opportunities we have been pursuing. Free cash flow guidance increased to a range of $120 million to $130 million, an increase of $5 million at both the low and high end of the range. For the Digital Health segment, we are reaffirming our revenue guidance range of $135 million to $145 million. We increased our guidance range for adjusted EBITDA before noncapitalized R&D to $11 million to $13 million as a result of effective expense management and faster-than-projected integration of acquired operations. We also increased our CapEx guidance for Digital Health by $1 million. I'll now take a few minutes to give you an update on 2027 Medicare reimbursement rates. As a reminder, Medicare represents about 25% of our business mix. With respect to Medicare reimbursement, as we discussed on our second quarter call, in July, we received from CMS a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about that time every year. In the proposed rule, Medicare proposed decreasing the conversion factor in the Medicare fee schedule by about 1.68% from $33.40 to $32.84, along with certain other changes to RVUs or relative value units of specific radiology CPT procedure codes and to the Medicare Geographic Practice Cost Indices or GPCI. Our initial analysis at that time indicated that RadNet would be almost net neutral for Medicare in 2027 with a negative impact of less than $1 million to revenue as proposed increases to RVUs almost fully mitigated the decline to the conversion factor. On November 4, CMS released its final rule, which will govern the 2027 physician fee schedule reimbursement rates. In the final rule, CMS finalized a deeper reduction to the conversion factor that it had proposed, a decrease of approximately 2.3% from $33.40 to $32.63. We analyzed the final rule CPT code by CPT code volume weighted using expected 2027 procedure volumes and estimated that the impact to RadNet's 2027 revenue will be approximately $5 million. While this impact is slightly worse than the proposed rule from July, much of the decrease in the conversion factor is the result of the expiration of the temporary 2.5% increase Congress enacted for 2026. As it has done in several years prior, Congress may take action before year-end to partially or fully reverse this reduction potentially as part of the broader legislative package in December. There can be no assurance that the Congress will act. Our budget at this -- our budget at this time for 2027 will reflect the final rule is published, and we will update you if Congress takes action later on this year. On a related note, the 2027 HOPPS or Hospital Outpatient Prospective Payment System final rule also released on November 14, finalized the site neutrality provision we discussed last quarter under which CMS will reimburse hospitals at the lower Medicare physician fee schedule rate for certain non-contrast imaging studies performed in off-campus hospital outpatient departments. This will contribute to the already significant economic pressure that health systems are feeling within the radiology departments, and we believe this financial pressure will continue to drive more health system partnership discussions. I'd now like to turn the call back to Dr. Berger, who will make some closing remarks before we begin the question-and-answer portion of the call today.

Thank you, Mark. I'd like to take a moment to go off script and try to share with you the seminal events which have occurred over the last few months here at RadNet. RadNet has undertaken to embrace the future of health care, which can actually be delivered today. Health care has long been mired in a pattern of behavior of diagnosing and treating ailments. With the advent of both clinical AI, agentic AI and the tools that can drive and relieve the pressure on our system with shortage of personnel, radiologists, technologists and others, we are endeavoring to change and bend the curve to early diagnostic tools and prevention. Technology in imaging is unique in this capability, given the pervasive need that patients have for imaging, the amount of information that can now be culled out of a routine scan for other early diagnostic testing such as breast cancer, lung cancer, heart disease can fundamentally change the curve and allow better outcomes and better lowering cost to our system. This is the fundamental takeaway. I would hope all of you can see that by adding hospital-based services, professional services, along with the industry's biggest and best tools for AI are the solution. Health care is unique in its application of AI. It's purposeful and meaningful. And I have as well as many of my colleagues, personal experiences where early intervention can mean the difference between life and death. This is what we need to embrace. We are committed to this journey. We have invested heavily. We have built, I believe, the best management team in the industry, and I know we can deliver. The results will speak for themselves, but the importance of what we have undertaken should not be underestimated given any particular quarter's results. RadNet is here for the long haul. We have a mission and we intend to be that piece that helps pull it all together. It doesn't mean that RadNet is going to win every contract, and I'm not sure we want to win every contract. What we want our partners who understand that this journey is fundamental to the lifeline of health care and can fundamentally change our industry. And I don't believe anybody out there would suggest that it doesn't need substantial change. So I hope in our future quarterly reports as well as other announcements, you will get the perspective that we believe will be the future of how our industry, particularly radiology and imaging, can and must be practiced. Operator, we're now ready for the question-and-answer portion of the call.

[Operator Instructions] Our first question today is from Brian Tanquilut with Jefferies.

Congrats on the quarter. Maybe, Howard, as I think about advanced modalities here, it looks like you're still seeing strength. CT was actually notably strong. So just curious, one, what you think drove that strength in CT, the pickup? And then two, just thinking through the runway left for advanced imaging as a whole, whether it's MRI, PET or CT, especially as I think about your TechLive rollout, which I think began late last year. So just curious how we should be thinking about and how you're thinking about advanced imaging in terms of the run rate.

Thank you, Brian. We have a very strong emphasis on advanced imaging. The demand continues to accelerate -- first because of just enlarging population and aging population, but perhaps more importantly, many new tools that are now available with the artificial intelligence and other ways of making our equipment that much faster. Perhaps, Brian, I'll give you an example. We have begun raising or transitioning our PET/CT scanners to the latest technology, which is almost mind-blowing when the new PET/CT scanners now are capable of doing a PET/CT in less than 15 minutes. This used to be a 1-hour procedure. So that is driven by the demand and rather than us put another PET/CT scanner in, we've been able to almost double our PET/CT volume, which was unthinkable perhaps even 2 years ago. So when we show our CapEx, even though that's replacement CapEx, it's really growth CapEx. And that's one of the reasons why our CapEx is staying particularly high given that the investment in our imaging centers is a critical part of our growth. That along with growth from things like CT coronary angiography, which is a remarkable tool, not for people who are symptomatic, but people who are at potentially high risk coming in and determining the extent of their cardiovascular disease well before they have an incident has grown dramatically, almost 100-fold here since we started this program about 1.5 years ago. Part of that is that the demand for this is so great that hospitals who have traditionally performed this procedure are now incapable of getting patients in on a regular basis. Along with that, we've had a significant increase in our breast MRI as a result of screening for high-risk patients, and that has been a very substantial change in the number of breast MRIs that we're doing. Along with that, CT growth and traditional MR growth continues to be in high demand, both because the quality and capabilities of the equipment demonstrate more and more new applications for this. So we have -- I won't say doubled down, but we certainly have added an enormous amount of capacity. And it's likely that in 2027, our growth for PET/CT and advanced imaging will continue at the same rate that we're seeing right now. And the challenge is for us really adding that additional capacity, not necessarily going out and building the business. These are -- as I mentioned before in my closing remarks, Brian, these are the tools for early diagnosis, and we will continue to work on those that I believe are resonating quite substantially in our markets.

And your question about TechLive. Brian, the part about TechLive is we've been using TechLive to continue to lower our exam room closure hours when we've had staffing challenges or a tech calls in sick that day. We're now covering that schedule. And we're still really at the infancy of rolling that out. It's been growing. We're now -- in the third quarter, we completed about 13% of all of our MRI with remote technologists, and we plan to continue to grow that and train the majority of our techs to be able to control multiple machines simultaneously. And so it's not only the building of that capacity, it's also the utilization of that capacity and dealing with staffing shortages.

Yes. Let me also add, Brian, that some of our technology like TechLive is equally beneficial inside the hospital as it is in our imaging centers. And we continue to get perhaps disproportionate interest in people using TechLive in the hospital. Hence, the benefit of the new acquisition, ONRAD, giving us greater entree into the hospital's radiology department and the ability to introduce all the tools that we've honed in the outpatient center going into the hospital and creating a more end-to-end solution, not just for the hospital's radiology department, but for their urgent care, their emergency rooms, their doctors' offices, which produce imaging, whether it's PET/CTs or CT or mammo or ultrasound or x-ray all need to be connected on a system-wide solution to make the availability of this vital information as readily as possible. So I encourage everyone to think broader in terms of what the ONRAD acquisition allows us to do with credibility and proven tools that I believe can be beneficial to any hospital system.

Appreciate that. And maybe, Kees, just my follow-up question for you. When I think about the ramp in Digital Health revenues and EBITDA, you sound confident in that. So just curious how you're thinking about visibility into that ramp and then the conversion of ARR, which you shared in your prepared remarks into next year's revenue, how do we think about the cadence of that? And again, just visibility to all the moving pieces there?

Yes. Thanks, Brian. Maybe start with ARR first. So we've got -- this is project by project in terms of deployment with external customers and with RadNet, obviously. So on the ARR side, we've got that fully underpinned to just above $140 million ARR. Because we measure paying ARR, that should be seen as a revenue number immediately into next year without further delays, so to say, if that makes sense. I think that's the background of your question, Brian, just to check.

That's exactly it. Yeah.

Yes. And then on the revenue side, so there are really three buckets here of revenue coming in as we speak. The first is, and obviously, we start with the Q4 run rate -- sorry, the Q3 run rate going into Q4. Part of the one bucket is with external customers, we had already started deployment, but not yet signed off revenue-generating projects. And there is a backlog of projects to be installed. That's bucket number one. The second bucket, and these are high confidence deployments. The second bucket is with RadNet. We've got quite a few exciting programs being deployed. So for instance, breast ultrasound. And again, that's a significant revenue generator as well. And then last but not least, we actually have onetime perpetual license deals as well. It's the minority, as you know, of our business and maybe not even core to our strategy as we build a SaaS business. But there is a few million of new perpetual licenses that we have secured. So those are the three structural revenue drivers. On top of that, with external customers, we also have what is called installation fees, and that's something that you'll see come through as well. And all of that brings us with a fully underpinned record quarter. And if you can do the math of well above $40 million for Q4.

The next question is from Clarke Murphy with Truist Securities.

Just wanted to start on, can you talk a little bit more about some of the operational efficiencies and scheduling tools and things like that, that you're working on? And kind of what sort of impact that those could have to throughput and capacity on top of all the things that you guys are doing on the digital side?

Sure. The first, and I'll bring Sham into this answer as well. One of the scheduling -- or excuse me, one of the operational implementations that are going on now is what we call digital patient registration, where in the past, every patient who came into our facility had to go up to the front desk, check in, get a clipboard of paper, fill out the paper, go back to the front desk, hand that in and wait for them to be called into the individual waiting rooms of the modalities. What we're rolling out right now is digital patient registration where a patient doesn't need to go to the front desk, can register on his or her Android or iOS device, either when they arrive at the location or even ahead of time, which does a couple of things. One, it's been allowing us to drive more patient volume efficiently through our centers, number one. Number two is it's alleviated a lot of the labor and the backlog at the front desk, which allows us to have, ultimately, more efficiency there with running fewer shifts and drives patients into the individual waiting rooms quicker. Sham, I'll let you expand on that.

Yes. Thanks, Mark. I mean I would really put that into two categories, right? One is the digital scheduling itself, right? So we can actually, more and more start to do app-based or web-based scheduling instead of the call center, which is a significant efficiency on the contact center. So that's one piece. And then I think I want to maybe go a little bit deeper with what Mark just talked about. We've now deployed at about 30 centers in the East and West Coast with this digital registration. And on this tool, people are not only registering, they're doing their payments, they're getting information on whether their insurance covers it or not, how much the insurance covers it. So the entire journey of a complex imaging scheduling -- imaging registering event, excuse me, is now completely done by a digital tool. In addition, the accuracy of the data and so forth are much better because we can actually record it directly from those individuals. And just to give you some sense of where this is going, in those 31 sites, about one in three right now are fully going through digital without having to touch any front desk staff. And in our best centers, so this is just to show you the potential because we've now done the training and so forth at our best centers, about 75% of patients are not having to see a front desk or liaison, right? So that's the potential of this technology. We're now rolling that out throughout this quarter, and we hope to be done for the full RadNet centers volume by essentially end of Q1, early Q2, right? So that we anticipate will have a significant impact on the operational side of the business as we move forward.

Great. And then just another question that we had was just on the inbound interest that you guys are getting on ONRAD. Just wanted to get a little color on, is that something that's potentially helping accelerate JVs ahead of the acquisition or any other benefits that you guys are seeing in either of your segments right now from the announced acquisition of ONRAD?

Yes. We've gotten more interest from our current joint venture partners who are all wrestling with the same problem, and that is the shortage of radiologists and increasing demand. But new customers of ONRAD that they've been pursuing once they saw the announcement have told the ONRAD leadership that they'd like to talk to RadNet about a more fully integrated solution for their radiology, both inpatient and outpatient. And our discipline is that we're anxious to talk to any and all comers, but they're going to have to adopt our program to give us the benefit of maximizing the outcome of the tools that we have now been developing, believe it or not, for over six years. And many of them, if not most of them, embrace that simply because they don't have the internal expertise to implement something like this or even understand how this what we call fully integrated end-to-end solution can have such a material impact on their entire health care system. So our goal here is to find existing and new partners who embrace everything that we can do to make them deliver better healthcare. And so our resources, at least at this point, both from a human and a capital standpoint, need to be used for those opportunities that will give us and our future partners the maximum benefit.

The next question is from Andrew Mok with Barclays.

2026 seems to be a relatively clean baseline from which to grow. Are there any items we should consider puts or takes for 2027 and aside from the ONRAD acquisition and Medicare rates?

Yes. I mean there's going to be a lot of puts and takes that are going to be built into our 2027 guidance when we announce it towards the end of February of next year. There will be, obviously, the impact of same-center performance as we anticipate much higher patient volumes next year, continued growth in advanced imaging, that's going to continue to drive profitability at our existing centers. We've always said the best and most profitable way we can grow is by driving more revenue, more patient volume through our existing fixed cost base. So that's going to be a big positive impact for next year. We will see positive impacts on the centers that we purchased in 2026. So continued improvement in Southwest Florida, which already the integration is going very, very well from centers we bought earlier this year. As well as Indiana, where there's a lot of upside opportunity still to be had there as well as some other tuck-in acquisitions we've done throughout the year. Again, there's going to be substantial growth, as Kees talked about and Sham talked about in the Digital Health division, where we're rolling into 2027 with $140-plus million worth of ARR that converts to GAAP revenue as we implement those customers. And the $100-plus million of new contract value, some of that will be implemented within 2027. There will be further tuck-in acquisitions, which we are eager to complete and announce in the coming quarters, which will contribute to next year. There will be new joint ventures with health systems that are in our pipeline, both expansions of existing partnerships as well as new partnerships that we look forward to announcing. So what I would tell you, Andrew, is when we stack this up, we think that we're very encouraged about how next year should look for us in terms of continued growth of everything that we're doing throughout the company.

Great. And I just wanted to follow up on the terms of the ONRAD transaction. Can you confirm the specific EBITDA target and how the earnings sliding scale will work?

Sure. So we will pay when the deal is closed, $350 million of cash and 5 million shares of RadNet common stock. And then there is an earn-out provision that looks at ONRAD's 2027 EBITDA results. And for every dollar of EBITDA above $56 million, we will pay them 15x that dollar. And that can be paid at RadNet's election in either cash or stock.

The next question is from Matthew Gillmor with KeyBanc.

I wanted to circle back on the initiatives to create capacity. You mentioned that a couple of times. Is there a way to give us some sense as you think about the growth with advanced imaging the 8.9%, how much is being contributed by the capacity initiatives that you've talked about? And I guess the way we think about it is scans per machine per day, but if there's any way for us to sort of think about the contribution from that driver, that would be great.

Yes, sure. Thanks, Matt. Yes, a lot of our ability to grow advanced imaging is around expanding capacity. And there's many different ways of expanding capacity. One way is simply to keep your centers open longer. So in certain markets and certain centers, we're able to expand hours and scan later into the evening and into weekends. For instance, in Midtown Manhattan, we're regularly scanning at 10:00, 11:00 at night. We've got some centers here in Los Angeles area that are open into the early morning hours to scan patients. Other ways are, as Dr. Berger was talking about, are some of the investments in the newer hardware, the newer technology. We've talked a lot about in the past, the MRI equipment that has much more sophisticated post-processing software that allows for shorter scanning times and uses software to essentially increase the resolution for the radiologist. Dr. Berger mentioned what we're seeing now in terms of some of the newer PET/CT technology. We're also looking -- the patient registration and the digital registration and the digital scheduling has been able to drive more patient volume into our sites. We've opened sites more aggressively and spent more of our CapEx dollars on de novo centers. We had originally intended to open seven sites this year. I believe by the end of the year, we'll actually have opened 10 sites. So several of the projects that we had started that we felt that we're going to open in 2026 will actually open in -- excuse me, in 2027 will actually open in 2026. So continuing to build these de novo centers has also expanded our capacity as well. So some of the things that we're doing today 5 years ago, were not even on our radar screen and weren't even a thought. And I suspect that things that we'll see in the future around technology, technology development -- that we can't anticipate today will allow us to continue to build capacity in the future. The other thing we love to do is we love to acquire other operators who are not as efficient and haven't deployed the same tools and level of technology where we can then acquire those businesses which have embedded capacity that we can grow through time with implementing all of our programs. And so these tuck-in acquisitions that we do are extremely important to our ability to continue to drive capacity and efficiency.

And then as a follow-up on the ONRAD acquisition, one of the strategic rationales was to deploy technology and drive greater productivity with those radiologists. I think you talked about a 50% opportunity to improve productivity, which would be really significant. I was curious if you could give us some sense for how long it would take to capture that productivity improvement. Would we see some of that in '27? Or is that more of a longer-term journey?

It's a great question. We've already begun modeling new opportunities for ONRAD to accelerate their deployment. One of the features that we believe will help that is that through ONRAD's deployment of the DeepHealth tools, we will be able to deliver to our hospitals all of the artificial intelligence reporting tools and early detection tools through that platform and have that be part of the ONRAD cost because the beneficiary of that is primarily the radiologists. So as we begin to have discussions, which are ongoing almost as we sit here, explaining how we can do that within their own existing radiology group to make them more efficient and more accurate is resonating. And this is a somewhat difficult concept for them to embrace simply because they're just not familiar with how these tools can functionally improve their performance given how new this industry is. So when we have these opportunities to lay out our bigger vision, I'm extraordinarily encouraged as to how quickly they want to embrace this and take our lead. So perhaps what I'm trying to suggest here is that for any one of these systems, this is a heavy, heavy lift. We're talking about hundreds of thousands, if not millions of images. We're talking about broad-based access to imaging throughout their entire enterprise and the need to make certain that other facets, which we believe we can work with them together, such as cybersecurity and movement to the cloud is something that they get comfortable with protects their institution. And I think our team in DeepHealth as well as our own cybersecurity capabilities add a dimension to that conversation that will give them that greater degree of comfort. So there's a new term I've coined here and rather than it be this foxhole-by-foxhole recruiting, it's what I'm going to be talking about in the future of a land and shift. In other words, taking the existing radiology department, incorporating it into ONRAD and expanding its capabilities. And the people that we've begun talking about this are very excited about the potential implications of it and will allow us to, I believe, accelerate piece by piece, getting them to the overall enterprise imaging system-wide capability that they need to have.

The next question is from Yuan Zhi with B. Riley Securities.

For the EBITDA margin in 4Q, it seems to be lower than 3Q. In the past, 4Q tends to have the highest EBITDA margin in the year. Can you maybe talk about factors contributing to that?

Yes. And we've said this in the past, Yuan, and thank you for the question. When we modify our guidance or amend our guidance like we did after the first, second and third quarters, we don't reforecast the rest of the year. We simply add to the guidance, the beat that we have in that quarter essentially. So we've always cautioned investors, analysts to try to imply a margin for the rest of the year. So what I would tell you is that the trends that have driven the performance this year, the positive trends on the volume side on the advanced imaging side so far have continued into the fourth quarter. I mean, we're in early November here, and we are anticipating growth in the fourth quarter. And as you correctly point out, the fourth quarter has been our strongest quarter now for several years in a row, and that's partly due to the seasonality of the business where, first of all, fourth quarter incorporates Breast Cancer Awareness month, which usually drives strong mammography and breast-related imaging in the fourth quarter. And then, of course, as many of us have gone towards a higher deductible programs, meaning the patients we have all utilized health care much greater in the second half of the year than in the first half of the year before deductibles reset in January. And so we often see kind of a rush to get exams done in the fourth quarter leading into next year. So we're anticipating a continuation of many of the strong trends that we've seen in the first 3 quarters.

Got it. Got it. Maybe I ask this question in a different way versus the prior questions. If we fast forward to 3Q 2027, when you have more than 50% of imaging volume going through AI applications, what would that mean to your revenue with increased capacity and gross margin as a result of using AI?

Well, running the every exam through AI is primarily a benefit for our radiologists, not so much margin, except to the extent that we eliminate the strong demand that there is for radiologists that are driving up our cost. So our goal is to make all of our radiologists more productive, perhaps even by 50% or more as we gain more and more traction of having all of our eventually. And I think as Sham mentioned, we expect it to be close to 60% of everything that we do by mid-quarter -- by second quarter of next year. And then taking the AI clinical read and putting it through our new reporting solution, which will give a radiologist a full report with findings and characterization to essentially review the report that AI has created and either accept it or -- and sign off on it or edit it. I can tell you from both personal experiences as well as out in the field here, it takes a radiologist longer to dictate the findings in a report than actually interpret the exam. So most radiologists will tell you the bottleneck has been in how much time they have to spend on repetitive tasks that we are essentially automating for them. And I'm most proud to say that all of these will be done with FDA approval so that anybody that uses these knows that it has not only been created under the auspices of FDA approval, but our commitment to make certain that these tools stay on track and don't as they like to talk in the industry, hallucinate. So our commitment is not just to have something off the shelf, but to be a constant monitor of accuracy and performance that will be built into the -- that is built into the DNA of the DeepHealth division. The early returns that we've had now that about 300 or so of our radiologists as we roll out these new reporting tools is that it's a game changer. And we still have a ways to go to fine-tune it and make it even better. But I know we're all extraordinarily gratified that taking away this tool would be a big blow to our radiologists and they fully embrace it. So it's one of the strengths of RadNet is the ability to create and deploy internally, make certain that these tools perform the functionality that they're designed for and then roll them out on a larger scale. So the DeepHealth team and the services team have been working extraordinarily close together. And I dare say that the ONRAD team or our professional radiology services division will have a similar benefit from this end-to-end solution that we're bringing to the marketplace.

Yuan, I'll add one thing. What Dr. Berger was talking to was really the efficiency and the -- of the radiologists and the impact that, that could have on our costs going forward as we continue to grow the business and not have to continue to grow the radiology component or hire as many radiologists going forward, which will drive margin. Where we could see a revenue benefit from arming our radiologists with tools is in the turnaround time. So one of the challenges that you're seeing throughout radiology, whether you're talking about hospital-based radiology or outpatient-based radiology is that because of the shortage of radiologists, you're seeing a lengthening of turnaround time. So the time at which the referring physician receives the radiology report from whoever is interpreting it. And the ability for the radiologists to be able to turn around those reports sooner has a major service benefit that we see for referring physicians that differentiate our service from our competitors. And I think to the extent that we can continue to have accurate and expeditious reads for our referring physician community, I think we'll continue to drive revenue vis-a-vis our competitors.

The next question is from Jim Sidoti with Sidoti & Company.

I know it's been a long call. So just one quick one. Cornelis, I believe you said added 63 customers in the quarter. How many of those 62 customers were existing RadNet customers?

Virtually -- thank you for your question. Virtually none. So this is when we add new customers, we treat them -- we see them as really net new. So in that sense, these were new customer generated both in the U.S., in Europe and rest of world.

And so is there a potential for these 63 customers to start to use some of the other RadNet offerings?

Excuse me, the other RadNet...

The other digital health services.

Absolutely. Sorry, I got confused for a second because of -- I thought there were other RadNet services. 100%. And so every new customer win as well as any installed base customer is an opportunity for us to upsell and cross-sell. And when we state, by the way, 63 new customers for Gleamer, already today, some of those customers are then also exposed, and we also deploy some of the non-Gleamer portfolio. In fact, it's a bit hard for me to talk about the Gleamer versus DeepHealth portfolio because those portfolios are now fully integrated. But obviously, we track the Gleamer perimeter because we want to make sure that we live up to the expectations of the original acquisition. But the answer is 100% yes.

This concludes our question-and-answer session. I would like to turn the conference back over to Howard Berger for any closing remarks.

Thank you, operator. Again, I would like to take this opportunity to thank all of our shareholders for their continued support and the employees of RadNet for their dedication and hard work. 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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.