管理層發言
Pardon me, this is the conference operator. Thank you for joining the RadNet conference call today. We will be beginning in just a few minutes. We appreciate your patience and please continue to hold for the RadNet conference call. We will be starting in just a few minutes. Thank you. Good morning and welcome to the RadNet, Inc. Second Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark D. Stolper, Executive Vice President and Chief Financial Officer. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining Dr. Howard G. Berger and me today to discuss RadNet's second quarter 2026 financial results. On this call, we have also invited Cornelis Wesdorp, President and CEO of Digital Health, and Shyam Soka, 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 would like to remind everyone of the safe harbor statement under the Private Securities Litigation Reform Act. This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act, including 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, among others. These 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 set forth in RadNet's reports filed with the SEC from time to time, including RadNet's annual report on Form 10-K for the year ended December 31, 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 are made or to reflect the occurrence of unanticipated events. And with that, I would now 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, Cornelis, Shyam and I plan to provide you with highlights from our second quarter 2026 results, give you more insight into factors which affected this performance, and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I would 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 second quarter. Total company revenue and adjusted EBITDA were both quarterly records. Total company revenue increased 25% to $623 million from $498 million in last year's second quarter, and total company adjusted EBITDA increased 22.7% to $99.7 million from $81.2 million in last year's second quarter. Growth in the quarter was broad based, driven by strong increases in aggregate and same-center procedural volumes; the contribution from recent acquisitions; a continuing shift in procedural volumes towards advanced imaging; and incremental digital health sales and licenses of our enterprise imaging and AI solutions. Within the imaging center operating segment, we continue to experience strong 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 capital investments we have been implementing designed to expand capacity at our centers. During the second quarter, advanced imaging procedural volumes increased 21.2% in aggregate and same-center advanced imaging procedural volumes increased 9.6% as compared with last year's second quarter. Aggregate MRI volume increased 21% and same-center MRI volumes increased 4.0%. Aggregate CT volume increased 20.9% and same-center volume increased 8.6%. Aggregate PET/CT volume increased 31.0% and same-center PET/CT volume increased 8.8%. Disproportionately higher growth in MRI, CT, and PET/CT relative to routine imaging drove a 238 basis-point shift in our advanced imaging procedural volume mix, increasing from 27.5% of total procedural volume in last year's second quarter to 29.9% in this year's second quarter. This favorable mix shift, together with continued operational focus on controlling costs, contributed to a 17 basis-point improvement in imaging center segment adjusted EBITDA margin, which increased to 16.1% in the second quarter of 2026. Also, within imaging centers, the joint venture relationships continue to expand. As of the end of the second quarter, 157 of our now 442 centers, or approximately 36%, were held within health system partnerships. During the quarter, we announced a multisite joint venture in Boise, Idaho, with Trinity Health's Saint Alphonsus Health System, which will initially include the operation of five multimodality outpatient imaging centers. As part of the relationship, our contracted radiology group, Gem State Radiology, and the Saint Alphonsus hospitals in Boise will be adopting a variety of DeepHealth solutions, including Diagnostic Suite, ReportingPro, AI Studio, and various clinical AI applications. Health systems 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 radiologists and administrative staff with solutions to make them more productive and accurate. We are in discussions with new and existing partners about how we can provide more comprehensive solutions for all their imaging needs, both inpatient and outpatient. Given the positive trends we experienced throughout the second quarter and the strong financial performance we delivered, we elected to increase our 2026 full-year guidance ranges for imaging center revenue, adjusted EBITDA, and free cash flow. We are reaffirming all Digital Health guidance ranges. Mark will review the details of our updated guidance in his remarks. Finally, we continue to maintain a strong liquidity position and modest financial leverage. We ended the quarter with a cash balance of $726 million and a net debt to adjusted EBITDA ratio of 1.8 times. This continued financial flexibility positions us well to continue investing in both organic growth and disciplined acquisitions across both operating segments. I would now like to turn the call over to Cornelis Wesdorp and Shyam Soka, 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. Cornelis, please go ahead.
Thanks, Howard. Good morning, everyone. We continue to see good growth this quarter, driven by a continued strengthening of the commercial funnel, with strategic deals materializing across both clinical AI and enterprise informatics in hospital and outpatient settings. Digital Health revenue for the quarter was $32.4 million, up 56.5% year over year and 11.4% versus Q1 2026, split between $16.1 million of AI revenue (up 136% year over year) and $16.3 million of enterprise imaging revenue (up 17.3% year over year). ARR, annual recurring revenue, ended the quarter at $106 million, up 97% year over year and nearly 9% versus Q1 2026, of which a large proportion was organic growth. We remain on track to grow full-year ARR by approximately 91% from 2025 to over $140 million by the end of 2026. With our recent acquisitions now layered on top of a healthy core business, external ARR — revenue generated outside of RadNet — now makes up 63% of our ARR base, and we expect that to grow towards 65% to 70% by year-end. On new business, we closed approximately $21 million of total contract value (TCV) in the second quarter, bringing us roughly to $37 million TCV for the first half of the year, split about evenly between North America and Europe/Rest of the World. Of the $37 million TCV, $24 million comes from the hospital segment with key wins from both clinical AI and enterprise imaging. Our funnel continues to build as well. Our clinical AI and enterprise imaging TCV funnel has grown from roughly $101 million at the start of the year to more than $224 million in TCV, or the equivalent of $65 million in annual contract value (ACV). We see a good mix across segments in our funnel, with close to 50% from the hospital segment. Our customer base is also scaled meaningfully to nearly 3,000 accounts, and total procedure volume across our AI and informatics solutions reached over 17 million for the quarter, up more than 200% year over year, reflecting both organic growth and the scale added through recent acquisitions. Turning to profitability, adjusted EBITDA for the segment was $2.5 million for the quarter, a step up from the $1.3 million in the first quarter. On a year-over-year basis, adjusted EBITDA was down from $3.4 million in last year's second quarter, which reflects the deliberate investments we have been making to fuel growth: continued headcount build-out in our commercial team and in our service and implementation organization, and temporary margin dilution from our acquisitions, most recently Gleamer. I am pleased to say those acquisitions are now fully integrated and performing well. Their profitability trajectory has moved from negative at the time of acquisition to profitable for legacy iCAD and C-MODE; we are on the same trajectory for Gleamer, which is very encouraging and validates the integration plan we have been running. Gleamer is a good example: five months into the integration, organizational integration is complete, our product roadmaps have been merged, and team morale remains strong. Commercially, the legacy Gleamer portfolio of solutions exited the second quarter at approximately $25 million of ARR and is on track to exceed $30 million by year-end. The Gleamer and DeepHealth teams are now cross-trained and cross-selling an integrated portfolio on one AI platform, the DeepHealth Radiology AI Suite. On the RadNet side, we have gone live with the acquired X-ray AI from Gleamer, fully integrated the DeepHealth platform across California, Arizona, the Northeast, and significant parts of Maryland and Florida. We remain on track to capture the cost synergies we underwrote in conjunction with Gleamer's acquisition, growing to roughly $4 million in 2027, split between people and vendor synergies alongside significant cross- and upsell revenue synergies in 2027 and beyond. We are very proud of our recent FDA 510(k) clearance for DeepHealth breast ultrasound, our AI-powered solution that automates lesion detection, measurements, characterization, and reporting in breast ultrasound imaging — one of the most operator-dependent exams in radiology. The software distinguishes between negative exams, benign lesions, and suspicious findings, generating standardized draft BI-RADS categories and reports to support all breast ultrasound exams, not just those with lesions. In validation studies the solution demonstrated greater than 98% accuracy in localizing breast lesions, improved sensitivity for breast cancer detection by 8%, and reduced radiologist interpretation time by 37%, alongside a more standardized and streamlined workflow for sonographers. The solution is now commercially available to customers in the U.S., where providers can pursue reimbursement under an existing Category III CPT code for quantitative ultrasound tissue characterization, and we plan to implement it across RadNet's network by year-end, covering nearly 1 million breast ultrasound studies annually. Together, RadNet imaging services will have about 40% of its 3 million-plus annual ultrasound exams covered by potentially reimbursable FDA-cleared draft reporting solutions. We are pioneering the transformation of radiology workflow.
Mark, apparently I got cut out, so I am back if I can get over.
(crosstalk)
Thanks, Cornelis.
A technical glitch. Apologies.
In terms of commercial impact, combined with our existing offerings in mammography-based breast cancer detection, density and arterial calcifications detection, we now have what we believe is the most comprehensive screening and diagnostic platform for breast imaging, strengthening both clinical practice within RadNet and our external commercial offering. Taken together, we continue to assemble the widest native portfolio of AI and informatics solutions in radiology, with 27 FDA clearances and 26 CE marks to date, covering 100-plus clinical findings across routine and advanced imaging relevant for both acute care and outpatient imaging. In conjunction with the continued development of our clinical AI, we are pioneering the ability to produce automated draft reports driving significant — in the range of 20% to 30% — productivity gains in reporting time. This is made possible by combining four parts of our product portfolio into an integrated solution: our AI-powered reporting solution (we market as ReportingPro), our viewer, our AI orchestrator, and our clinical AI solutions. We initiated this with our thyroid solution last year and are seeing very strong results across an annual run rate of about 250,000 thyroid ultrasound exams: over 90% of the automated draft reports generated by this AI-powered auto draft have been accepted by a radiologist for final sign-off without further markups or changes. Our plan is to drive the same results with our FDA-cleared breast ultrasound solution, and with the Gleamer acquisition we are now in the deployment phase on the research protocols in the X-ray domain as well, initially focused on California, Arizona, and expanding over time to the Northeast, Maryland, Indiana, Idaho, and Florida. Accordingly, we expect close to 15% of RadNet volumes to run through AI-powered auto-draft solutions by year-end, growing to over 50% by the end of the second quarter of 2027. Progress also continues across several strategic operational programs at RadNet. We are making strong progress on the deployment of our Diagnostic Suite, the next-generation AI-native PACS. Following the initial high-speed streaming viewer deployment completed last year, our near-term focus is full deployment by Q1 2027 across RadNet centers for the reporting component of Diagnostic Suite ReportingPro, driving further radiologist reporting productivity as well as cost savings as we switch out the Nuance PowerScribe solution at RadNet. Next, our fully automated registration tool for patients, as part of our Operation Suite, has been piloted in the Northeast and California in more than 25 centers and is now ready to scale to drive measurable site-level front office productivity gains, as well as patient satisfaction, in the coming six months. We continue to make strong progress with our clinical AI deployments as well. Last quarter, we reported DeepHealth and third-party AI solutions are now available to cover more than 70% of RadNet's imaging studies. We are making strong progress deploying these solutions, with a current focus on X-ray, breast ultrasound, and brain AI tools in our largest regions in the second half. All in all, another good quarter of progress. Looking into the second half of the year, we have our sights set on $140 million of recurring revenue by year-end, and we remain on track to meet our budget. I see a clear bridge to that number: from our Q2 paying ARR we have visibility into roughly $12 million of ARR pending go-live that is signed and secured, plus an additional $23 million conversion from our late-stage pipeline based on the historical conversion rates we are seeing on these types of opportunities. Our guidance remains unchanged: $135 million to $145 million of revenue and $10 million to $12 million of adjusted EBITDA for the segment. We have the right strategy, the right solutions, and the momentum to keep delivering our solutions at scale. Thank you for your continued support as we build the future of radiology. At this time, I would like to turn the call back over to Mark, who will discuss key financial highlights from the second quarter.
Thank you, Shyam. I am now going to briefly review our second quarter performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our second 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 earnings in unconsolidated operations and subtracts allocations of earnings to noncontrolling interests in subsidiaries and is adjusted for noncash or extraordinary and one-time 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 our 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 annual value of contracted recurring revenue generated from active customer contracts. ARR includes subscription fees, recurring support fees, and contracted usage charges and excludes one-time or nonrecurring fees such as implementation fees, hardware sales, professional services, consulting, and one-time training. ARR is determined based on the contractual term 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 would now like to review our second quarter results. While I will not recap all the financial information that is contained in last night's earnings report, here are some of the highlights. For the second quarter of 2026, total company revenue was $623 million and total company adjusted EBITDA was $99.7 million — both quarterly records. Revenue increased 25% and adjusted EBITDA increased 22.7% as compared with last year's second 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. The upgrades we have made in the last few years to faster MRI scanners, the use of TechLive remote technologists, and refinements we have 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-specific PSMA and brain amyloid studies, which during the second quarter represented over 25% of our PET volume. Despite continued pressure on salaries from labor shortages, particularly with technologists and radiologists, we continue our streak of quarters with increasing adjusted EBITDA margins within our imaging center segment relative to prior-year quarters. With respect to digital health, I will just highlight a few additional items to expand on Cornelis's previous comments. The 56.5% quarter-over-prior-year same-quarter increase in revenue resulted from the full breadth of digital health solutions. Aside from new revenue from the acquisitions of Gleamer, C-MODE, and iCAD, which contributed approximately $9.3 million of revenue in the second quarter, revenue from the EBCD program increased 16%, prostate and neuro products grew over 13%, TechLive revenue increased over 38%, and enterprise imaging workflow revenue increased 17.3%. We remain on track to reach our full-year revenue and ARR goals for the operating segment, which implies a ramp in both revenue and adjusted EBITDA for the second half of the year, which is supported by newly signed contracts, a pipeline of new business opportunities, and a schedule of customer implementations throughout the rest of the year. We finished the second quarter with a strong cash and liquidity position. Contributing to our liquidity, on June 10, 2026, we entered into Incremental Amendment Number 3 to our credit agreement. Pursuant to this amendment, we repriced both our existing term loan and our $282 million revolving credit facility, each at a 25-basis-point reduction in interest rate, with the term loan now bearing interest at SOFR plus 2%. As part of the transaction, we also funded a $250 million incremental term loan which added to the cash balance at quarter-end. We intend to use the proceeds of the incremental term loan to fund future acquisitions, organic expansion initiatives, health system partnerships, and other general corporate purposes. At quarter-end, we had $726 million of cash on the balance sheet and full availability of a $282 million revolving credit facility. Continued improvements in our revenue cycle, particularly in the area of patient collections, have allowed us to maintain DSOs, or days sales outstanding, to a near RadNet low of 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 June 30, 2026, unadjusted for bond and term loan discounts, we had $616 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 of 49% of New Jersey Imaging Network's net debt of $13.8 million, for which RadNet is neither the borrower nor guarantor. At quarter-end, our net debt to adjusted EBITDA leverage ratio was 1.8. Given the strength of our second quarter results and the positive trends we continue to experience, we elected to increase 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 $2.37 billion to $2.42 billion — an increase of $15 million at both the low and high end of the range as compared with the guidance we provided after our first quarter results. Adjusted EBITDA guidance increased to a range of $345 million to $358 million — an increase of $5 million at both the low and high ends of the range. Free cash flow guidance increased to a range of $115 million to $125 million — an increase of $3 million at both the low and high ends of the range. While the capital expenditures guidance range of $165 million to $175 million remains unchanged, we did increase our cash interest expense guidance by $3 million at both ends of the range to $48 million to $53 million, reflective of the incremental borrowings from our recent debt repricing transaction. I will now take a few minutes to give you an update on 2027 anticipated Medicare reimbursement rates. As a reminder, Medicare represents about 24% of our business mix. With respect to Medicare reimbursement, several weeks ago we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released around this time every year. We have completed an initial analysis and compared those proposed rates to our current 2026 rates. We volume-weighted our analysis using expected 2027 procedure volumes. In the proposed rule, Medicare is proposing to decrease the conversion factor in the Medicare fee schedule by about 1.68% from $33.40 to $32.84, along with certain changes to the RVUs, or relative value units, of specific radiology CPT procedure codes and to the Medicare geographic practice cost indices (GPCIs). Our initial analysis of all these moving parts indicates that RadNet on roughly $2.4 billion in revenue will be almost net neutral for Medicare next year. Our analysis shows a negative impact of less than $1 million to 2027 revenue. Despite the decrease to the conversion factor, proposed increases to RVUs are almost fully mitigating the 1.68% decline in the conversion factor. On a related note, the hospital outpatient prospective payment system (HOPPS) proposal for 2027 contains a site-neutrality provision where CMS will now reimburse hospitals at the lower Medicare physician fee schedule for certain non-contrast studies. This will result in a significant decline in reimbursement for hospitals — anywhere between a 30% to 50% decrease on these Medicare procedures depending upon the CPT code. If this site-neutrality provision is finalized later this year, it will contribute to the already significant economic pressure that health systems are feeling within the radiology department, and we believe that this financial pressure will continue to drive more health system partnership discussions. The Medicare fee schedule final rule is expected to be released later this year in November; there is no assurance that the final rule will be consistent with this proposal. On our third quarter financial results call in November, we hope to be able to provide more certainty around 2027 Medicare rates. I would now like to turn the call back over to Dr. Berger, who will make some closing remarks before we begin the question-and-answer portion of today's call.
Thank you, Mark. I would like to take just a moment to reemphasize the core strategic initiatives that RadNet has embarked on. We have assembled an extraordinarily talented and seasoned team to take us and the industry through a transition that must occur in the adoption of artificial intelligence to help deal with the challenges that have presented themselves since COVID in the form of increasing cost for radiologists — who are in extraordinarily high demand and in short supply — and for technologist fees and salaries that have continued to escalate. We are fortunate that we began embarking on this endeavor six years ago, and I want to emphasize that our primary investments have been made in the routine modalities — X-ray, ultrasound, and mammography — which comprise 70% of our volume and which we are enthusiastic about having the majority of these exams read both by our clinical AI tools and then generative AI tools for full draft reporting by mid-2027. This is a function of the overall direction of having every radiology and imaging exam go through artificial intelligence, both on the clinical and reporting side, which is an essential requirement if we are going to keep pace with the demand for imaging procedures and the shortage of staffing. That is likely to continue to be a challenge for all providers, both outpatient and hospital-related, for years to come. I am proud to say that RadNet will lead this initiative by being not only aggressive in adopting the technology but making certain that all of our tools have FDA approval and are available to all constituents both inside and outside RadNet on a cost-attractive basis — a solution that will truly answer the issues that we face with these shortages. I am proud to lead the team that is taking up this challenge and responding. The years that we have invested in this technology are now bearing fruit at just the right time. Operator, we are now ready for the question-and-answer portion of the call.
分析師問答
We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We will pause momentarily to assemble our roster. Our first question comes from Brian Tanquilut with Jefferies. Please go ahead.
Hey, good morning guys and congrats on a really solid quarter. Definitely a win here. Maybe Mark, as I think about the ultrasound approval from the FDA, a couple of questions. Number one, how do we think about the flow-through of that to the business from a numbers perspective or at least even qualitatively? And then maybe as we think about some of your other pending approvals, just curious what you think the timeline looks like in terms of getting those in and then maybe translating all this into T-codes in terms of reimbursement. Thanks.
Sure, Brian. I'm going to have Shyam respond to that, and I will chime in if he needs any assistance with numbers.
Yeah. Thanks, Mark, and I hope you are well, Brian. Maybe just to talk about the breast impact. We will be doing in 2026, on a full-year annualized basis, about one million breast ultrasound exams. So what we are really starting the journey with now — the solution's actually already with the first radiologist after our FDA clearance — is scaling that, as Cornelis mentioned, across all of our major centers. The impact is very similar to thyroid, where it will help us reduce our slot times for breast ultrasound. It will help us report faster because it is a draft reporting product with both detection and identification of lesions and BI-RADS categorization. It is eligible for the same 0690T code, and so we will take the same sort of steps that we have realized with thyroid, but with a volume that is four times larger. In a space where outcomes are less consistent than they are in thyroid, we really think the AI will have an impact on outcomes as well, because breast ultrasound is quite variable from both the radiologist perspective and from the scanning perspective. A tool to automate and standardize these tasks should also help clinically drive our performance improvement. In terms of timing, we expect to be fully rolled out in our major centers by year-end and billing eligible as we go, and then into next year, Q1–Q2, we should be fully scaled out for the full breast ultrasound volume. You also asked about other applications we are working on. We have put numbers out there, and to clarify two numbers: we have talked about 70% of our studies having clinical AI and about 50% targeted for draft reporting by mid-2027. When we say 70%, we mean AI will be used in those studies to assist interpretation. Sometimes that's clinical quality improvement, not full draft reporting. For example, mammography AI that improves cancer detection is AI being used in front of the study but not yet full draft reporting. We are working with the FDA on both fronts. For clinical AI, we already have image-based risk on mammography with the FDA, which projects a 3- to 5-year risk from one screening study. We are also working on MR spine applications, which is about 150,000 of our studies, a complex measurement-based study, and we are putting an auto-grading solution through the FDA. We are also progressing our next generation of chest X-ray and X-ray solutions toward draft reporting, and we have a CT lung AI solution with the FDA. Our next ultrasound application will be in the vascular space. These are all things we are working on that we hope to bring into the RadNet workflow over the next two to three quarters. So I will pause there; hopefully that addresses your question.
No, that was great. Thank you. And then, Mark, as I think about the strength in continued strength in advanced imaging modalities — MRI same-store volume strong — curious, what do you think is driving these things? And then when I layer margin improvement there for the core business, just how are you thinking about sustainability or the remaining opportunity to drive margin as we think about things like TechLive and some of the other tech initiatives that you have laid out or installed in some of these clinics?
I think that there have been a number of benefits from industry trends generally — there is higher demand for advanced imaging as equipment, post-processing software, and AI create more clinical indications for advanced imaging. Combine that with our internal initiatives to build capacity in advanced imaging — investing in newer MRI equipment with faster scanning times, expanding scanning hours into evenings and weekends in dense markets — and TechLive has had a big impact in our ability to utilize that MRI capacity where we previously suffered from technologist shortages. TechLive allows us to cover schedules remotely and avoid closing rooms when staff is limited. The growth in PSMA prostate and amyloid studies has driven PET/CT growth materially; those two procedures now represent over 25% of our PET/CT volume. For CT, we have been growing specialty cardiac programs around the coronary CT angiography (CCTA) program and have hired prominent physician leaders to build that program. There is also a lot of operational and technical improvements at centers: digital patient registration, for example, reduces front desk bottlenecks and helps with hiring and retention challenges. So it's the combination of focused investments in technology, digital health initiatives, and broader industry trends.
Thank you, Mark. The next question is from David Samuel McDonald with Truist. Please go ahead.
Congratulations. I had a quick question. I wanted to come back to some comments you made in the prepared remarks just about the automated draft reports. I think the numbers you said were roughly a 30% increase in terms of efficiency, and it would be about half rolled out by the middle of next year. A, do we have that correct? And B, that sounds like a pretty meaningful increase just in terms of capacity that you are going to free up for your radiologists and some of your staffing. Are we thinking about that correctly, and any additional details you could provide?
Let me just make a couple of comments, and then Cornelis, if you want to weigh in. Our challenge has been how to create efficiency for our radiologists. The two areas we think — and many others agree — will create productivity gains are how we make our radiologists more efficient in what they see and how they interpret it. It has been a burden for radiologists that it often takes longer to dictate a report than it does to assess the clinical information. With draft reporting, as we have seen in our C-MODE thyroid ultrasound application, when we are capable of reading the study clinically and characterizing the findings and presenting that for draft reporting, that draft reporting has been accepted by a radiologist 90% of the time and has an enormous impact on productivity. As a result, we are driving toward making our radiologists significantly more efficient in daily case volume and removing drudgery from large queues. I cannot emphasize enough how important this is. Our tools will be FDA approved so we can use them internally and sell them externally to partners and customers. That will help everybody facing the same radiologist shortage address the challenge and meet growing imaging demand. Cornelis, any additions?
Maybe I'll add a little to it. To answer your question, yes, we see that impact and that's the right way to think about it. Also remember that beyond radiologist time, with ultrasound for example we do three million ultrasound studies. With breast and thyroid, about 40% of those studies will have draft reporting. In thyroid we reduced scan time by about a third; breast will have a similar effect. So not only do you get radiologist efficiency, you also reduce sonographer time, creating additional capacity in imaging centers. This is why we are aggressive starting with ultrasound and expanding into X-ray and into higher-volume advanced imaging like MR spine, where we see some of the first applications for draft reporting in MR. All those will drive productivity across multiple fronts.
And then, you have made a bunch of investments that have driven efficiencies and helped offload administrative burden. Can you make any high-level comments about the impact on recruiting, retention, pay, employee satisfaction, etc.?
We are seeing improvement in recruiting as people see the tools we are implementing that make their jobs easier. It is helping reduce the number of open positions and bringing on additional staff to lessen the need to outsource readings to teleradiology services. Teleradiology has been a lifesaver for us and others to manage reading demand, and the future for RadNet could involve bringing more teleradiology in-house rather than outsourcing it. Technology is the solution everyone needs to embrace to deal with these challenges and deliver better quality medicine.
And then just one last one. Could you provide an update on recent acquisitions, especially Florida? What are you seeing in terms of conversations around additional opportunities and M&A in the state, conversations with health systems, anything on recent deals?
The Florida acquisition, which was part of our Q1 initiatives, has been met with an enthusiastic response by the Florida teams who are now part of the RadNet family. It has taken the better part of the first six months to transition them onto RadNet platforms, which includes IT, purchasing, accounting, and HR systems — not unusual but a large undertaking. Acquiring thirteen new centers that contribute approximately $100 million of revenue was substantial, but our management team executed the integration relatively seamlessly. We expect the second half of this year will produce results that will contribute significantly to the deleveraging of that acquisition and will provide opportunities to expand in that region. Virtually every market we are in has expansion opportunities, some of which are de novo centers — we built 13 new centers this year and expect a similar number next year — and some are acquisitions of existing providers. We are fielding inbound interest from health systems on a weekly basis seeking radiology solutions to manage their problems; the number one problem they all face is a shortage of radiologists and the resulting delays in delivering reports. We think our tools and capabilities address those choke points and will drive continued growth in partnerships and acquisitions.
The next question is from Andrew Cooper with Raymond James. Please go ahead.
Hey, everybody. Thanks for taking the question. Maybe first, talk about some of the labor challenges on techs and radiologists and obviously all the efficiencies with some of the digital tools. Can you give a sense for how much you feel like your volume trends are still constrained — whether at a center level by capacity — or is this more of a cost factor and an ability to drive higher margins down the road?
We do still face backlogs in many of our markets depending on the modality, which is why we have been building de novo centers at a faster clip over the last several years: to build capacity to support demand. While backlogs can signal demand, they can also be problematic because if they're too long patients do not want to wait weeks for an MRI or CT and we can lose business and referral sources. Managing backlogs is something our operations teams monitor carefully. When backlogs get too long, we invest in new equipment, create new capacity by opening new centers, and continue to monitor where those backlogs exist.
Some of the credit for improving capacities comes from OEMs themselves building products that allow us to upgrade existing equipment and shorten exam time. One reason we have been consistently investing in capital equipment is the ability to access patient backlogs by making equipment more efficient. Combining our in-house capabilities and working closely with OEMs has improved cases per unit time with many pieces of equipment. For example, by taking thyroid ultrasound exams through our C-MODE thyroid AI tool, we have effectively shown an increase of one exam per day per unit in our existing centers. We have close to a thousand ultrasound systems, so small changes can produce significant results for the company.
Okay. Helpful. Then maybe one on the digital health side and margin trajectories. I think the first half was around 6% and the guide implies maybe 9% or so in the back half at the midpoint. You had the 20% target as you talked about at the Investor Day. As we think about trending from here towards 2027 and 2028, how do we think the cost side moves and how should that leverage on the investments start to flow through to margin expansion?
Thanks, Andrew. The Investor Day presentation targeting margins of 20%-plus remains unchanged and frankly we are more positive on the outlook. We have deliberately invested significantly in commercial headcount as well as service and implementation headcount over the last two to three quarters. You saw our margin dip in Q1 and then an upward trend; we are confident we will meet our guidance for the year of $10 million to $12 million adjusted EBITDA and thereafter move toward 20% margins. One thing to note: we track our core business growth separately from acquisition impacts and organic performance. We are seeing very favorable margins in line with SaaS businesses — 30% to 40% EBITDA margins in that domain — for the core business. As we add acquisitions and turn them profitable and scale the business, the core growth dynamics and scale will drive margin expansion. We will continue to invest in the portfolio to pioneer the industry, but you will see growth covering those investments in a more lucrative way as we move into 2027–2028. We are quite confident about increasing profitability to 20%-plus in that time frame.
The next question is from Matthew Gillmor with KeyBanc. Please go ahead.
Thanks for the question. Following up on reimbursement and revenue opportunity for C-MODE with breast ultrasound after FDA approval: I recall you offered prior comments that for thyroid ultrasound you were able to bill for the T-code about 30% to 40% of the time with payers. As breast ultrasound becomes more widely available across your network, does reimbursement ramp up more quickly so the same payers will pay 30% to 40% of that T-code, or does it ramp more slowly and you have to go back to payers and discuss reimbursement?
Yes, we do see that it would be easier to get to that 30% to 40% level for breast than we did initially with thyroid. We do need to demonstrate the new indication and motivate payers, but because payers with positive determinations for thyroid are known, we will get to that reimbursement level faster with breast than we did with thyroid.
One other point: we do four times as many breast ultrasounds as thyroid ultrasounds. So even if the initial launch throughout RadNet mirrors thyroid reimbursement percentages, the revenue opportunity could be roughly four times as much. It will take a bit longer to ramp because there are more mammography units and physicians to acclimate to using breast ultrasound, and then we will work with payers who are not currently reimbursing to make the case because these tools support good clinical practice.
There is a degree of seasonality on the digital health side that skews toward the back half of the year, particularly Q4, which is common for larger enterprise informatics deals as customers set budgets. Clinical AI sales are less seasonally skewed. So expect some back-end loading into H2 and Q4, which is an industry dynamic both for closing deals and recognizing ARR and revenue.
The next question is from Larry Solow with CJS Securities. Please go ahead.
Great. Thanks. Good morning, everybody. Most of my questions have been answered. Just a couple of follow-ups. On the margin improvement in core imaging: with a 240 basis-point mix shift and good volumes, plus AI benefits, I would have expected a bit more margin improvement than you had. You mentioned pressure on salaries; is most of that benefit being wiped out by salary pressures? Or was there anything unusual in the quarter?
There was nothing unusual in the quarter. Yes, we're operating in an inflationary environment with respect to many costs, particularly salaries for technologists and radiologists, which reduces near-term margin benefit. We are also absorbing costs of implementation across the digital health rollouts and training our operations teams; those are ongoing expenses as we roll out these solutions. However, there are meaningful margin enhancement opportunities to come. For example, the breast ultrasound opportunity: if 30% to 40% of payers recognize the T-code and reimburse at meaningful amounts, that's significant incremental revenue with little incremental cost. We still feel good about the Investor Day outlook: relative to 2025 margins, we believe there's a 100- to 150-basis-point margin enhancement opportunity by the end of 2028 driven by a variety of initiatives.
Part of the margin impact in the first and second quarters this year reflects the additional cost of integrating recent large acquisitions on the imaging services side — particularly in Florida — where we had to commit significant human resources to get those organizations onto RadNet platforms. That duplication of expense will go away in the second half of the year.
I would add that the acquired assets in some cases were not operating at RadNet margins when purchased; they had margin challenges and were dilutive on acquisition. So our costs include both integration expenses and the fact that these assets started at lower margins than RadNet's own.
The next question is from Jim Sidoti with Sidoti and Company. Please go ahead.
Hi, good morning. Thanks for taking the question. Just a follow-up to the last question. When you think about the additional acquisition targets that are out there, are you thinking mainly on the digital health side or on the imaging side?
Both. There are plenty of acquisition opportunities on the services side, and we will continue to explore those because they enhance our services division and provide opportunities to implement our digital tools to make operations more efficient. The market is consolidating on both services and digital health; not everyone can be a winner. We believe we will have opportunities to broaden and accelerate our portfolio and will look for acquisition targets both in digital health and imaging services that help address our partners' operational choke points, which primarily relate to staffing shortages.
That was one of the rationales for upsizing our credit facility and increasing cash on the balance sheet: to fund additional growth. From a capital allocation standpoint, while there are acquisition opportunities in both operating segments, it's unlikely we would do another acquisition of Gleamer's size on the digital health side. Many digital health acquisitions are smaller in scale; imaging center acquisitions range from small tuck-ins to larger transactions. It's highly likely more capital will be allocated toward the imaging center side.
Alright. And then just a quick follow-up: you indicated earlier that reimbursement trends are continuing to favor outpatient centers over hospitals for diagnostic imaging. How long do you think it takes for hospitals to adjust when new rates go into effect?
Hospitals are under tremendous pressure in their radiology departments — staffing issues, inefficiencies in driving patient volume, and the impact of exchange programs. The HOPPS site-neutrality proposal, if finalized, will add to that pressure by materially reducing hospital reimbursement for certain studies. We believe that will encourage more hospitals to pursue partnerships with outpatient providers experienced in operating freestanding centers at a lower cost, and it will also create more interest in adopting digital health tools to improve efficiency. We are getting more inbound interest from health systems and expect to announce expansions and new partnerships in the coming quarters.
Great. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Howard G. Berger for any closing remarks.
Thank you. 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.