Good morning, and welcome back to the Barclays Global Healthcare Conference. My name is Thomas Walsh, and I'm a member of the Facilities and Managed Care team here at Barclays. Joining me on stage is Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet. Welcome.
Good morning.
RadNet hosted its first Investor Day in November last year, recently closed the books on 2025 and announced a large acquisition which rounds out the company's artificial intelligence offerings. Can you spend a minute on the current state of affairs and outlook for 2026?
Sure. Well, I can't remember a time, at least in my 21-year tenure, where I've been more excited about where the business is today, how it's positioned, and what the future looks like for us. We came off a great year last year, probably the best quarter in the company's history, where, you know, revenue was up over 14.8%. EBITDA was up substantially. We've been demonstrating over the last several quarters margin improvement relative to the prior year's quarters. Volumes on an aggregate basis have been very strong. Same center performance has been excellent. We've been growing MRI volume at historic highs the last two quarters. Our MRI volume has been in double digits, same center performance relative to prior quarters.
CT has been ranging in the mid-single digits. PET CT has continued to be the superstar of all of our modalities, the last two quarters growing over 14% relative to the prior year's quarters on a same-center basis.
Many of these trends have, seem to be continuing into this year with respect to the industry growing you know the overall pie growing as well as the outpatient portion of that pie benefiting from more and more of the outpatient business leaving more expensive hospitals into lower cost sites of care, which is being driven both by patients who have elected into these higher deductible plans and are shouldering more of the burden of their healthcare costs deciding to go to the lower cost providers, as well as a concerted effort on the part of the commercial payers to try to drive this business out of the more expensive hospitals into the more efficient more productive lower cost sites of care.
As indicated in the guidance that we released in March in conjunction with our fourth quarter in 2025 full year results, we're expecting revenue growth for 2026 to be in the range of 17%-19%. We're expecting EBITDA to grow anywhere between 18% and 22% in 2026, which implies margin improvement throughout 2026.
We're assuming tremendous growth from our digital health arena or digital health segment, where we're expecting over 50% growth in that business, which is a combination of both organic internal growth as well as some of the acquisitions that we've done, including the Gleamer acquisition that we completed last year. We're very excited about it. As a continuing effort, we're trying to create more and more transparency around a lot of these initiatives. You know, that started really a few years ago when we started breaking out our AI revenue separately from the rest of the business.
We created the digital health operating segment, which includes all of our digital businesses, and gave transparency on that. In the fourth quarter of last year, we started with a new metric that we're allowing investors to follow our progress within the digital health division around annual recurring revenue or ARR. This coming quarter, we're gonna start giving much more information or more comprehensive information around our same center performance and all of the operating metrics that go into that, which include both consolidated and unconsolidated centers, so system level information. Whereas in the past through the third quarter of last year, we only gave consolidated information or a consolidated center.
We're really excited, really pumped for this year and it should be a very active and interesting 2026.
Great. Let's turn to your recent acquisition of Gleamer, which is the largest deal RadNet has done and rounds out your clinical AI offerings with some strong capabilities in X-ray. Can you walk us through the sourcing and strategic rationale of the deal?
Sure. It's multifaceted. First, we had over the last six years had entered into the AI arena in all the other modalities, but for X-ray. We have development and FDA-approved products within MRI, within CT, within ultrasound, and within mammography. The real missing link for us was in the arena of X-ray. Interestingly enough, X-ray is the most prevalent procedure that we as a company perform. It represents about 25% of all the procedure volume that we do. X-ray is one of those areas of radiology which creates a lot of burnout in order for radiologists to make similar types of compensation that they do by reading other modalities. They have to read a lot of X-ray. It creates a lot of burnout.
We've been getting a lot of input from our radiologists over the years that if we could give them the tools to be more productive, be more accurate, and make their life easier, that was going to have a major impact on the way we could deliver our services. We started, this was really going back a couple years ago, evaluating the companies all around the globe who had technologies in X-ray.
When after that evaluation was complete, Gleamer really stood out to us, not only based upon the fact that they had really advanced the areas within X-ray that were very important to us, which, you know, were fracture detection and chest X-ray, chest X-ray being the number one CPT code of all the procedures that RadNet does. They also have had tremendous commercial success. They have over 700 customers worldwide. Many of their customers are in Europe and Asia, and have a sales force of over 40 representatives strong or team members that really could then cross-sell and cross-market all the other DeepHealth products and services. They have more indications, more FDA approvals than any other X-ray company that we're aware of.
It was really a great cultural fit. We're excited one for the continued growth of that company, and that company has been growing since 2022, growing their ARR, their annual recurring revenue, by over 90% on a compound annual growth rate. We're expecting continued growth with outside customers with that business, as well as we're anticipating throughout this year integrating all of the Gleamer technologies, X-ray technologies within RadNet to make our radiologists more efficient and lower our costs. They've also advanced a number of other areas that we're very excited about. They're commercializing an MRI of the lumbar spine, which is our number one CPT code within MRI, as well as chest CT.
It's very exciting opportunity. There's a lot of very positive energy around the acquisition. I think the Gleamer staff is thrilled to be able to be a part of RadNet and be able to see their technology work at scale within an organization as complex and as large as we are. It's there'll be a lot of things to talk about this year.
Great. You zeroed in on $7 million of revenue synergies through cross-selling and upselling over time. Beyond those opportunities, how do Gleamer's capabilities change the DeepHealth sales pitch?
Well, it's a couple of things. I mean, there's a number of very near-term synergies that we get with this deal. One is, of course, the cross-selling and cross-licensing using their sales force to sell all the other products and services, as well as using our existing sales force, which came from all the acquisitions that we've done from, you know, iCAD to originally DeepHealth B reast to our See-Mode acquisition, Thyroid Suite, using all our prostate, our lung, using all of that sales force to cross-sell the Gleamer opportunity. That's where this $7 million estimate, you know, has come from in the short run.
There's also cost synergies associated with that, which with the integration of Gleamer into our digital health platform, which comes from the fact that we're getting some real talent within the Gleamer team that otherwise we would have had to hire and was already in our budget to hire externally. While Gleamer was losing a little bit of money when we bought it, we think within the next 12 months it'll be a profitable business within RadNet.
In the digital health segment, you have a series of acquisitions contributing to that 50% revenue growth guidance, including, you mentioned iCAD, See-Mode , and now Gleamer. Can you help us understand how that revenue growth is split between acquisitions, internal sales to RadNet centers, and then external sales?
Yeah. Digital health's reliance on RadNet will continue to diminish over time as we continue to grow the outside customer base of the digital health platform. In 2025, so the year that we just finished, RadNet as a customer represented about 45% of the revenue of the digital health division. In 2026, that number should go down to about 33%. What we said at our investor day in November, that by the end of 2028, in other words, as we're exiting 2028, we expect RadNet as a customer from a concentration standpoint to be below 20%.
That's our objective, that's our aspiration, and that, you know, speaks to, you know, our level of confidence in selling and licensing these solutions to outside customers. At the end of the day, as we focus on solving some of the pain points within our own workflow and within our own clinical operations, meaning our radiologists. These are the same pain points that the industry at large has. We believe and based upon all of our customer interactions, that as we continue to create these solutions for ourselves, they'll have real commercial value outside of RadNet.
Great. Hospitals within those 2028 targets are expected to make up half of DeepHealth's customer mix. Can you describe the enterprise solutions you're building for those specific customers and the traction you're seeing with hospitals today?
Sure. Our initial focus has been on solving the problems of outpatient independent freestanding centers like the ones that we operate, of course, because we're trying to focus on making our own operations and our own workflow more and more efficient and being able to deliver our services at a lower cost. Having said that, when you look at the $5+ billion worldwide industry for radiology software, you've got the hospital marketplace or the health system marketplace is larger than the freestanding imaging marketplace in terms of being customers for these products and services. As we continue to develop these products and first focus on the outpatient, we're starting to build the capabilities in some of these products that make them very attractive to the health system marketplace.
In the case of our DeepHealth OS workflow, we're talking about a multi-specialty viewer and a vendor-neutral archive, which allows the hospital not only to store, retrieve, visualize radiology images, but also for all their other specialties like dermatology and cardiology and clinical laboratory, pathology and the others out there. By the end of this year, most of that development work will have been completed and we'll be, you know, focusing more and more on the health system marketplace, you know, in 2027 and beyond. What's really nice about that is that as you're probably aware, about 36% of all of RadNet's facilities are held with, or 151 facilities are held within joint ventures with some of the largest hospital systems in the United States, who represent, you know, a built-in customer base for the DeepHealth products and services.
We've been having conversations with many of our health system partners who are very eager to start deploying and using some of these technologies that we're deploying internally.
Great. On that last point, can you provide an update on labor efficiencies RadNet has been able to drive so far through your implementation of TechLive internally, and comment more broadly on the labor cost environment?
Sure. Well, we're still in a challenging labor market, and I don't think that that's unique to radiology. Maybe there are some things, you know, around the shortage of radiologists that are unique to our specialty. You know, labor is our number one expense. It's been growing, you know, over the last several years, particularly since COVID, when we saw the labor force not graduating as many techs and, you know, to keep up proportionally with the growth of the industry. A lot of the focus of many of these digital health products are to automate many of the processes that today we're performing manually. Over the last several years, we've absorbed well over $100 million of same-center labor increases within our network.
We've built in a 4%-5% increase in labor costs into our guidance for 2026. We're hoping that some of the products and services that we implement today and throughout the year will start influencing or start impacting the growth of that labor expense, which could have a real positive impact in our margins. As we said in November at the Investor Day, we think that or we're aspiring to increase our company-wide EBITDA margins by anywhere between 100 and 150 basis points by the end of 2028. While labor is still challenging, I think that we're doing all the right things to figure out how to manage that labor more effectively.
You mentioned one of them. I'll mention a couple of them. First, the TechLive product. This is that remote MRI scanning technology where we can have a technologist not have to be at the site where he or she is scanning patients. This has already had a major impact on reducing exam room closure hours, where in the past when a tech calls up in the morning and says, "I'm sick, I can't come to work," we've had to close down that schedule. Similar to the airline industry and the hotel industry, when a plane takes off without selling that seat, you can never go back and resell it.
When a hotel, you know, comes to the morning and hasn't sold the room the night before, you can never go back and resell it. We were losing patient volume, we were losing revenue. Now we're able to remotely control that machine and continue to have that schedule and not lose that revenue. That's had a marked impact on our MRI volumes in particular. You saw last quarter our MRI volumes were up over 11% on a same-center basis. Much of it has to do with deploying these types of technologies. See-Mode is the other one that I'll call out. See-Mode is a company that we bought last year in Australia that had an FDA-approved product that vastly automates thyroid ultrasounds.
Thyroid ultrasound is a very laborious exam, both for the technologist and the radiologist who has to interpret it and synthesize a lot of data into the report. This is a technology that is already in practice within RadNet, and it's lowering our exam time by 30%-50%, which is creating more slots for exams that we could then fill. All these technologies that we're deploying can either speed up the exam time, which creates capacity for us, or create efficiencies on the clinical side, on the radiologist side, which allows for more scanning. Very excited about these technologies.
Great. Why don't we turn to the industry backdrop for demand and imaging? Advanced modalities have been the key demand tailwind and are a disproportionate driver of revenue and margin. What are you seeing today in referral patterns and clinical indications that give you confidence this remains a multi-year trend?
Well, we'll always be a multimodality company, and that's part of our ethos, part of our DNA. We've always wanted to be a one-stop shop for all the radiology needs of our physician referral base. Often a patient will be sent to us for a routine study, and based upon the results of that study, will then be sent back to us for more advanced exams.
Also in California, where we have a $125 million capitation business, where we're responsible for providing imaging services on an exclusive basis to roughly 1.5 million lives in California, and we have a contract in the New York metropolitan area as well, where because 75% of what these patients need by volume is routine imaging, the ability to have access points and for routine imaging is always gonna be important for RadNet. Having said that, the 28.6% roughly of our procedure volume that is advanced imaging is driving over 60% of our revenue.
Clearly, our bread is buttered on the advanced imaging side, and we're always looking at ways to, you know, capture more advanced imaging or create capacity at our centers where we can drive advanced imaging, because advanced imaging in the industry is growing more quickly, and that's really a function of the evolution of technology. Most of the advances in imaging technology, both on the equipment side from the manufacturers to advances in contrast materials, radioactive pharmaceuticals, post-processing software, that's all happening on with advanced imaging, which Every year, there are more clinical indications for ordering these tests as the technology's gotten better and the efficacy for many of these studies has improved. We think that trend is going to continue.
When I started about 21 years ago, advanced imaging comprised about 20% of what we do today. We're approaching 30% and I think the future bodes well for that to continue to go up.
Great. Turning to labor, last Friday, the BLS released a weak jobs report with negative February headline numbers and downward revisions to prior months. Commercial mix is a meaningful part of your business, typically supporting higher pricing, but also introducing some cyclical volume dynamics. Have you seen any impact from changes in consumer confidence or employment trends on commercial mix? And how are you positioning the business in the event of a broader economic slowdown?
Yeah, we haven't seen any changes in demand or procedure volume. You know, I guess the weak employment is in some ways good for us because our own labor expense is the biggest expense that we have. We, you know, haven't seen any slowdown, and I'm not, you know, sure that BLS data, you know, I think it would have to get a lot worse for it to really impact, you know, our operations. We'll watch it closely, of course, but we haven't seen any impact.
Great. RadNet's going to benefit from Medicare pricing this year, which hasn't always been the case. You've mentioned strong rate increases from capitated and commercial payers. Are these increases stronger than recent history, and are they sustainable at these levels?
Well, I think we're unique in our industry in so much as, you know, we're very highly concentrated on a regional basis. I mean, all 418 centers as of the end of last quarter are within a small number of markets where we comprise the largest part of the provider networks on the outpatient imaging side for virtually all the markets in which we operate. The payers recognize while payers don't wanna pay anybody more money, I mean, they don't like to give increases, they do recognize that the pricing that we're charging is a fraction of what they're paying at the hospitals. In many of our markets, the hospitals charge anywhere between 200%-500% of our pricing.
I think the payers recognize that, they have to pay us appropriately for our services, and if they can shift more and more volume to us and out of the hospitals, even if they're paying us 2% or 3% more this year, it's still a tremendous win for them. I think, you know, our relationships with the large commercial payers, you know, have improved over time, and I think they're recognizing the value of the ambulatory sites of care, and that's not unique to radiology. You're seeing that within, you know, outpatient surgery centers, home health, you know, outpatient dialysis, outpatient physical therapy, clinical laboratory, and I think that they recognize the strength that we have.
To the extent, you know, we continue to have backlogs at many of our local markets and, you know, we would be willing to walk away from commercial contracts if we feel like they're not paying us fairly. The ability to say no and to be able to fill your centers with other books of business gives you the strength in those negotiations. I don't wanna lead you to believe it's a contentious negotiation. I think, you know, it's been. We've had good relationships over the years with the payers.
Great. Well, with that, we're at time. Thanks again for joining us, Mark, and everyone enjoy the rest of the conference.
Thanks, Thomas.