Good day everyone, and welcome to today's RadNet special shareholder update call to discuss yesterday's acquisition of ONRAD, Inc. As a reminder, today's conference is being recorded. If you require operator assistance, please press star then zero.
Thank you. Good morning, everyone, and thank you for joining Dr. Howard Berger and me today to discuss RadNet's acquisition of ONRAD. On this call, we have also invited Greg Sorensen, RadNet's Chief Strategy Officer, and Dave Engert, ONRAD's Chief Executive Officer. On today's call, we will share additional information about yesterday's announcement, the combination of RadNet's current businesses with ONRAD, as well as more about RadNet's future strategy. After the end of our prepared remarks, we will open the phone lines to your questions. Before we begin today, we would 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, retaining and recruiting technologists and radiologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, including ONRAD, generating revenue and adjusted EBITDA for the acquired operations as estimated, successfully selling and licensing digital health solutions, among others, are forward-looking statements within the meaning of the safe harbor. Forward-looking statements are based on management's current preliminary expectations that 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, including those risks 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 end 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. With that, I would like to turn the call over to Dr. Berger.
Thank you, Mark. Good morning, everyone. I'd like to go through a series of slides that discuss the transaction overview, as well as other facets of how the decision to enter the hospital radiology space was decided. RadNet has signed a definitive agreement to acquire ONRAD. The initial purchase price will be $350 million in cash and 5 million shares of RadNet common stock. Up to $210 million in an earn-out, paid in cash and/or stock at RadNet's election, based upon 2027 adjusted EBITDA will be granted. ONRAD is anticipated to add $190 million- $200 million of annual revenues and $60 million- $65 million of adjusted EBITDA in the first full year of operation. Projected future top-line growth is expected to exceed 10%. This enables RadNet to expand radiology services within hospitals and health systems.
Acquired capabilities will complement imaging services and digital health solutions, which RadNet currently provides to hospitals and health systems. ONRAD will form the foundation for RadNet's third reportable operating segment, Radiology Professional Services. Next slide, Mark. Okay. Why ONRAD? Why now? The acquisition is a response to inbound demand RadNet has received from joint venture partners and other health systems. Addressing the choke point that is concerning virtually every institution that we speak with, whether they're current joint venture partners or new ones that are approaching us, and that is the difficulty in attracting and providing enough radiology coverage for the increasing demand that we all are experiencing. This connects three complementary businesses, imaging centers, digital health, and professional radiology services to provide comprehensive solutions for customers and partners. It addresses the growing demand in the U.S. imaging market, which is outpacing the supply of trained radiologists.
Integration of AI-enabled technology with teleradiology and radiology professional staffing services can transform workflows, support case prioritization, and better match interpretation capacity to demand. ONRAD is a financially attractive platform with leading metrics in its industry. 30% plus adjusted EBITDA margins, requires little capital investments to maintain and grow revenue, and adds to RadNet a new growth engine. ONRAD at a glance.
Dave?
ONRAD.
Yeah.
Dave?
Thank you, Dr. Berger, and good morning, everyone. I'm absolutely thrilled to be part of this family and joining RadNet and the great team of leadership. Dr. Berger and I go back many, many years, and we had visions for years to figure out whether putting these two companies together would be a great solution set for the marketplace, and we're convinced it has been, and I'm just so excited and looking forward to getting going with a combination that I think will be one of a kind in the industry. Some background on ONRAD. Well, we've been around for 20 years, and we focus on doing final interpretations. We have a terrific blue-chip list of customers and physicians and radiologists, and we've been doing exceptionally well in our marketplace. I'm approaching my ninth year as CEO of the company, and we've grown extensively since when I joined.
We now have over 130 radiologists. On a good day, we can do way more than 8,000 reads a day, but generally around that many final interpretations every day. We have 225 hospital facilities, even more customers when you add in our imaging centers and outpatient clinics. The market opportunity is just astounding. We've had so much growth and opportunities facing us. As everyone is dealing with today is how do you take advantage of those opportunities with the continuing shortage of radiologists available. We've been doing very well. We've been hiring more than one a month for the last several years, and we've continued to do so. Our financial picture is really terrific. I'm not sure of any other teleradiology organization in the country or anywhere probably in the world that's doing over 30% EBITDA margin to revenue.
We've done that through extensive automation and managing our processes, which are very complicated in this space. We've really taken a lot of the fingers and eyeballs out of the entire process of getting, acquiring a raw image from a hospital customer, bringing it into our centers, enabling it to be viewed by our radiologists, who all work virtually remote from their homes, read it, and turn that around. It's just been a fantastic accomplishment. The market continues to grow extensively. If you look on the graph on the bottom in RVUs in millions of growth, it is unfortunately growing the availability curve of radiologists available to meet that demand.
Being able to choose the right solutions, the right blue-chip customers, and certainly the right partners to enhance our platform and to embrace and take advantage of artificial intelligence in this space is a key driver for us, leading us to a great partnership with RadNet considering the fact that its digital AI group we've adopted many of the products already and continue to adopt more. Kathy, would you mind going to the next slide? While we're doing that, I'll just mention the growth is being accelerated due to the aging population, advances in technology and imaging equipment, and it's just driving extensive growth. The supply continues to be challenged in keeping up with the demand. As you can see, the diagnostic radiology residency position is really not as strong as it used to be.
It's gotten a lot strained, being able to have new diagnostic radiology physicians entering the market. The practicing radiologists, the growth, so we're looking at a little over 1% growth. If you look at what's really happening in America with the supply force we have, 30% of the radiologists are over 55, 3,000 retired in 2024, more continue to retire. The attrition rate exceeds the ability to continue to resupply more radiologists to meet the demand. So we're going to be challenged on how do you make radiologists more efficient so you can get high-quality reads, more out of each radiologist, and clearly the answer to that is going to be technology enablement and AI. If you look at what we do in the market, we primarily focus on hospitals and the acute care environment. Traditionally, the teleradiology space was focused on overnight reads and weekend coverage.
It's become now 24/7 every day. We read as much in the daytime to augment radiology groups and hospitals to keep up with their demand, as would used to be just overfilling the night coverage and weekends. It's an incredible requirement for hospitals to start to embrace teleradiology. Everyone we talk to would have a struggle on being able to keep up with their demand without a teleradiology partner. We think we've proven in the marketplace that we're a tremendous asset to all of our customers. We're mission-critical. Without radiology, so many hospitals would have a hard time keeping up with their demand. I'll give you just a minute on that. Why is teleradiology so efficient, and why is it helpful?
Well, if you think about a hired radiologist sitting in a hospital, they're going to be reading at an efficiency rate based on how many studies are coming across their desk and their platform. It may not be consistent. You may have a radiologist sitting there with nothing to read at some point in time, while you're paying for that radiologist. If you look at teleradiology, our customers only pay for what we read, and the fact that any one of our radiologists may be reading for 100 different hospital facilities, they will always be productive, they will always be reading, and they will always be extremely efficient. We provide a complete full array of services for the hospital. Remote interpretation for diagnostic.
We also have a growth in our business to do full service, where we do interventional radiology in the hospital and become essentially the radiology group for the hospital. We do billing, we do operational support, management services and so on, peer review, quality assurance. We do the full spectrum of radiology services now in a hospital, and that's a very big, important growth sector of our business. About 80% of our traditional business is the teleradiology, and about 20% is now full service. The full-service radiology also includes our teleradiology business. We not only put on-site interventional radiology, mammography radiology, and sometimes diagnostic radiology, but then we offset it with our own teleradiology solutions as well. We do the full service, including billing, revenue cycle management, and recovering the revenue sources for the hospital directly with the payer environment.
We're in 270 facilities, 225 of those are hospitals. We do business in 26 states, and you can see some of the breakdown of the kind of studies that we read and what states we're in, and the volume of our size, California, Virginia being our two largest states, and so on. We're not trying to be everywhere. We just want to be the very best everywhere we go and have a lot of dense solutions in those geographical areas without just trying to be a provider everywhere. Our growth is astounding, though. Our network of board-certified radiologists, and by the way, all of our radiologists are board-certified. We don't use board-eligible rads. A good 70% are fellowship-trained, from neurology to MSK, body, and so on. We continue to grow our radiology staff.
As you can see, a great track record of continuing to grow our daily ability to read and our RVU volume. Again, we are covering 24/7 every day. We have had continued growth, a lot of great accomplishments. We continue to win new hospital systems. We expand within each customer base as we get it. We have had some of the largest institutions in the U.S. We have the largest healthcare system by revenue in the U.S. as our customer. We have 15 of the top 100, 2 of the top 10, 4 of the top 20, and so on. We continue to focus on large, successful health systems and expand across their facilities as we grow and prove and earn the ability to continue to be their partner. We treat every customer as a partner, and we have them treat us as a partner.
We are not just a vendor. We become part of their medical staff, and it is a very critical thing for us to have that level of a relationship with our customers. We have had relationships for over 15 years for many of our old customers and so on as we get new ones. The key metrics, again, on the teleradiology side, it is about 80% of our total revenue, 26 states, 72 health systems, and across 246 facilities. The modality mix of what we read, the geographic mix, and so on, and which states, I will not go through the charts. You can read it, but the bulk of our business is hospitals and in the acute care and emergency department environments.
Next slide, please. In the full-service business, it is about 20% of our revenue. We are in 5 states. We deal with 5 large health systems and currently have 25 facilities.
Again, a typical modality mix and geographic mix in that, Michigan, Illinois, New York, Washington, California, and Ohio. There is so much opportunity in those states. We are not looking to grow beyond those very much right now. But with the partnership we have in place with RadNet, it is a great opportunity to add the full-service solutions from digital health capabilities to inside the 4 walls of the hospital and then to expand services, of course, connecting all the outpatient clinics and imaging centers together. We have a combined solution that we do not believe any other organization in the country can bring to the table.
Our leadership team, me, I have been there nine years, and prior to this, I used to run NightHawk Radiology, one of the first large publicly traded teleradiology companies in the country many years ago. Lyn Mize has been with us almost four years now. He is our Chief Financial Officer. Jerry Lee, our Chief Technology Officer, has built one of the key components of our platform that our radiologists use every day to manage our assignment engine and workflow processes.
It is a one-of-a-kind, very unique capabilities, one that has helped make us incredibly efficient. Leandra Hutchinson comes to us as the President and Chief Operating Officer. She was the President of Direct Radiology, which we acquired from Philips 20 months ago and integrated all their docs and so on into our solution set. Finally, Dr. Alix Vincent, who is one of the founders of the company, our Chief Medical Officer, and a reading neuroradiologist every day. Hopefully that will give you a little bit of a background on ONRAD. With that, I will turn this back over to Dr. Berger.
Thank you, Dave. Imaging is at a crossroads. Its current challenges, workforce shortages by both radiologists and technologists, increasing labor costs, growing imaging study volumes, and greater utilization with new technology developed by almost all of the OEMs, and capital investments required to manage enterprise-wide requirements such as artificial intelligence, data storage, image distribution, advanced visualization, et cetera. How do we deal with this? Technological innovation has arrived just in time. Through the various tools that RadNet invested in, began investing in six years ago, workflow transformation is at the core of dealing with the challenges that particularly the hospitals and health systems are facing with new tools for artificial intelligence, reporting solutions, and cloud transformation. Early detection and prevention, which we define as population health tools, will allow clinical navigation to improve outcomes.
This is where I believe not just imaging but healthcare in general needs to focus on the new technological capabilities. We will be going into the intelligent experience era. In the past, this was transformed by digitization of imaging that allowed or enabled PACS solutions. The present solutions are new viewing and reporting experience, which centers around the ability to worklist the prioritization and larger capacity for viewing and meeting with the increasing number of images that are produced by the new equipment. The new intelligent experience will be bringing into every step of the imaging experience automated radiology, guided patient journeys to accelerate care, accelerate acute care in particular, which is where ONRAD will add an enormous amount of additional capability and experience. I'd like to give you a little bit of an overview of the typical workflow today, which RadNet is instrumental in transforming.
Today, imaging studies go to a radiologist into their PACS system and get case assignment and then a rules-based worklist to distribute to the most appropriate reader. These studies are seen on their PACS and their viewer systems, where they identify the appropriate findings. This then allows them also to review clinical history, which they get information either from a hospital electronic medical record or in the outpatient sector, our radiology information system. This is all then sent to the radiologist, who dictates the report using voice-based dictation and then eventually signs off on that report. These are the conventional tools which have generally been provided with point solutions rather than a continuous stream of flow. Next slide. What we're doing is now being called intelligent and intentional radiology workflow, where the imaging studies and order clinical history will be coming onto an AI-enabled platform.
This then will be on a platform that will do case assignment, case triage prioritization by level of acuity, findings visualization, and then draft report generation. By draft report generation, we mean that all of our studies will, at some time in the near future, be going through an AI clinical engine to read an exam, take those findings, put them into a ChatGPT-like engineered system to give a full draft report to the radiologist, upon which time the study with the critical findings as well as a full report, both the body and impression, will be turned over to the radiologist to sign off on or edit as they see fit. All of this will ultimately lead to a new era in how we do clinical navigation once findings are determined to need further diagnostic evaluation.
I would like to turn over now the slide here to Sorensen, who will give an overview of this very important and transformative event that will not only reshape radiology but will reshape healthcare in general. Thank you, Greg.
Thank you, Howard. Thanks for the handover. I would like to add my excitement and welcome to Dave Engert and the wonderful team he has developed and paint for you the picture we are seeing of why now is the time to bring together such an excellent clinical teleradiology service with the artificial intelligence tools that we have been building and are deploying and how these will work together in synergy for the better outcomes and the better service of our patients and the hospital partners who are really just asking for this every day. Howard just walked you through how AI is going to transform the way we perform the traditional radiology reporting service, where AI will help each of us radiologists practice at the top of our license and produce what we know to be a superior report.
We now know that the bigger ecosystem can help us deliver even better care with additional technology enablement tools. Our plan is to help each of our patients not just get the best radiology report, but also navigate them to the best possible clinical outcome. We can do that now because in addition to the pixel-based AI and the language-based advanced tools that help efficiently and appropriately produce a high-quality report, we can then pass those through the increasingly available and increasingly powerful medical reference tools such as OpenEvidence or Doximity or UpToDate, and then add that to what has traditionally been a bit of a black hole or a challenge for many health systems, which is navigating those findings, especially the unexpected findings that frequently pop up on a radiology report, the incidentalomas we call them.
If those are managed well, combined with the improved quality reports, the best clinical guidelines that come from these reference tools in an easier to consume fashion and add that to the navigation component, this combination really can much more efficiently than ever before improve the patient outcomes that we are all seeking to do. This vision really came into clarity for us as we were talking with Dave and his team, because I think the ONRAD team traditionally has competed on value, not so much on price. They are price competitive, but it is better quality, and hospitals really do want high-quality services at a market or competitive pricing, and that is what AI is enabling us to do at a scale that previously was not possible. We can boost the quality. We publish data now that we can do that across hundreds of thousands of patients.
That produces a better radiology report. We can now bring that in a more efficient way to the inpatient setting through Dave's team, through more hospital partners through Dave's team. But we can also partner that with the added AI tools that we and others in the marketplace are building to, again, end up with our end goal, which is to have better patient outcomes at the same cost, which of course, is the definition of value that we're all interested in. And that's what motivates us, is really being able to see better outcomes for our patients day in and day out at a scale of millions of patients. That's our big picture. We're excited about this, and I think now we're ready for Q&A, and so with that, I'll hand the time back over to the operator.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Brian Tanquilut with Jefferies. Please go ahead.
Hi, good morning and congrats to both the RadNet and ONRAD teams on this deal. Mark, maybe before I go to the ONRAD questions, we're getting a lot of queries from investors just asking if you could give any color on how we should be thinking about Q3, because I think most folks were hoping that you'd give some insights into it given the size of the deal you're announcing today.
Sure. Happy to. Obviously, we're not formally reporting our numbers until the second week of November. A press release will be announcing the earnings call in the next day or so. But what I can say now is that all the trends that have been driving the strong performance of the business over the last several quarters, including the last two quarters where we have raised guidance, continues in the business. So the core business is doing extremely well. The advanced modalities are driving that performance both in terms of the percentage of the business as well as the strong volumes both on the same center side as well as the aggregate level. The integration of the acquisitions that we did earlier in the year are improving and well underway.
We're seeing stronger performance in Southwest Florida and Indiana, which we would start to expect to see at this point given the path of integration. We continue to believe that the second half of the year will show some significant strength, and we're excited to talk all about that likely on November 9th.
Awesome. All right. Maybe now I'll move forward to the ONRAD types of questions. Maybe for Howard and Greg, as we think about the strategy here, the decision to acquire ONRAD, it looks to me like you see this as the piece that makes you a truly one-stop shop for imaging for both hospitals and patients alike. As I think about the upside or the synergy drivers here, what kind of visibility do you have into the cross-sell, and how should we think about what those opportunities look like and how they would manifest? Thank you.
Thank you, Brian. Good morning. I think it's important to add another piece of the equation here. As I think you've amply pointed out here, Brian, this is a seminal event for RadNet to add better and deeper integration with hospitals and health systems and to provide end-to-end solutions. It became clear to us probably about 18 months ago that the inbound calls from hospitals was not about necessarily our AI tools, not about joint venturing and outpatient solutions, but how can we help them solve their most critical problem now, and that is radiology interpretations and radiology staffing. Fortunately, we're in a position with ONRAD as a DeepHealth customer to be on the same platform that essentially is now being rolled out throughout the RadNet markets, which we expect to have substantially complete by the end of this year and early part of Q1 2027.
But what I'd like everybody to focus on here is that when we talk about a health system, we're not just talking about the acute care facility. We're also talking about their urgent care facilities. We're talking about physician offices that have imaging in their offices, which is growing. We're talking about their emergency room. We're talking about their surgery suites. We're talking about cardiology. At the end of the day, all of these providers, all of these access points, are best run on a common platform. And why do I say that? That is because the interoperability of collecting all of these images, storing them, and distributing them on demand is at the hub of improving workflow inside and outside the hospital system.
Once a patient has an imaging exam, regardless of where that imaging exam is performed, that information needs to be available to all of the stakeholders, referring physicians, the patients, the surgeons, the emergency room, and putting them on a common ecosystem is what we now are capable of doing. The goal that was outlined by Dr. Sorensen is to use all of the tools that we're developing within DeepHealth to fundamentally standardize all of this reporting that occurs throughout the imaging enterprises and have them combined into reports that then can be put through other medical tools that allow better information for the referring physician and patients about future pathway, as well as standardized reports that the information from the radiologist can be lifted and begin the process of clinical navigation.
I want to emphasize the point that Dr. Sorensen made, that by reviewing all of these standardized reportings from the radiologist throughout the entire ecosystem will allow earlier detection and better outcomes. More and more of what we're capable of doing with this enormous transformation of technology on equipment are identifying findings that were serendipitous or incidental, and that's the definition, really, of early detection. You've seen us doing this with lung CT for lung cancer, breast cancer with mammography and its other tools. We're doing it with brain imaging. We're starting with musculoskeletal. All of these have information inside of them which have traditionally not been reviewed, either because of the limited time that the radiologist has or their focus on the symptomatic side.
We want to transform this to find all these incidental findings that allow us to detect earlier, put this through appropriate clinical navigation to make certain those patients are directed into an appropriate pathway and not fallen out of the system, and then ultimately lead to earlier diagnosis and a better outcome. This can affect virtually every facet of healthcare. What we're embarking on today is not only end-to-end solutions, but also opening up the opportunity for us to find other ways to partner with our hospitals to include all of their internal imaging operations in a connected way that allows them to do what they need to do best, and that is deliver appropriate and necessary healthcare well before the diagnosis has been made and the outcome is less certain.
It's this transformation of imaging using technology that is here today, increasing its capability, and bending the curve in healthcare to reduce expense and improve outcomes. In that way, I believe RadNet will be leading forward not as just an imaging company, but a healthcare company that assists hospitals, health systems throughout their entire enterprise to become a better advocate for patient care. I need to emphasize the importance of what I believe ONRAD will allow us to do. As Dave Engert, the CEO of ONRAD, pointed out, is that RadNet wants to deploy its capital both on a human and a financial level to be looked at as a long-term partner for these kind of solutions and not just a vendor. I believe by adding these professional radiology services to the continuum of RadNet healthcare delivery, we will accomplish that.
If I could just jump in, Brian, with one other quick point. I think as a group that's really in the forefront of developing AI for radiologists, you can see this as really an endorsement that radiologists are not going away. We're actually excited to have more access to more radiologists through the ONRAD team and the ONRAD structure. That's because we think AI can actually supercharge radiologists to be able to deliver even better care. It's so nice to not have to make sure that you've memorized correctly every single clinical guideline and have the AI bring that decision support tool right to when you're dictating a case. It's great to have generalists that you sometimes have to employ just for workflow reasons, operate at the level of specialists.
Almost all the radiologists that I talk with feel like it really does, as they say, help you practice at the top of your license. This acquisition that we're looking forward to will really let us expand our bet on radiologists partnering with AI. That combination, we really think does lead to where we all want to go, which is better outcomes for our patients. Thanks.
Thank you. The next question comes from David MacDonald with Truist. Please go ahead.
Yeah, good morning, guys, and congratulations. Two quick questions. Just the first one, Dr. Berger, you touched on this a little bit, but can you guys talk about, just in terms of the ONRAD hospitals, any overlap, what you think this does in terms of the JV pipeline opportunity? As you bring the companies together, can you just talk about, is this kind of a one plus one in terms of ability to incrementally bring radiologists on board? Then I just got one quick follow-up.
Good morning, David. I think the excitement here is, in fact, there is very little overlap currently between ONRAD customers and RadNet customers. The opportunity for us to broaden our offerings is quite substantial here. RadNet's currently in 11 states, ONRAD's in 21 states. It would not be unexpected if we increase the number of sites and states both through all three of our reporting divisions now, the RadNet Outpatient Services, the DeepHealth, and the new Radiology Professional Services divisions. I think the importance of that is really putting these tools together and fundamentally being able to discuss with our hospitals new business models on how, with our end-to-end solutions, we can bring all of the tools that RadNet now has augmented and those that it was currently offering to help the inpatient radiology departments and the hospitals operate their inpatient radiology better.
Tools such as purchasing, day-to-day operational protocols, managing the throughput by improving and using new tools that are giving greater capacity to our equipment, bringing in remote TechLive solutions like we have in DeepHealth to deal with the shortage of technologists and the often heard, "We need to close rooms because we don't have technologists available." These are all tools, and I don't necessarily want to characterize them just as cross-selling, but all tools that we demonstrated very amply here in the last several years that we're able to do to meet increasing demand, and hospitals are suffering from the same basic fundamental issues in radiology and imaging that we are on the outpatient business. The difference is they need those results even more acutely because of the nature of the patients they see once they enter the hospital system.
Again, we're looking at this not just to provide the opportunity for different end-to-end point solutions, but how do we integrate what we've been able to so effectively manage on the outpatient basis back into our partners, both our current ones and new ones that we are talking to on a regular basis about giving them radiology solutions and a future on how to detect earlier all of these incidentalomas. I hasten to add that imaging is the most ubiquitous service in healthcare. The ratio of what we see in imaging, where on average, every patient in the U.S. gets some form of imaging exam that has information on it that may be unexpected, and where we can take those incidental findings and use them to better manage the healthcare of those patients for earlier diagnosis and better outcomes.
The transformative event that ONRAD is presenting us with really takes on substantially greater proportions given the need for all of these tools to be available, not just to our health systems, but to the referring physicians and the patients. Technology is the future. We need to embrace it. We need to characterize it. What makes it so exciting for RadNet and our team here is that artificial intelligence inside healthcare, as opposed to perhaps other aspects of AI, is both meaningful and purposeful, and can be used for the improvement of delivery of healthcare, not only in the U.S., but as you've seen, RadNet is becoming more and more of a global operator.
Okay, and then guys, just one other quick question. Can you just talk for a quick second about the capital efficiency of the business? It is obviously a low CapEx model. Just spend a second there, and then is there any margin differential we should think about between the teleradiology 80% and the full service business, just as we go forward?
Sure. Let me address some of those questions.
Go ahead, Mark.
Then Dave, I will let you talk about the last part of that question. Yeah, so financially, this business is very attractive to us. First of all, it runs at north of 30% EBITDA margins and has been regularly growing north between 10% and 20% per year. So when you think about the combination of those two things, it is highly attractive to RadNet. Then as you point out in your question, Dave, it is not a capital-intensive business. The business has been spending about $1 million a year on CapEx, has very little depreciation. So the $60 million-$65 million EBITDA guidance that we gave in the press release and we talked about today, in the first year of operations under RadNet, is essentially all pre-tax net income.
It is highly profitable and highly scalable as we believe we can continue to grow this organically, particularly around some of the areas that Howard mentioned in terms of cross-selling and cross-marketing the digital health products to the existing 225 hospital customers of ONRAD. As well as some set of those hospitals and health systems are going to be interested in outpatient joint venture opportunities. Then vice versa, we have 155 of our locations within health system partnerships who have been regularly asking us if we can help them with their in-hospital radiology or professional radiology needs, and until now, we did not have that capability.
I think financially, this is a big move in terms of increasing margins, lowering the capital intensity of the business, and adding a third growth engine to the businesses that we already have that are growing very nicely, which is our core business and our digital health business. Dave, I will let you talk about the distinction between the in-house full services that you are providing at hospitals versus teleradiology.
Sure. Thank you, Mark. Hi, David. The solution that we bring on full service is putting particular docs on site, interventional radiologists, and potentially mammo readers as well. Our cost to do that is no different than in the teleradiology space. It is the cost of bringing on a physician with licensing, privileging costs, platform costs, and allowing them to begin to read, and the startup window is anywhere from four to six months. The total cost of really bringing on a new radiologist, whether they are on-site or TeleRad, is I think $20,000- $30,000 a radiologist. Within six months, they begin generating anywhere from $1 million- $2 million of revenue per physician.
We do not have very minimal cost to have a radiologist join the team, become fully onboarded, licensed, privileged, trained, and utilizing a very highly productive platform to begin to generate final reads, generating revenue, and so on. Our cost to start up and development of new revenue is very minimal to get a radiologist going. For the on-site side, again, it uses an extensive component of the teleradiologist to support the on-site radiologist. From a cost standpoint and a CapEx standpoint, it is very little investment to be able to generate and quickly generate high margin revenue.
Okay. Thank you very much, guys.
Thank you. The next question comes from Andrew Mok with Barclays. Please go ahead.
Hi, good morning, everyone. This is Thomas Walsh on for Andrew. I appreciate that a constrained supply of radiologists is a demand driver for teleradiology services, but presumably, it also makes retention a bit more challenging. Could you describe radiologist recruiting and turnover at ONRAD in a little more detail and share if there are any retention arrangements or anything like that along with the deal.
Sure. This is Dave Engert. Well, we have some attrition. Some docs have retired and so on. Very few leave us to go to another location. Our docs are incredibly well-treated. Everything we do, we look at our physician staffing, it's the engine of our business. Everything we do in the non-physician staffing of our company is designed to make our docs have a wonderful work-life balance.
They make a lot of money, they read a lot, they do a lot, but the environment is top-notch as far as the state-of-the-art on the platform that they're using. We have blue-chip customers, so the quality of the images that they get from our hospital customers is top-notch. We do everything for them. We pay for all of their expenses, medical malpractice insurance, all the licensing, all the staffing things, all the training, all the technology, all the software, everything we do, internet and so on, and CME, we provide all of that for our docs.
We try to make their experience as being one of our radiologists as good as it can possibly be. We remove all the minutia that docs get caught up with in the world of practicing medicine and allow them to be the doctors that they want to be. Our ability to keep and retain and attract board-certified, high-quality radiologists is really top-notch. Everyone's challenged with keeping up with the growth, and our challenge is no different. We have to find and hire and retain radiologists, and we seem to be very successful and have been for the last five years of being able to keep up with our growth, and being able to hire and keep radiologists. Right now, our ability to sell and opportunities in front of us is enormous.
The only constraint we really have on our growth is being able to get more radiologists. We, I think, being able to have AI capabilities that our docs really like and utilize and make them more efficient, more productive, higher quality, and so on, is a very big plus for them. Everything we do and continue to do and will enhance their work life experience is paying off in good growth, good, happy, successful customers as well.
Andrew, I might add. Oh, go ahead, Howard.
Yeah. I want to emphasize, and I'm glad Dave Engert mentioned this in his concluding remark here. We cannot keep up with the demand for radiologists without making the radiologists more productive. There just is not enough of a pipeline to fill current needs as opposed to the growing needs of images that need to be read. The solution here is to make the radiologists better in terms of more competent in their diagnostics through the use of clinical AI tools, which we are rapidly developing and getting FDA approval on a regular basis, as well as the new reporting solutions that I briefly discussed, our Reporting Pro and draft reporting, which often takes the radiologists longer to dictate a report than actually what it takes them to identify the abnormalities.
So our goal, and which will be used in both of our services divisions, the professional radiology service as well as outpatient, has the potential of increasing radiology productivity, perhaps as much by 50% or more as we further imbue or enable them to use these tools, which we are developing on a daily basis. So I think it is important to emphasize here that the very issues that have been restraining ONRAD from even greater growth, as well as ourselves, is really how do we get the turnaround time that we need back to the reports for the patients and the referring physicians on a timely basis so that there is no interruption with the delivery of healthcare, and in fact, improving healthcare by making these diagnoses earlier and earlier. So AI is the solution. We embrace it.
Radiologists, as we are rolling it out, are finding it a tremendous tool, and as I said, sometime in the earlier part of 2027, we hope to be running at least 50% to 60% of all of our imaging through our AI tools with the eventual goal that 100% of all of our imaging will eventually run through those tools, to help drive the efficiency and meet the demands that are here today.
Andrew, I would add one other thing. Keep in mind that RadNet for our imaging centers contracts with over 1,000 radiologists who today are obviously very busy reading the scans that occur at our centers.
But as we make them more productive with both the interpretive tools and the reporting tools that Dr. Berger and Greg Sorensen have spoken about on today's call, there may be some capacity that is built there where some of our doctors can float in and out of the ONRAD model as well and read extra scans on nights and weekends and help grow that business with additional capacity of physicians and vice versa, where at times within the RadNet centers, we have contracted with third-party teleradiology firms to read scans at our centers, particularly, we have talked about this in the past, x-ray work, and now we have got the ONRAD physicians that could potentially help us with some of that overflow work. So there is value to continuing to grow the pool of radiologist capacity, even as we are going full steam ahead into AI and technology.
Thank you very much. Very helpful.
Thank you. The next question comes from Andrew Cooper with Raymond James. Please go ahead.
Hey, everybody. Thanks for the time. A lot covered already. So maybe just a little bit of what you could share on sort of the timeline of bringing all of these pieces together, and how long before you feel like you can really benefit from the combination as opposed to the hospital teleradiology staffing piece running next to your existing footprint. In other words, you talked about some of the inbound demand. How long does it take to capture that, and how much work needs to be done to really recognize the benefit of everything together versus two separate work streams?
Well, I think that some of that has already been shaping up. Fortunately, ONRAD began using the DeepHealth tools about a year ago. So in a sense, we've been working together for quite some time to energize and transform the ONRAD platform. But in addition to that, we're using the next 60 days to go ahead and begin further expanding the involvement so that many of the results that we're already rolling out begin to get rolled out in ONRAD, so that it adds to our ability to grow the company throughout 2027. So I think given the closeness that the two companies have been working together with now for probably about 18 months, as well as the long history that Dave Engert and I have together in this industry has allowed us to hit the ground running.
The tools that we're talking about will always be constantly evolving, but are ready now for prime time, which we are already doing inside the RadNet Outpatient Services division, but which, as I mentioned, will be further amplified in the ONRAD division with customers that we currently have and new customers that both the ONRAD and RadNet Services division are in deep conversation with now.
Great. Maybe just one quick numbers one. You talk about the $60 million- $65 million of EBITDA in the first year post-close. How much implementation of some of these things has to happen for you to hit that number? How much are you assuming from the clinical suite being implemented, et cetera, or synergies versus pure run rate from ONRAD standalone?
Yeah. So I'll take that one. So that $60 million- $65 million EBITDA guidance for the first year of operations is really a number that ONRAD would hit without any help from RadNet. In other words, that's a number that they feel comfortable with and we feel comfortable with that would be their own budget if they were a standalone company. Of course, we at RadNet, the other businesses are going to try to influence a new business coming into ONRAD that perhaps ONRAD wouldn't have gotten by on its own, either from existing joint venture partners who've reached out to us for these capabilities or other health systems with whom we have relationships who have approached us in the past. So I'm hoping that we can achieve a number that's better than that, but that's where we feel comfortable ONRAD will likely come in.
Great. I'll stop there. Thank you, everybody.
Thank you. The next question comes from Matthew Gillmor with KeyBanc. Please go ahead.
Hey, thanks for the question and hosting the call. I guess I just wanted to get a check on capital allocation post-deal. You've got the digital health business, the outpatient imaging business, and now professional services, but where do you see the opportunities for future M&A? Do you have a bias towards any of the segments at this point?
I think as we've demonstrated in the past, our concern isn't about the capital that we have to grow each of the sectors of our business. Our challenge is really to make certain that we apply and distribute that capital in that which gives us the best return on investment. More and more, what we want to do is demonstrate into the industry and certainly with our current and new partners, that we are a partner and not a vendor. So where there's opportunities for future partnerships that utilize all the tools and capabilities that RadNet brings to the table, those will be the ones that will get a priority treatment in the way that we allocate that capital.
I think there is an enormous amount of opportunity that exists for all of the players in this industry, but our goal is to balance a good return on investment and have long-term commitments that are shared to the vision that we have about how we can transform that healthcare system to be even a greater stakeholder in the delivery for their markets than just how we do this on a point-by-point solution. This is an integrated approach that requires a vision that we are trying to lay out, which I think all of our partners now see the value proposition for. Who is prepared to roll up their sleeves and move to an area of new opportunity in healthcare to provide better health and better outcomes for our patients?
Our real stakeholders here are our patients, and that is the primary focus of what we are trying to do here, is bring these tools that have such enormous potential to improve the delivery of healthcare into mainstream hospitals and hospital systems who need this for their own missions.
Great. I will just add, having said all that, which I agree with Dr. Berger, of course, I think you are likely going to see more capital allocated in the coming couple of quarters towards traditional core imaging center opportunities. Hopefully, we will be in a position to talk about that in the near future.
Great. We certainly look forward to it. One follow-up just on the margin profile of ONRAD. It is pretty healthy at 30%. I was curious if you could help us understand what drives their margin profile and ultimately sort of the sustainability of that level of margin for the business.
Hi, this is Dave Engert. Yeah, that is a great question. When I first joined the company, it was very much of an eye-opener to see that when a study would come in from a hospital, a person would have to get involved in every study. A phone call, a follow-up on data, missing prior information. It became obvious to me that we needed to really automate a lot of the processes in our own company, and we embarked on a mission to do that. Some of the most important advances we made outside of the physicians' productivity was just on being able to manage the acquisition, the processing, and the return of the data to our customers.
We have automated the whole process so that when a rad tech in a hospital takes a current study of a CAT scan of somebody, for instance, they touch one button, and it gets sent to us along with the prior information for images and reports and so on. No one has to touch it on our side until the radiologist clicks it on the work list and reads it. When they are finished, it goes back to the customers, populates in their EMR, and also updates the emergency room physician if they choose, all with no one else touching it on the customer side and on our side. That has streamlined the processes tremendously. It has taken a lot of the cost out, it has taken a lot of the delays out, a lot of the potential errors out, and so on.
It improves our quality, the turnaround time, and the efficiencies of our docs. You take all the things we have done on our platform to improve workflow assignments, so when a stroke study comes in, it gets assigned to a neuro rad immediately to read. We do about 250 strokes a day, and our average turnaround time is seven minutes, getting the data, sending it to our radiologist, getting it read, and the final report going back to our customers. The processes and the technology that we have enabled in the entire workflow of the data for doing imaging has taken so much cost out. It has enabled us to scale now without having to hire more people that are non-physicians on a linear basis.
A few years ago, we finally crossed the chasm on being able to generate more revenue and continue to grow from 20% to 25% to 30% because our G&A costs on a percent of revenue is decreasing. The larger we get, the more efficient we become. Yes, I do expect to see those margins continue. Then with the added addition of more AI capabilities, and as Dr. Berger talked about, I think the real next big opportunity for improving efficiencies is in the report generation that a radiologist has to read. Not just the interpretation of the images, which AI has been really traditionally focused on, but now the generation of the report and the very time-consuming piece of developing a final impression.
That is going to increase the productivity of our radiologists, and we'll continue to see more and more gains in the world of just being more efficient and so on. Yes, I do believe that those margins will be able to continue.
Great. Very helpful. Thank you.
Thank you. The next question comes from Larry Solow with CJS Securities. Please go ahead.
Great. Thanks, everybody. Congrats. Most of my questions have been answered, but just a couple of follow-ups there for you, Dave. Just on the revenue growth that you called out, I think you guys showed double-digit growth the last several years. Obviously, there's radiologist supply constraints, so your growth has been driven by volumes read, I assume. Is that organic growth and has that been helped at all as you've adopted AI more? What's driving that, your ability to draw double-digit growth with limited supply of radiologists? If you can help us there.
Well, the larger you become in a company, the harder it is to continue to maintain the same percentage of growth. When we were a $50 million company growing 20%, a little easier than a $150 million company and so on, or a $200 million company.
Our continued amount of growth on a dollar basis continues to be very predictable and systematic, and we've been able to achieve that. In the marketplace, the cost of radiologists has gone up. When you have a limited supply, you have to pay more to the radiologists to get and keep them. It's a fact of we all have to live with today. Not only that, but the cost of technology and the cost of everything in healthcare, not to mention inflation and everything else going on in the general economy, we have to charge more for our services to pay our docs and to be able to keep up with the cost of our technology investments and so on. On a company basis, we're not growing our non-physician staff that much.
We do it as needed, but on a limited basis because we're so automated and highly efficient. But the cost of delivering the final impression has a lot of different moving components to it, so we have to charge more. Our growth has been organic, with the exception of an acquisition we made at the end of 2024 when we acquired Direct Radiology, which added a lot of radiologists and customers and revenue to our business. We went from their operation of being in the low margin percentages to adopting our platform and adopting our processes, and that entire business is operating in the 30% range now as well. We've been able to promulgate our success by bringing on more companies and so on.
But the reality is we have to keep hiring to keep growing, and the market is constantly going up in our costs, so we charge more. So those two components have helped contribute to our growth. I do not expect to see that dwindling anytime in the future as far as cost and expenses and pricing for our services.
Okay, so you have got some benefit from pricing there, but obviously the costs have also gone up, but your margins have still been able to continue to increase through that higher cost. And it sounds like with scale, not to put words in your mouth, but margins sustainable, perhaps even the ability to expand that just without RadNet even in the picture. Is that fair to say?
Yeah, to a point, that is exactly right. I think the great news is together, we are going to be able to leverage costs of new customer acquisitions and so on, and the technology advancements of the DeepHealth digital platform as we embrace more and more of that as it becomes available, and then just having a much bigger footprint in the marketplace. We are now not only one of the biggest players in the health industry space for imaging, but we offer now a very unique capability, which Dr. Berger addressed, is that we now offer the only organization to provide the full continuum of care for patients across the entire care settings, outpatient imaging, urgent care, to the fully acute care environment now. And that is going to provide another source of, I think, expanded services and revenues for us.
I could slip one more question. Teleradiology, obviously, it has been around for a while. It is a big fragmented market. It sounds like your strategy, similar to RadNet, you are not spreading yourself thin. You are focused on certain areas within the country. Is that kind of fair?
That's true. Yeah, we're not trying to be everything to everyone. We want to be the best thing to the few selected great customers we choose to do business with. And there's a lot of them, but not all of them. And we focus on the right outcomes for patients. And picking our partners as well as them picking us as their partner is a big component of our success. And RadNet has demonstrated beyond anyone else that we could have ever looked at selling our company to as the best partnership. We're so aligned on our visions, on our priorities, and the opportunities in front of us to really t ake advantage of everything we've both done so well in the segments we do business in.
Great. Thanks. I appreciate all the color.
Thank you. The next question comes from Yuan Zhi with B. Riley Securities. Please go ahead.
Hi, this is Leland for Yuan. Good morning, and definitely excited to hear all the commercial opportunities we talked about, and great to hear margins continuing to expand. Maybe help us to think about operation synergy for 2027, but maybe we can quantify where are we going between RadNet and ONRAD. Also the second question, maybe comment on the opportunity for TechLive remote scanning, help us better think about the opportunity here. Thank you.
Well, let me address the second part of your question, TechLive. That has been one of the most rapidly growing benefits that our digital health division has created here in the last couple of years, and which has allowed us to improve our capacity without significant capital investment. I believe that those same opportunities of providing not only the TechLive, but our remote scanning capabilities through our Alpha RT division, will allow the hospitals to utilize some of these same tools as part of a deeper investment and involvement on the internal hospital operations. That is part of the excitement, really, that I hope we will be able to communicate here.
As far as the first part of your question, the involvement that we would like to have in our hospitals is really this shared vision of how artificial intelligence, along with unifying and making our reports uniform, will allow them to capture, more accurately, diseases earlier and bend that curve. In that respect, what they are paying for the tools that we bring to the table may be very small compared to the benefits to their patients and their health system in streamlining healthcare. So, the unique opportunity I think that we bring, and as Dave Engert has amplified here, is we want the customers that we have to embrace this vision, which we believe will create a lot of savings and a lot of opportunity that only the use of our technology will allow.
That is where the really big emphasis is here, and that is why I like to refer to this as technology just in time. The choke points in the healthcare system are being overloaded with the need for better healthcare and more healthcare. It is an exciting time to be in the forefront of these kind of changes, which can be so beneficial for the overall healthcare of the world population. We have to understand that this technology is not confined between the Pacific Ocean and the Atlantic Ocean. These are worldwide tools which are necessary to lift up healthcare for all nations.
Thank you. The next question comes from Jim Sidoti with Sidoti & Company. Please go ahead.
Good morning, and thanks for taking the question. A lot of questions have been answered, but one left for me is, how many of the DeepHealth tools has ONRAD adopted already? And how many more do you think they will be using over the next 12 months? Then a question for Mark. What do you think the leverage ratio will be at the end of 2027, and what do you feel comfortable running at?
Let me address the tools. The current diagnostic suite that DeepHealth offers has been only implemented with what we call the viewer or our PACS solution, and that is what we have been working for the last year and a half to transform ONRAD onto that common platform. Throughout 2027, the other three primary tools, one is all of our clinical AI, some of which ONRAD has been using from other vendors that supply our products, but with their own outside system. Our single point orchestration tool that all of these will reside on, and most important, our reporting tools, we expect to begin implementing throughout 2027 in ONRAD, as well as transforming them to a fully cloud-native solution.
It is a heavy lift, but we have done the harder work to get them onto the main part of the platform, the PACS viewer solution, which is pretty well complete, and these other tools which will be helpful in creating productivity enhancements, essentially enlarging the current capacity that they have to handle more and more business, they should feel the benefits of throughout 2027. Mark, if you wanted to take the question about leverage?
Sure. Jim, when we report the third quarter in a couple of weeks, I anticipate that our leverage ratio will be somewhere in the 1.6-1.7 range on a net debt basis. That is based upon the debt, our projected cash balance at 9/30, or I guess it is not projected at this point anymore, as well as the anticipated EBITDA. This transaction will, in the short run, add about 0.4 of leverage to that. So we will be in the range, give or take, after we do this transaction. If you pro forma the EBITDA of ONRAD into our EBITDA in and around the 2.0 range, maybe slightly higher, possibly slightly lower.
Where we will be at the end of 2027, which is a year and a quarter from that point, remains to be seen because it depends upon any other acquisitions that we would do between now and that point. In the absence of other acquisitions, this year we will produce in and around $120 million of free cash flow, that the ONRAD acquisition will add another, let us call it $50 million-$60 million of pre-tax cash flow to the business. So I would expect in the absence of other acquisitions, we would be substantially below 2.0 at the end of next year.
Now, in terms of your question about leverage and where we feel comfortable, at what point do we feel comfortable, I think one of the reasons why the consideration that we are paying for ONRAD is part cash and part stock is that we are very cognizant of trying to keep our leverage ratio in what we believe to be a prudent place, particularly given the rise in interest rates that we have all experienced over the last, let us call it 18 months to 2 years. So I think in the absence of something that would be once in a lifetime and transformative for the company and its shareholders, I think we want to keep leverage certainly below 3x , but likely below 2.5x . And I think we will be well within that by the end of next year.
Great. Thank you. Thank you very much. One last follow-up. You have three legs to the stool now. Do you think you will need to add other pieces, other transformative pieces, or do you think what you have now is sufficient for growth for the next, say, four or five years?
I think what we've added now was the missing piece, if you will. It doesn't mean we wouldn't do other transactions and mergers in any of our other divisions, in all of our divisions, I should say. But this adds an element that was missing and which was a clarion call from our inbound requisitions or requests, I should say. Can we help with their radiology staffing? By adding this, we've added, I think, a component of the business that didn't exist, but which we were capable of helping. I really want to give a big shout-out to Dave Engert and the ONRAD team because they have developed some of their own IT tools which, as Dave has explained, has allowed them to create the margins, which we in turn will also benefit from learning about more careful work distribution.
The complement between these companies, between these three divisions now, really forms the basis of the opportunity to transform, as I described, some unique capabilities that then extend into other partnership relationships, other avenues of revenue in clinical navigation for incidental findings, and essentially allowing better outcomes. So I believe that we now embrace all the tools that we need to transform RadNet into a major healthcare company that is clearly where healthcare in general is seeing the greatest demand for, and all for good reasons.
Good. Thank you.
Thank you. This concludes our question and answer session. I would like to turn the conference back over to Dr. Howard Berger for any closing remarks.
I want to thank everybody for joining us this morning. I hope we've laid out the rationale for this seminal event inside of RadNet. To say that our entire company is energized by this would be an understatement. I think for the greater good of what we want to try to do as a part of the healthcare system, I couldn't be more proud and more excited about the future opportunities that we bring to really transform healthcare. I'm anxious for our upcoming call to discuss more about our third quarter numbers, give you vision about the full year, and perhaps a little bit of insight to 2027 now that we've added this new and exciting capability.
For all of the shareholders inside and outside of RadNet, this is a very important day that we have been preparing for and are now ready to go onto a much bigger platform and a much more important force inside the healthcare industry. Thank you all for devoting your time and listening to our story, and we welcome further conversation as events unfold.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.