RadNet heads into its third-quarter report with a pattern Wall Street has grown comfortable with: strong imaging volumes, a steadily rising outlook, and an artificial intelligence business that keeps adding recurring revenue. Management has raised its imaging-center guidance in each of the past two quarters, and the question now is whether the company can do it a third time while showing that its earnings are finally keeping pace with its top line.
The Street expects earnings of $0.21 per share on revenue of $637.6 million when RadNet reports before the open on November 9. That revenue figure would mark growth of nearly 22% from the $522.9 million posted a year ago, a pace driven by acquisitions, same-center volume gains and a fast-growing digital health segment. Earnings, however, are expected to rise only about 5% from $0.20. That gap is the story in miniature. RadNet is growing quickly, but labor inflation, integration costs, heavier interest expense and deliberate spending in digital health are absorbing much of the benefit. Consensus also implies only modest sequential revenue growth from the second quarter's $622.7 million, which leaves room for upside if volumes held their recent strength.
The current imaging-center outlook calls for revenue of $2.370 billion to $2.420 billion, adjusted EBITDA of $345 million to $358 million and free cash flow of $115 million to $125 million. Each raise so far has been incremental rather than transformational, and margin gains have been slim, with imaging-center EBITDA margin up less than a fifth of a percentage point to 16.1% last quarter. Roughly 4% same-center labor inflation and the integration of lower-margin acquisitions in Southwest Florida and Indiana offset a favorable shift toward advanced imaging. Evidence that margins are widening as those deals mature would strengthen the case that growth can translate into earnings. Another quarter of flat margins would suggest the revenue beats are not compounding as hoped. Same-center MRI volume, which has run near 10% growth, and the rising share of PSMA and amyloid scans in PET-CT are the clearest gauges of whether demand remains robust.
Digital health is where the newer catalysts live. Annual recurring revenue reached $105.5 million last quarter, and management says it is on track for more than $140 million by year-end, which requires a meaningful step up in the back half. The integrated Gleamer business should be moving from roughly $25 million toward its $30 million-plus target, and autodraft reporting is supposed to reach about 15% of RadNet's volumes by year-end. The recent FDA clearance for breast ultrasound AI, addressing about four times the exam volume of the thyroid product, is too new to show up in revenue, but early commentary on adoption would matter. Segment profitability remains in what management calls a trough year, so investors should judge this business on ARR momentum and the commercial funnel, which had grown past $224 million in contract value, rather than near-term margins.
Sentiment has shifted modestly toward optimism, moving from slightly bearish before the last report to slightly bullish now. The stock has gained 0.6% since the previous report while the S&P 500 fell 2.2%, and at $73.49 it sits comfortably above its 200-day moving average of $65.20 and above the prior quarter's high. It trades in the middle of its post-earnings range, well short of the $79.77 peak, suggesting the market has rewarded the story without pricing in perfection.
The central issue is whether RadNet can pair another guidance raise with visible operating leverage. Strong volumes and accelerating ARR would keep the growth narrative intact, but the stock's next leg likely depends on proof that labor costs and acquisition dilution are no longer eating most of the gains.