Lumexa Imaging Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
November 10, 2026

Key Takeaways

  • Positive Sentiment: Q3 systemwide volume grew 4% year over year, with advanced modalities up 8.1% and reaching a record 38.2% of scans. Consolidated revenue was $272 million, while adjusted EBITDA rose 11% sequentially to $62.6 million and margin improved to 23.0%.
  • Positive Sentiment: Free cash flow improved to $20.6 million from negative $1.8 million a year earlier, supported by earnings growth, lower interest payments, and more favorable working-capital and JV distribution timing. Management now expects full-year free cash flow conversion of at least 30% of adjusted EBITDA.
  • Positive Sentiment: The company narrowed its 2026 adjusted EBITDA guidance to $236 million–$240 million, maintaining the $238 million midpoint, and raised adjusted EPS guidance to $0.86–$0.90, primarily due to a lower assumed tax rate. Revenue guidance was reiterated at $1.045 billion–$1.097 billion.
  • Positive Sentiment: Lumexa said the finalized 2027 site-neutral reimbursement rule expands its addressable market from $33 billion to roughly $77 billion, creating a longer-term opportunity to support health systems’ outpatient imaging strategies. It also announced an expanded Advocate Health joint venture that takes the company into Illinois.
  • Negative Sentiment: Management’s preliminary assessment is that 2027 Medicare reimbursement will be modestly below its longstanding assumptions—approximately 1% lower—though it expects the overall impact to be limited because Medicare represents about 20% of revenue and most commercial rate negotiations are complete.
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Earnings Conference Call
Lumexa Imaging Q3 2026
00:00 / 00:00

There are 12 speakers on the call.

Operator

A reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Sue Dooley, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, and hello, everyone. We appreciate you joining us today. Leading today's call are our Chief Executive Officer, Caitlin Zulla, and Tony Martin, our Chief Financial Officer. Before we begin, I want to note that today's discussion will include forward-looking statements, including statements regarding our 2026 guidance, expected operating performance, growth initiatives, reimbursement assumptions, capital expenditures, and other future events. These statements reflect our current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to forward-looking statements and risk factors described in today's earnings release and our most recent SEC filings for additional information regarding those risks and uncertainties. We undertake no obligation to update those statements. We will also discuss certain non-GAAP financial measures. Definitions and reconciliations to the most directly comparable GAAP measures are included in today's earnings release.

Speaker 1

With that, I'll now turn the call over to Caitlin. Caitlin, please go ahead.

Speaker 2

Thanks, Sue. Before we begin, I would like to wish everyone a happy Radiologic Technology Week and say a huge thank you to this valued part of our community, as well as to our entire team at Lumexa. To our investor audience, thank you all for joining us. It's a dynamic time to be a leader in the imaging space, and we look forward to sharing our results tonight. In Q3, we advanced our strategic priorities and moved closer to our ambition of building the premier platform for high-quality, lower-cost outpatient imaging, serving patients, physicians, and health systems. We are executing well on all of our priorities, and those efforts translated directly into favorable results this quarter, including healthy EBITDA, which grew 11% over Q2, and another quarter of strong free cash flow generation. Here are a few highlights of our Q3 performance.

Speaker 2

We saw continued strength in our core business. We drove healthy growth in systemwide same-center volumes, sustained momentum in advanced modalities across our enterprise, continued maturation of our de novo cohorts, and made important progress expanding our health system partnerships. Advanced modalities, an important driver of profitability for us, grew to a record high 38.2% of total volume systemwide, 145 basis points higher than a year ago. PET was another particular highlight in Q3, with 19.5% year-over-year growth. Our advanced modality mix shift continues to be a cornerstone of our growth strategy, yielding higher reimbursement and margin for the business. Our 2024 and 2025 de novo cohorts continue to track in line with our expectations. We just completed another careful review, and these are layering in a healthy mix of advanced volume while making meaningful strides towards our long-term growth and profit expansion objectives.

Speaker 2

We achieved another significant milestone for our JV strategy, an expanded joint venture with our existing partner, Advocate Health, to advance our enterprise into Illinois, a new state for Lumexa Imaging. We are excited to grow alongside this prestigious health system partner and are now fortunate to count 10 health system joint ventures across our enterprise. We are maturing our joint venture pipeline, with discussions proceeding and prospective partners engaging actively around our offering, supported by valuable references from existing JV partners. We look forward to sharing more as these discussions progress. In early November, we are opening three new de novo centers in Texas, South Carolina, and North Carolina. These openings reflect our disciplined approach to expanding in attractive markets, building greater density across our network, and extending our runway for long-term sustainable growth.

Speaker 2

With these centers, we will have five de novo openings under our belt for the year, with a clear line of sight into completing our goal of eight to 10 de novo center openings in 2026. We are also well underway with our plans for new 2027 center openings. These highlights represent progress across our key growth initiatives. They are fueling strong, durable cash generation while reinforcing our confidence in delivering on our full-year commitments, including the updated guidance we are providing tonight. Tony will speak to this more in a moment. Our Q3 achievements demonstrate effective execution, which strengthens the foundation of our long-term growth. As we have seen with ambulatory surgery, we believe shifting care to high-quality, lower-cost outpatient settings can improve access and create significant value across healthcare.

Speaker 2

We believe a substantial opportunity lies ahead in imaging, and Lumexa is well-positioned to help lead that shift by expanding our network of wholly owned imaging centers while also partnering with health systems to expand access, accelerate diagnosis, and grow their outpatient presence while delivering better value for patients. I am proud of the progress our team is making and the energy they bring to their work at Lumexa every day. I would like to take a moment to talk about the market opportunity we are addressing. CMS has now formalized its 2027 Hospital Outpatient Prospective Payment System rule on site neutrality. The landmark site-neutral provision will reduce the reimbursement advantage associated with hospital outpatient departments and further strengthen the rationale for health systems to grow lower-cost, freestanding imaging capacity. We believe the site-neutral rule meaningfully expands our addressable market.

Speaker 2

We are now targeting hospital outpatient imaging centers, a $44 billion incremental opportunity that builds on our existing $33 billion market for IDTF, bringing our total addressable market to roughly $77 billion. We view imaging as a critical front door to diagnosis, treatment, and specialty care. Health systems increasingly recognize the importance of that connection, and Lumexa is built to help them strengthen it. Our value extends beyond operating imaging centers. We help our partners expand access, keep patients connected to their care networks, and improve financial performance. Our model enables health systems to scale strategically and participate in outpatient imaging growth through a lower-cost operating structure that does not depend on hospital-based reimbursement premiums. We bring the operating expertise, technology, patient access capabilities, and disciplined capital deployment needed to grow and build these networks.

Speaker 2

We see the movement towards site-neutral reimbursement as a tailwind that would unfold over years, not quarters. Our broader growth opportunity is supported by durable demand drivers across our imaging network, an aging population with increasingly complex conditions, new treatments that require advanced imaging, and expanding opportunities for early detection and screening. Additionally, CMS has issued its final 2027 Medicare Physician Fee Schedule. Medicare fee-for-service and Medicare Advantage together account for about 20% of our revenue, a small part of our overall business. We are still completing our analysis, but our preliminary assessment is that Medicare reimbursement will come in modestly below our longstanding rate assumptions, which call for approximately flat year-over-year government reimbursement rates and a 1% increase in commercial payer rates. Commercial payers represent the majority of our revenue, and those contracts renew on staggered schedules.

Speaker 2

With nearly all of our 2027 commercial negotiations complete, we have good visibility into next year's rates. Taken together, we expect the final rule to have a limited impact on our overall 2027 reimbursement outlook. Our value proposition resonates strongly with patients, providers, health systems, and payers. Whether through our wholly owned or JV centers, we are successfully delivering high-quality imaging in more convenient settings on a timelier basis and at a lower cost than hospital outpatient departments. Across our network of centers, patients love the care they receive, which is reflected in our net promoter scores that consistently exceed 90. The market in front of us is promising and vast. Our growth priorities are clear: drive same-center growth, expand our advanced imaging mix, open and ramp new centers, scale strategic service lines, and enter attractive markets through disciplined, capital-efficient partnerships. Volume, rate, and mix underpin this strategy.

Speaker 2

With substantial fixed costs already supported by our existing centers, additional volume, stronger reimbursement, and modality mix can generate attractive incremental margins. This operating leverage allows us to grow earnings faster than revenue as we put more patients through our established network. Let me share how we're putting these priorities into action. Our operations and commercial teams are partnering with clinical leaders to implement impactful programs to enhance care and drive engagement across our entire network of centers. Especially during the typical seasonality related to deductible resets, we are leaning in to optimize for and serve patients. For Breast Cancer Awareness Month, we partnered with Levine Cancer Institute and the Atrium Health Foundation on Project PINK, providing free screening mammograms and follow-up care to uninsured and underinsured women in the Charlotte area, bringing early detection to patients and communities where need is highest.

Speaker 2

We continue with our lung cancer screening initiative, building patient engagement around one of the most impactful screening opportunities in our patient population. Targeted clinical outreach efforts like this remain a strength for our company. I would like to spend a moment on technology, a key driver of clinical and operational excellence at Lumexa and a differentiator as we partner with leading health systems and physician groups. First, I am thrilled to share that Dr. Aice Piros is joining Lumexa as our new Chief Clinical AI Officer, a prominent diagnostic radiologist and clinical information specialist widely recognized for his pioneering research at the intersection of medical imaging and AI.

Speaker 2

In his new role, Dr. Piros will partner with our Chief Technology Officer and Chief Medical Officer to focus on transforming the radiologist experience and improving patient outcomes, bridging clinical practice with cutting-edge technology to drive our AI strategy, optimizing clinician workflows while producing faster, more accurate results for patients. We are advancing Lumexa Connect, our capital-light, best-of-breed technology platform built on an ecosystem of leading technologies. It lets us rapidly adopt innovation as the landscape evolves while supporting new centers, growing joint venture partnerships, and increasing volumes across advanced imaging modalities. Lumexa Connect is already delivering results. FastScan, now deployed across the majority of our enterprise, shortens MRI acquisition times by up to 40% and expands capacity across our fleet. Virtual MRI provides technologist support, staffing flexibility, and operational consistency. 100% of our telerad radiologists now use AI-enabled reporting tools.

Speaker 2

We continue integrating best-in-class draft reporting and EMR summarization tools that improve radiologist efficiency and reduce administrative burden at the point of care. At Lumexa, we are digitizing the radiology workflow end-to-end to deliver greater quality, efficiency, and consistency across our network while staying positioned to capitalize on the next generation of AI-enabled innovation. Wrapping up, our Q3 progress reinforces our confidence in our strategy and our ability to deliver on our full-year commitments. We are focused on finishing 2026 strong while building the foundation for sustained growth. Our new centers are ramping. Advanced imaging represents a growing share of our mix. Our joint venture pipeline is robust, and we are expanding into new markets with exceptional health system partners. Together, these advances position us to expand access to care and deliver a compassionate patient experience while creating long-term value for our shareholders.

Speaker 2

With that, I will turn the call over to Tony to review our financials, key metrics, and our guidance. Tony, please continue.

Speaker 3

Thank you, Caitlin, and thank you all for joining us. Tonight, I will review our financial results and speak to key drivers of our performance for the quarter. I will then provide our outlook for the full year. To add context beyond our GAAP financials, I will discuss certain system-wide financial and operating metrics that provide additional perspective on our overall performance and the breadth of our enterprise. We use these metrics in managing the business because they reflect activity across all the centers we operate, both wholly owned, as well as the centers we operate and our joint ventures with health systems. Let's begin with our volume performance in Q3. We drove healthy growth across our enterprise with sustained momentum in advanced modalities across the company, continued maturation of our de novo cohorts, and strong performance in our health system partnerships.

Speaker 3

Advanced modality volumes, which generally reimburse three to four times higher than routine modalities, were a highlight and grew 8.1% system-wide versus prior year and 7.9% on a consolidated basis. As Caitlin noted, this quarter, advanced modalities represented a record 38.2% of our volumes system-wide, 145 basis points higher than the prior year period. We are encouraged that these procedures have continued to steadily grow. Once we factor in routine scans, which grew more slowly given our emphasis on advanced volumes, total system-wide volume growth in Q3 was 4% over the prior year period, our highest growth rate so far in 2026. Turning to our third quarter financials. Consolidated revenues, which reflect our wholly owned outpatient sites, as well as our professional service segment, came in at $272 million, an increase of 5% compared to the same period last year.

Speaker 3

System-wide outpatient revenue growth, which includes all sites we operate, grew 7.7% over a year ago, powered by strong growth in advanced modalities. System-wide revenue per scan in our outpatient segment increased 3% year-over-year. This metric provides useful perspective on outpatient economics by capturing both the technical scan revenue and, where applicable, the associated professional revenue. Our growing advanced modalities contributes to this metric, together with modest increases in contracted payer rates, partially offset by payer mix shifts in a few markets. Here is some more detail on our consolidated revenues in Q3. Outpatient net patient service revenues were $149 million and grew 5.5% year-over-year on healthy same-site growth. Professional fee net patient service revenues were $62.1 million, reflecting growth of 2.6% year-over-year, in line with our model. Finally, management fee and other revenues grew $3.6 million year-over-year and totaled $60.9 million.

Speaker 3

Within that management fee line, roughly $26 million represents management fees we earn from operating the sites in our health system JVs, which is our core business. The remaining $35 million in this category represents zero margin pass-throughs of employee, IT, and site-level costs we pay on behalf of a few of these joint venture sites. When you are modeling us, it is important to understand those two components in terms of impact to margin. On the expense side, G&A for the quarter was $30 million, up $12.9 million from the third quarter of 2025. This increase was expected and reflects $5.8 million of higher expenses across two primary components that have impacted year-over-year comparisons throughout 2026. Those are as follows.

Speaker 3

First, ongoing expenses related to being a public company were, as expected, $1.8 million in the quarter, and we continue to expect approximately $7 million of these costs for full year 2026, after which they will be embedded in the prior year base and no longer drive year-over-year comparisons. Second, and also similar to last quarter, is an increase in stock-based compensation from $8.3 million in Q3 2025 to $12.3 million in Q3 2026. This reflects the one-time resetting of legacy equity comp plans as part of our IPO. We expect full year stock-based comp for 2026 to be approximately $50 million. About half of that relates to historic M&A and will be fully amortized by the end of 2026. As a result, we continue to anticipate ongoing stock-based compensation of approximately $20 million-$28 million for full year 2027.

Speaker 3

Continuing down the income statement, the next item is our equity and earnings of unconsolidated affiliates, which is our pro rata ownership share of the net income from the sites we operate with health system partners. At $22.8 million, this was $4.9 million higher than Q3 2025, reflecting notable strength this quarter in the sites we operate with health system partners. Further down, interest expense was $15.7 million in Q3. This new run rate is about $14 million lower than Q3 2025, reflecting our use of IPO proceeds to pay down debt last December. That paydown freed up more than $50 million in annualized cash interest savings and increased our flexibility to invest in growth. Our repricing of our term loan in June of this year reduced our SOFR spread by an additional 50 basis points.

Speaker 3

Pre-tax income was $11.8 million for Q3, compared to a pre-tax loss of $0.2 million in Q3 2025. After a tax provision of $4.6 million in the quarter, net income was $7.2 million in Q3, compared to a net loss of $3.5 million in Q3 of 2025. Our GAAP EPS was $0.07 per share in Q3, and adjusted EPS was $0.26 per share. I will now shift to adjusted EBITDA, which reflects strong operating performance across our entire network, our wholly owned centers, as well as our pro rata share from centers operated through health system joint ventures. Adjusted EBITDA grew 11% sequentially, was $62.6 million in the quarter, compared with $59.1 million a year ago. Underlying performance benefited from healthy overall volumes and sustained growth in advanced modalities, while reported growth absorbed incremental public company costs and planned investments associated with ramping our de novo centers.

Speaker 3

Our adjusted EBITDA margin was 23.0% in Q3 2026, compared to 22.8% in Q3 2025. And for the first quarter since going public, our margin was up year over year, despite the incremental public company costs of $1.8 million. Sequentially, adjusted EBITDA margin increased 160 basis points from Q2 to Q3. Moving to cash flows. Cash flows from operating activities were $34.8 million in Q3 2026. This is $23 million higher than Q3 2025, driven by our lower senior credit facility debt and related interest payments and our growth in earnings. We have made good progress working through the one-time impacts that weighed on free cash flow earlier in the year.

Speaker 3

Free cash flow, which we define as cash flows from operating activities less CapEx, was $20.6 million for Q3, compared to negative $1.8 million in Q3 2025, a $22.4 million improvement that resulted in a conversion of roughly 32.9% of adjusted EBITDA. Our free cash flow conversion has improved during the year, and with three quarters now behind us, it is clear we can grow this metric while investing in our strategic priorities, which include de novo center adds and select M&A in a highly fragmented market. Accordingly, we are confident 2026 free cash flow conversion will be above our prior full year expectations, and we now anticipate a conversion rate of free cash flow to adjusted EBITDA of at least 30%. Now a word on CapEx. It is early days on our market opportunity.

Speaker 3

We are pursuing a large, fragmented, and highly attractive market, and we are prioritizing the deployment of capital to capture it. We continue to apply careful discipline as we target meaningful returns by investing in de novos, adding new and upgraded equipment and capabilities at our existing sites, and pursuing targeted M&A. Our $14.2 million capital spend in Q3 2026 reflects another busy quarter of investment activity. Our underlying long-term spending plan remains largely consistent with prior guidance, but our strong operating cash flows support our choosing to lean in modestly more on CapEx in the second half of 2026 to capture the opportunity in front of us while still outpacing expectations for free cash flow. Turning to the balance sheet, our capital position is strong, and we ended the quarter with $90 million in cash and cash equivalents, up from $69.7 million at the start of the quarter.

Speaker 3

As of September 30, net leverage was 3.5 times compared to 5.6 times a year ago. We are very committed to managing our capital structure strategically while investing in our market opportunity and delevering as our business scales. Now wrapping up with our outlook. We are pleased with our accomplishments in Q3, including progress across all of our key growth initiatives, including our free cash flow conversion improvement that I mentioned a moment ago, which puts us on track toward free cash flow of at least 30% of adjusted EBITDA for the full year. With Q3 behind us, we are again narrowing our adjusted EBITDA guidance range, this time to $236 million-$240 million, versus the previous range of $235 million-$241 million, while maintaining the midpoint at $238 million.

Speaker 3

The narrower range reflects our year-to-date results, our current view of the business, and continued confidence in the underlying assumptions supporting our guidance. Adjusted EBITDA reflects our full system-wide footprint, including pro-rata share of JV performance, while our consolidated revenue guidance reflects only our majority-owned centers. That scope difference, and not a change in our view of either business, is why we are narrowing adjusted EBITDA guidance, while our consolidated revenue guidance remains unchanged. Tonight, we are reiterating our consolidated revenue guidance of $1.045 billion-$1.097 billion. We are also raising our adjusted EPS guidance range to $0.86-$0.90 per share, up from our previous range of $0.71-$0.77 per share. This increase is driven primarily by a lowered assumed effective tax rate for the year, with no change to our underlying operating assumptions.

Speaker 3

As we continue executing on our goals and look to finish the year strong, we're energized by the opportunities in front of us and the progress we've made so far this year. With that, let's turn to your questions. Operator, would you please open the call?

Operator

Certainly. Ladies and gentlemen, we ask that you please limit yourselves to one question each. Our first question comes from the line of Brian Tanquilut from Jefferies. Your question, please.

Speaker 4

Hey, good afternoon, and thanks for taking my question. Maybe, Caitlin, I'll start first. It looks like advanced modalities are growing at a healthy clip here. You're talking about ramping up or leaning more into CapEx. If you can just share with us, I'm guessing a lot of that is going towards expanding capacity there, but if you can share more color on where the CapEx is growing, how quickly does that translate into growth in volume, and then just your views in terms of the demand dynamics in advanced. Thanks.

Speaker 2

Yeah. Thank you so much, Brian. Appreciate the question. Yeah, so we are incredibly proud of our advanced modalities. In Q3, our system-wide advanced modalities grew 8.1%. As we said in the script, our 38.2% of total volume is a record high for the company, 145 basis points higher than a year ago, and then 80 basis points higher than we had in Q2. We're driving that by continued intentional investment in our machines. We've talked about investment in FastScan, both in bolt-on subscriptions as well as machine upgrades. We are also investing in upgrading our PET machines as we continue to think through both absolute machine number growth and capacity of our existing machines.

Speaker 2

We are excited to announce our three de novos that we have opened in early November, and reiterating that we feel good about the eight to 10 for the rest of the year. There is a significant amount of growth CapEx going into opening up our de novos in 2026, and also planning as we plan into 2027 for de novo openings. On the demand side, continue to feel really strong in the markets we are in, grateful for the strong partnership of our joint venture partners, as well as the opportunities that are in front of us. There continues to be increased patient demand for advanced scheduling, advanced procedures, and we look forward to continuing to meet that in our existing and our de novo sites.

Speaker 4

Awesome. Maybe my follow-up just really quickly, Tony. I saw that the number of units are down sequentially, both on the JV side and the consolidated. I know you added three units in November, but just curious what is happening there in terms of just closures during the quarter. Thank you.

Speaker 3

Sure. You are referring to just kind of absolute site numbers?

Speaker 4

That is right, yeah.

Speaker 3

Yeah. So, center count did go down. We consolidate centers from time to time. We talk through kind of what makes a great market and having density to support obviously staffing, connecting with the local referrer population, and then just kind of the broader ability to serve the market. Yes, we maintain a rigorous approach to center management and long-term expansion. Yes, shut a couple down, and then you'll see additions as we hit the eight to 10 de novos for the full year.

Operator

Thank you. Our next question comes from the line of Matthew Gillmor from KeyBanc. Your question, please.

Speaker 5

Hey, thanks for the question. I wanted to ask about the EBITDA progression from the third quarter to the fourth quarter. Could you talk about some of the drivers? It seems like kind of normal seasonality, but curious if there was any factors to call out as we think about that progression.

Speaker 3

Sure. As we've talked about before, we view the year kind of unfolding as 45% of our EBITDA coming in the first half, 55% in the second half. The Q3 performance kind of supports that sequencing. We increased EBITDA by 11% from Q2 to Q3, and I think we view this as an important proof point to the things we've been talking about earlier in the year about how this business is shaped in terms of in-year phasing. With Q4 coming, we expect that trend to continue and to finish the year in line with that split that we talked about.

Speaker 5

That's great. Then just as a quick follow-up, Tony Martin, on the free cash flow conversion, obviously great to see that move higher. Can you talk about some of the drivers that led you to increase the guide there?

Speaker 3

Sure. The business is growing well and converting cash strongly, which is great. That's the base of everything. But we're really pleased to guide through a higher number and have momentum for even higher conversion rates in the future, because we can do that and still invest in our growth. But I guess to kind of speak to why it's better than what we talked about back in the spring, the factors we thought would maybe weigh most heavily on cash flows at the start of the year turned out better than expected. We talked about some of these at the time, namely the JV distribution timing, which hasn't been unfavorable. Taxes are better than we thought at the beginning of the year, and working capital swings have been less extreme than we thought back in the spring.

Speaker 3

All of this just allows the business to shine through better than we thought. As you know from our previous calls, we view free cash flow as being on an upward trend year-to-year right now. We're pleased to be making that progress already in 2026.

Operator

Thank you. Our next question comes from the line of Andrew Cooper from Raymond James. Your question, please.

Speaker 6

Hey, everybody. Thanks for the time. Maybe first, it looks like the JV or the affiliated center profitability was a nice source of upside, at least first kind of where we were. Just would love any call-outs you could point to on where you're finding success there, anything operationally that stands out in the quarter, and what that tells us about Q1 and beyond as well.

Speaker 3

Sure. We always talk about system-wide primarily, because the whole business is what we're operating, but we do get excited about talking about what the health system joint venture structure does for us, because it's very strong, very durable. This quarter, both parts of the business performed very well. The growth in advanced modalities was very similar in our joint ventures and consolidated. But to get to your point about JVs in particular, yeah, I mean, we had 8.1% system-wide advanced growth, which is pulled up by higher than that on the JVs a bit. We also had JV per scan revenue that was up more than 3% quarter.

Speaker 3

Between those two things, that drives a lot of strength in the performance of the JV, the earnings were. As we've talked about before, these joint ventures are really designed to optimize the demand, the increasing demand for advanced modality scans. They were built with that in mind in terms of what modalities were put into the sites at a little bit higher proportion than some of our other centers. We get strong contracting help there with health systems. They will always, we think, perform at the kind of top end of our portfolio. Although, as we've said, it can ebb and flow a bit in an individual quarter.

Operator

Thank you. Our next question comes from the line of Clarke Murphy from Truist Securities. Your question, please.

Speaker 7

Hey. Good evening, everyone, and thanks for the question here. Just wanted to start on labor. You guys have had a handful of initiatives around recruiting and retention in place. Can you just kind of walk us through some of the benefits that you're seeing from those and just also kind of an overall update on the labor environment and kind of what you're seeing there?

Speaker 3

First, our labor costs continue to be manageable. They are not holding us up or hurting us financially. I can put a number to it, and I think Caitlin can describe some of why that is the case, because it's very purposeful on our part in terms of how we approach managing this part of our business. I would just point to numbers off of our P&L. If you see the year-over-year change in equity comp that rolls through in our biz, so you get to kind of the real cost of the business on a day-to-day basis. We continue to see operating expenses increasing at about 5% a year, which is right where it's been.

Speaker 3

There's nothing easy about maintaining a healthcare workforce, but we feel very comfortable with where we're at in terms of the numbers and how our business is able to thrive with that. Caitlin, you have other thoughts to-

Speaker 2

Yeah, sure. I think on the strategy side, we talked a little bit before about kind of the power of having density in markets. That certainly gives us some flexibility as we think through how do we support our staff with schedules that work for them and their families. We continue to invest in our radiologic technicians. We've highlighted the Technologist Advancement Academy before, and then Virtual MRI continues to roll out across our sites and provide additional redundancy and career pathing to support facility operations. On the radiologist front, we continue to recruit favorably into Connexia. We're really excited for Dr. Pirozz to join the team. What makes Dr. Pirozz such a strong fit for us is that he truly knows where AI can actually fit within and make a difference in the radiologist's day, because he's a practicing neuroradiologist himself.

Speaker 2

He will actually read for us for Connexia as well, and he has a proven ability to turn frontier models into tools that can build quickly and then create cost-effective solutions for radiologists, things like draft reporting and dictation support, things of that sort. So, continuing to make it a place that strong and amazing clinicians want to come and work.

Operator

Thank you. Our next question comes from the line of Benjamin Rossi from JPMorgan. Your question, please.

Speaker 8

Hey. Good afternoon. Thanks for taking my question. I wanted to follow up on your comments on your addressable market expanding under site neutral. Would the rule change mainly increase the number of JV opportunities, or do you think it also changes the structure of partnerships by maybe driving greater health system referrals? I guess, just curious if you could explain the primary assumptions and timeline going into this change. Thanks.

Speaker 2

Yeah. Thank you so much, Ben. We are very excited that this was finalized in the rule. Obviously, it is for off-campus HOPDs and non-contract-only scans. Just for context, within Lumexa, about 12% of our scans are with contract. So, the majority in the outpatient environment is without contract. We have had many exciting conversations happening with exceptional JV partners, and the conversations are at various stages. Obviously, the finalization of the statute is very recent, but we do think it will be an opportunity to think about how do we support health systems in their imaging overall strategy, how do they support patient access in an environment where it is just becoming increasingly difficult to build high-cost beds in a revenue-constrained reimbursement framework. So, our model, as we talk to them, helps them expand access, retain patients within their network, and obviously participate economically without relying on that hospital outpatient reimbursement premium.

Speaker 2

I think it will certainly be a little bit of both, Ben. It will both be, how do we support patients with differentiated service mechanisms, and then, are there hospital outpatient departments that should be potentially recredentialed as an IDTF to better match the reimbursement landscape? As part of that, just want to take a moment to say how excited we are to work with Advocate. Certainly, that conversation happened before site neutrality was finalized, but what is so exciting for us is we are entering a new state, Illinois, with a partner that already knows how we work. We built a relationship with Atrium Health, which is part of Advocate, through our Carolinas Imaging Services in the Charlotte region, and now we get to build on that together. When I think about what is so exciting about Advocate is certainly their scale. They have 70 hospital campuses.

Speaker 2

They serve about 5.5 million patients. As we think about Illinois, we are entering this into, entering a new market with a partner that has deep roots across Chicagoland, an extensive network of hospitals and referring physicians, and that gives us just a really exciting and strong starting point to expand access to outpatient imaging, and importantly, keeping patients connected to the care teams they know. Then certainly, of course, as we think about Advocate, there are broader opportunities. They serve additional states in the Midwest and Southeast, but our focus is really executing well in Illinois, and doing that gives us a strong foundation to explore other markets together.

Operator

Thank you. Our next question comes from the line of Stephen Baxter from Wells Fargo. Your question, please.

Speaker 9

Hi. Thanks. I know it is still a little bit early, but as 2026 is coming in solidly, would love to hear any color on how you are thinking about 2027 at this stage. Do you think, based on what you know today, we should maybe be thinking about a year that is more consistent on both an EBITDA and revenue growth perspective, maybe more consistent with your long-term expectations, and whether there is any kind of known headwinds and tailwinds to consider beyond the prepared remarks commentary about Medicare reimbursement? Thank you.

Speaker 3

Sure, Steven. I mean, first, I'll state the, probably the obvious that we'll give formal guidance in March, and anything I talk about here is just kind of the directionality of the business and some factors that drive our thinking right now. I'd say the number one thing we talked about early in the year was that this year would have the kind of headwinds of the added PubCo costs, investments we had to make to create departments to do functions that are required for a public company. We mentioned that earlier this year as something that was going to affect our growth rate versus 2025. We're tracking against expectations on that, but that did kind of take us away from the growth algorithm, we get back to those ends.

Speaker 3

As we get past that, the way we look at it is that long-term growth algorithm that we discussed is still firmly in place. We view what's happened this year as validating what our plan said and what our strategy is. We're just glad that each quarter we can put some proof points up about that, and accordingly, focus on numbers that are going to be consistent with the way we model the business long term, which was something like a 7% adjusted EBITDA with upward mobility from that as we deploy capital to grow through the de novos and some selected M&A. Kind of a long answer without getting specific, but I hope that's helpful in terms of how we think about it.

Speaker 2

Then, Steven, I can give you a little bit more on the Medicare Physician Fee Schedule. The initial analysis is modestly below zero for Medicare. Think about it approximately negative 1%, and that's when you adjust for JV and our profit-sharing structures, as well as the positive impact on the MIPS bonus payment results. When we think about some of the commercial payer mix, as we referenced, it's healthy, diverse. We've completed negotiations for nearly all of our 2027 rates. Taken together, we expect the final rule to have a limited impact on our overall 2027 reimbursement. As probably everybody knows, the impact is slightly worse than the proposed rule from July, much of that due to a decrease in the conversion factor. That's the result of the expiration of the temporary 2.5% increase Congress enacted for 2026.

Speaker 2

As it's done in several years prior, Congress may take action before end of year to partially or maybe even fully reverse the reduction and provide some sort of legislative relief that could mitigate some of that 1% impact or the conversion factor decrease. Obviously, we will plan for this, but we can certainly keep you posted on if there is impact.

Operator

Thank you. Our next question comes from the line of Andrew Mok from Barclays. Your question, please.

Speaker 10

Hi, this is Thomas Walsh on for Andrew. Can you share the same-center systemwide revenue per scan growth in the quarter and comment on pricing, commercial payer mix, and collections relative to your expectations?

Speaker 3

Yes. Sorry, what was your second question?

Speaker 2

Payer mix?

Speaker 10

Just-

Speaker 3

Payer mix

Speaker 10

more broadly, how pricing, commercial payer mix, and collections are coming in relative to your expectations?

Speaker 3

Yeah. Okay. Yes. I'd say our payer mix is kind of a non-event in terms of looking at our trends and year-over-year. We're right at where we've been for several quarters. You got just really tiny swings here or there. So there's not a lot to report there. We do continue to have a really strong commercial book, and our rate per unit increases have been consistent with or even slightly better in some cases this quarter than what we modeled. So that trend line is strong, and we're about 2.1% up per unit on the consolidated business, and we're up over 3% for the JV businesses. So that's a place we're comfortable living and think it's sustainable.

Operator

Thank you. As a reminder, if you do have a question at this time, please press star 11 on your telephone. Our next question comes from the line of Ryan Daniels from William Blair. Your question, please.

Speaker 11

Hello. This is Matthew Mardula on for Ryan Daniels. Thank you so much for taking all the questions. Regarding what was mentioned in the prepared remarks about the AI enablement tools for reporting and summarization helping improve radiologists' efficiency and reducing that administrative burden, how much additional capacity or efficiency do you believe you can continue to unlock going forward with these AI tools, especially into 2027? Then regarding the broader picture, what inning would you say you are in for having incremental capacity or just realizing operational efficiencies for radiologists regarding these AI tools going forward?

Speaker 2

Sure. Thank you so much, Matt. Yes, as we think about AI, we talk about we see it in four categories. One, how do we improve our core operations, bringing in more patients and serving more patients on the same machine? Two, how do we create backend operational efficiencies through things like our revenue cycle, our call center? Three, how do we expand our strategic service lines, things like our breast arterial calcification? Then, of course, how do we continue to support our radiologists in their overall productivity? As we are in early days of thinking through how do we support our radiologists specifically, when we think about Dr. Piroz joining the organization, there have been huge advancements even in the past 18 months on frontier models and their ability to impact radiologists' efficiency and effectiveness.

Speaker 2

Really excited to see Dr. Piroz take this to the next level. Obviously, he will be focused on serving our internal operations. He will focus on the best use of AI technology to better the patient and provider experience. Really, when I think about the ultimate goal, I want to have radiologists that feel like they are able to do their best work, provide the highest quality care, and serve our patients. At the end of the day, I want to make sure that we manage a reasonable radiologist turnaround time on the reports. That's our ultimate goal. Then I think about how do we continue to earn and grow our business. It will be by providing amazing results, high-quality subspecialist-read reports to our referring physicians quicker than the market, and supporting our radiologists with that technology is key to realizing that vision.

Operator

Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back to Caitlin for any further remarks.

Speaker 2

Thank you so much. I want to close by thanking our team members, our technologists, and our radiologists, whose commitment to our mission and to the patients and communities we serve remains the foundation of everything we do. Thank you all for your questions today. We have strong momentum, a growing network of health system partners, and a deep confidence in our strategy, the strength of our team, and the opportunity we are pursuing. We look forward to keeping you updated on our progress in the future. Have a good night.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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