|Shares Out. (in M):||11||P/E||0.0x||0.0x|
|Market Cap (in $M):||90||P/FCF||1.8x||1.9x|
|Net Debt (in $M):||519||EBIT||53||60|
|TEV (in $M):||609||TEV/EBIT||11.5x||10.0x|
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Alliance Imaging (AIQ)
Alliance Healthcare (formerly Alliance Imaging) is one of the largest diagnostic imaging and radiation service businesses in the country. The company reports 2 segments:
MRI was 41% of 2012 revenue, PET/CT 33% and Radiation Oncology 18%.
AIQ’s Tough Slog
Radiology has been a very profitable business for hospitals, arguably the most profitable of the major business lines a hospital can enter. AIQ’s own results demonstrate the high profitability, with average Gross Margins of 47% and EBITDA margins nearing 35%:
|FYE Dec ($mn's)||FY2003A||FY2004A||FY2005A||FY2006A||FY2007A||FY2008A||FY2009A||FY2010A||FY2011A||FY2012A||CAGR/Avg|
Given the high profitability, the industry has seen robust growth in scans but there have been a number of challenges:
As a result, the company’s MRI business has seen both volume and pricing declines for years:
|Avg Number of Total Systems||333||320||308||304||280||281||288||266|
|Avg Number of Scan-Based Systems||306||293||282||270||253||254||241||238||243||223|
|Total Number of Scan-Based MRI Scans||828,173||812,730||753,020||702,898||645,711||630,875||567,624||505,640||500,430||494,739|
|Price per Scan||$361||$356||$355||$360||$365||$381||$384||$384||$368||$360|
The company’s approach to these issues was to throw capital at it by investing in higher end and higher reimbursement Pet and CT scan centers and to diversify into oncology.
|Total MRI Revenue||322||316||294||280||265||269||239||215||206||196|
|Radiation Oncology, Other||38||39||41||42||40||59||66||78||119||121|
The result of this strategy was profitless prosperity as the company staved off the declines in Revenue and EBITDA but never managed to pare its substantial LBO debt load. EBITDA was essentially consumed by acquisition spending, CapX and interest expense. The company’s operating approach also appeared to be one of wait and hope the employment market improved in its home markets, which has yet to occur.
|FYE Dec ($mn's)||FY2003A||FY2004A||FY2005A||FY2006A||FY2007A||FY2008A||FY2009A||FY2010A||FY2011A||FY2012A|
Turnaround in Place
The board faced with a collision course with a debt restructuring, finally took action over the past 1-2 years, replacing CEO Paul Viviano with Larry Buckelew in June 2012. Buckelew has been an AIQ director since 2009 and has spent his entire career in various healthcare companies.
Although Buckelew was technically named interim CEO, he took a number of steps to improve Alliance’s results:
Buckelew also took steps to get Alliance’s finances under control:
Buckelew’smoves seem to be bearing fruit:
The bond market has reacted very favorably to these developments as they have rallied in the past year from the 60s to par. The stock market has yet to appreciate the improvement in the company’s financials perhaps in part due to a 1 for 5 reverse split that dramatically reduced the trading liquidity in the name from 50mm shares outstanding to 10mm.
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