Alliance HealthCare Services Reports Results for the First Quarter Ended March 31, 2013

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Alliance HealthCare Services Reports Results for the First Quarter Ended March 31, 2013

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- Alliance HealthCare Services, Inc. (NAS: AIQ) (the "Company" or "Alliance"), a leading national provider of outpatient diagnostic imaging and radiation therapy services, announced results for first quarter ended March 31, 2013.

First Quarter 2013 Highlights

  • Excluding the impact of the rent expense form our recent sale/leaseback transaction and the longer quarter in 2012 due to the leap year, first quarter 2013 Adjusted EBITDA would have increased by 1% over the prior year, representing the fourth consecutive quarter of organic increase in Adjusted EBITDA; produced first quarter 2013 Adjusted EBITDA of $35.2 million compared to $37.8 million in the first quarter of 2012
  • Alliance continued to gain operational efficiency in the first quarter, which helped offset the impact of the industry-wide slowdown of healthcare volumes on the Company's revenue
  • Completed a $15.0 million voluntary term loan payment, reducing total leverage to 3.9x and net leverage to 3.7x as of March 31, 2013
  • Continue to generate strong cash flow, with $40.9 million reduction in the change in net debt in the last 12 month period
  • Annual revenue guidance revised primarily as a result of planned pruning of the Company's professional radiology services business
  • Company moved its listing to the NASDAQ Global Market

First Quarter 2013 Financial Results

"While our first quarter results reflect the impact of a challenging industry environment, they also signify a continued commitment to driving operational efficiency at Alliance," stated Larry C. Buckelew, Chairman of the Board and interim Chief Executive Officer. "These initiatives, coupled with our recent voluntary term loan payment, demonstrate our Company's focus on achieving sustainable growth, profitability and cash flow. While industry-wide volumes started slowly in the first quarter of this year, we believe that the fundamentals of the healthcare services industry will improve and help drive growth in the remainder of the year."

Furthermore, Buckelew commented, "Over the past several quarters, we have been very proactive and successful in generating cash flow, paying down our debt and managing our leverage level in this favorable credit environment. Given the persisting favorable credit conditions, we are reviewing the Company's debt structure, including specifically the terms and pricing of the Company's current term loan and revolving credit facility."

Buckelew concluded, "As we move further in to 2013, we will continue to focus on driving long-term growth. As such, increased efforts to improve the management of our portfolio will continue to impact our revenue over the course of the year. Given hospital customer enthusiasm for our enhanced hospital-centric strategies, and the positive reaction to our enhanced value proposition to hospitals, we have decided that our professional radiology services business does not align with our future strategic vision for our Imaging Division. Therefore, as a result of increased opportunities to divest our professional radiology services business, as well as the potential to prune of some of our otherwise unprofitable business, we are revising our full year revenue guidance to account for these planned additional pruning efforts later in 2013. Expected improvement in healthcare services volumes in the remaining portion of the year and the focus on helping our hospital customers drive volume growth gives us confidence that we will achieve our full year guidance."

Revenue for the first quarter of 2013 was $110.4 million compared to $120.8 million in the first quarter of 2012. This $10.4 million decline in revenue was driven by the strategic reduction of our customer base in 2012, a decrease in the number of operating days due to the leap year in 2012 and industry-wide weakness in outpatient healthcare volumes.

Alliance's Adjusted EBITDA (as defined below) decreased 6.9% to $35.2 million from $37.8 million in the first quarter of 2012. Excluding $2.0 million of rent expense from the sale/leaseback transaction completed in November 2012 and adjusting for the longer first quarter of 2012 caused by the leap year, which decreased Adjusted EBITDA by $0.9 million, or $2.9 million collectively, the first quarter Adjusted EBITDA would have increased by 0.9% to $38.1 million in the first quarter of 2013 from $37.8 million in the first quarter of 2012.

Alliance's net loss, computed in accordance with generally accepted accounting principles ("GAAP"), totaled ($2.4) million in the first quarter of 2013 and ($4.8) million in the first quarter of 2012.

Net loss per share on a diluted basis, computed in accordance with GAAP, was ($0.23) per share in the first quarter of 2013 compared to ($0.45) per share in the first quarter of 2012. In the first quarter of 2013, net loss per share on a diluted basis was impacted by ($0.19) in the aggregate due to restructuring charges, transaction costs and differences in the GAAP income tax rate compared to our historical income tax rate. In the first quarter of 2012, net loss per share on a diluted basis was impacted by ($0.18) in the aggregate due to the same adjustments. Alliance's historical income tax rate has been 42%, compared to the GAAP income tax rate of 5.4% in the first quarter of 2013 and 35.4% in the first quarter of 2012.

Cash flows provided by operating activities totaled $10.5 million in the first quarter of 2013 compared to $24.4 million in the first quarter of 2012. In the first quarter of 2013, capital expenditures, including capital leases, were $5.6 million compared to $7.8 million in the first quarter of 2012. Alliance will continue to allocate resources through targeted investments designed to support and move forward the long-term goals of the business.

Alliance's net debt, defined as total long-term debt (including current maturities) less cash and cash equivalents, decreased $4.3 million to $514.4 million at March 31, 2013 from $518.7 million at December 31, 2012. Cash and cash equivalents were $30.7 million at March 31, 2013 and $40.0 million at December 31, 2012. The Company made a $15.0 million voluntary term loan payment during the first quarter of 2013. The Company's net debt, as defined above, divided by the last twelve months Consolidated Adjusted EBITDA, as defined in the Company's credit agreement, was 3.66x for the twelve month period ended March 31, 2013 compared to 4.04 for the twelve month period ended a year ago. Consolidated Adjusted EBITDA, as defined in the Company's credit agreement includes an adjustment to Adjusted EBITDA to exclude income attributable to non-controlling interest in subsidiaries.

"Continuing to pay down debt and reducing our total and senior secured leverage ratios remains a top priority at Alliance. During the quarter, we made a $15.0 million voluntary repayment against the principal of our senior secured term loan. Our organic Adjusted EBITDA growth, strong cash flow generation, and proceeds from our sale/leaseback transaction have enabled us to repay a total of $90 million of Alliance's total debt, or 22 percent of the balance of our senior secured term loan and 14 percent of our total debt outstanding, since September 30, 2012," stated Howard K. Aihara, Executive Vice President and Chief Financial Officer.

Full Year 2013 Guidance

Due primarily to the planned disposition of the Company's professional radiology services business and further planned pruning of some additional revenue, Alliance is updating its full year 2013 revenue guidance range as follows:

  Previous   Revised  
Guidance Guidance
Ranges Ranges Difference
(dollars in millions) (dollars in millions) (dollars in millions)
Revenue $460 - $485 $450 - $475 ($10) - ($10)
Adjusted EBITDA $140 - $160 $140 - $160 Unchanged
Capital expenditures $45 - $55 $45 - $55 Unchanged

Decrease in long-term debt, net of the change in cash and cash equivalents (before investments in acquisitions)

$25 - $35 $25 - $35 Unchanged

First Quarter 2013 Earnings Conference Call

Investors and all others are invited to listen to a conference call discussing first quarter 2013 results. The conference call is scheduled for Thursday, May 2, 2013 at 8:30 a.m. Eastern Time. The call will be broadcast live on the Internet and can be accessed by visiting the Company's website at Click on Audio Presentations in the Investors section of the website to access the link.

The conference call can be accessed at (877) 638-4550 or (973) 582-2737. Interested parties should call at least five minutes prior to the call to register. A telephone replay will be available until June 2, 2013. The telephone replay can be accessed by calling (855) 859-2056 or (404) 537-3406. The conference call identification number is 57738660.

Definition of Adjusted EBITDA

Adjusted EBITDA, as defined by the Company's management, represents net income (loss) under generally accepted accounting principles in the United States, or "GAAP," before: interest expense, net of interest income; income taxes; depreciation expense; amortization expense; net income (loss) attributable to noncontrolling interests; non-cash share-based compensation; severance and related costs; restructuring charges; fees and expenses related to acquisitions; costs related to debt financing; non-cash impairment charges; and other non-cash charges included in other (income) expense, net, which includes non-cash losses on sales of equipment. Adjusted EBITDA is not a measure of financial performance under GAAP. For a more detailed discussion of Adjusted EBITDA and reconciliation to net income (loss), see the section entitled "Adjusted EBITDA" included in the tables following this release.

About Alliance HealthCare Services

Alliance HealthCare Services is a leading national provider of advanced outpatient diagnostic imaging and radiation therapy services based upon annual revenue and number of systems deployed. Alliance focuses on MRI, PET/CT and CT through its Imaging division and radiation therapy through its Oncology division. With approximately 1,800 team members committed to providing exceptional patient care and exceeding customer expectations, Alliance provides quality clinical services for over 1,000 hospitals and other healthcare partners in 44 states. Alliance operates 487 diagnostic imaging and radiation therapy systems. The Company is the nation's largest provider of advanced diagnostic mobile imaging services and one of the leading operators of fixed-site imaging centers, with 129 locations across the country. Alliance also operates 28 radiation therapy centers, including 17 dedicated stereotactic radiosurgery facilities, many of which are operated in conjunction with local community hospital partners, providing treatment and care for cancer patients. With 17 stereotactic radiosurgery facilities in operation, Alliance is among the leading providers of stereotactic radiosurgery nationwide.

Forward-Looking Statements

This press release contains forward-looking statements relating to future events, including statements related to the Company's cost savings plan and long-term growth, including its efforts to stabilize and grow the Imaging Division, expand the Radiation Oncology Division, divest or reduce the scope of the professional radiology services business, manage its portfolio, and increase operational efficiency and cost savings; the ability of the Company's focus on hospital customers to drive growth; expectations related to improvement of fundamentals in the healthcare industry and healthcare services volumes and the ability of such improvement to drive growth for the Company, the Company's ability to take advantage of favorable credit conditions with respect to the terms and pricing of the Company's term loan and revolving credit facility, the Company's expectations with respect to customer retention and new sales and their impact on 2013 results, the Company's Full Year 2013 Guidance, including its forecasts of revenue, Adjusted EBITDA, cash capital expenditures, decrease in long-term debt and the opening of new fixed-site imaging and radiation therapy centers; and estimates of revenues lost and revenues gained from new client contracts in the Company's revenue gap disclosures on the last page of the tables following this release.

In this context, forward-looking statements often address the Company's expected future business and financial results and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks" or "will." Forward-looking statements by their nature address matters that are uncertain and subject to risks. Such uncertainties and risks include: changes in financial results and guidance in the event of a restatement or review of the Company's financial statements; the nature, timing and amount of any such restatement or other adjustments; the Company's ability to make timely filings of its required periodic reports under the Securities Exchange Act of 1934; issues relating to the Company's ability to maintain effective internal control over financial reporting and disclosure controls and procedures; the Company's high degree of leverage and its ability to service its debt; factors affecting the Company's leverage, including interest rates; the risk that the counterparties to the Company's interest rate swap agreements fail to satisfy their obligations under these agreements; the Company's ability to obtain financing; the effect of operating and financial restrictions in the Company's debt instruments; the accuracy of the Company's estimates regarding its capital requirements; the effect of intense levels of competition in the Company's industry; changes in the methods of third party reimbursements for diagnostic imaging and radiation oncology services; fluctuations or unpredictability of the Company's revenues, including as a result of seasonality; changes in the healthcare regulatory environment; the Company's ability to keep pace with technological developments within its industry; the growth or lack thereof in the market for imaging, radiation oncology and other services; the disruptive effect of hurricanes and other natural disasters; adverse changes in general domestic and worldwide economic conditions and instability and disruption of credit markets; difficulties the Company may face in connection with recent, pending or future acquisitions, including unexpected costs or liabilities resulting from the acquisitions, diversion of management's attention from the operation of the Company's business, and risks associated with integration of the acquisitions; and other risks and uncertainties identified in the Risk Factors section of the Company's Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (the "SEC"), as may be modified or supplemented by our subsequent filings with the SEC. These uncertainties may cause actual future results or outcomes to differ materially from those expressed in the Company's forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake to update its forward-looking statements except as required under the federal securities laws.

(in thousands, except per share amounts)
Quarter Ended
March 31,
  2012     2013  
Revenues $ 120,753 $ 110,382
Costs and expenses:

Cost of revenues, excluding depreciation and amortization

66,139 60,639
Selling, general and administrative expenses 20,835 19,095
Transaction costs 243 80
Severance and related costs 529 348
Depreciation expense 21,445 16,516
Amortization expense 4,012 3,794
Interest expense and other, net 13,688 12,272
Other (income) and expense, net   154     (902 )
Total costs and expenses   127,045     111,842  

Loss before income taxes, earnings from unconsolidated investees, and noncontrolling interest

(6,292 ) (1,460 )
Income tax benefit (2,642 ) (138 )
Earnings from unconsolidated investees   (1,078 )   (1,734 )
Net (loss) income (2,572 ) 412
Less: Net income attributable to noncontrolling interest   (2,250 )   (2,830 )
Net loss attributable to Alliance HealthCare Services, Inc. $ (4,822 ) $ (2,418 )
Comprehensive loss, net of taxes
Net loss attributable to Alliance HealthCare Services, Inc. $ (4,822 ) $ (2,418 )
Unrealized gain (loss) on hedging transactions, net of taxes   55     (80 )
Comprehensive loss, net of taxes: $ (4,767 ) $ (2,498 )
Loss per common share attributable to Alliance HealthCare Services, Inc.:
Basic $ (0.45 ) $ (0.23 )
Diluted $ (0.45 ) $ (0.23 )

Weighted average number of shares of common stock and common stock equivalents:

Basic 10,664 10,627
Diluted 10,664 10,627
(in thousands)
  December 31,   March 31,
  2012     2013  
Current assets:
Cash and cash equivalents $ 39,977 $ 30,667
Accounts receivable, net of allowance for doubtful accounts 62,320 63,225
Deferred income taxes 17,364 17,364
Prepaid expenses 5,078 5,967
Other receivables   3,898       3,352  
Total current assets 128,637 120,575
Equipment, at cost 827,162 826,369
Less accumulated depreciation   (618,601 )   (628,134 )
Equipment, net 208,561 198,235
Goodwill 56,493 56,493
Other intangible assets, net 126,931 123,137
Deferred financing costs, net 16,497 15,512
Other assets   23,022     21,072  
Total assets $ 560,141   $ 535,024  
Current liabilities:
Accounts payable $ 15,993 $ 15,860
Accrued compensation and related expenses 22,481 14,404
Accrued interest payable 5,081 8,486
Other accrued liabilities 26,835 23,716
Current portion of long-term debt   13,145     13,138  
Total current liabilities 83,535 75,604
Long-term debt, net of current portion 357,056 343,416
Senior notes 188,434 188,520
Other liabilities 4,314 4,327
Deferred income taxes   43,095     42,896  
Total liabilities 676,434 654,763
Stockholders' equity:
Common stock 524 524
Treasury stock (2,877 ) (2,877 )
Additional paid-in capital 21,507 21,913
Accumulated comprehensive loss (716 ) (636 )
Accumulated deficit   (183,226 )   (185,644 )
Total stockholders' equity attributable to Alliance HealthCare Services, Inc. (164,788 ) (166,720 )
Noncontrolling interest   48,495     46,981  
Total stockholders' equity   (116,293 )   (119,739 )
Total liabilities and stockholders' equity $ 560,141   $ 535,024  
(in thousands)
  Quarter Ended
March 31,
  2012       2013  
Operating activities:
Net (loss) income $ (2,572 ) $ 412
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for doubtful accounts 762 946
Share-based payment 882 406
Depreciation and amortization 25,457 20,310
Amortization of deferred financing costs 957 1,160
Accretion of discount on long-term debt 419 420
Adjustment of derivatives to fair value 14 123
Distributions more (less) than undistributed earnings from investees 462 (233 )
Deferred income taxes (2,679 ) (254 )
Gain (loss) on sale of assets 106 (805 )
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable 2,240 (1,851 )
Prepaid expenses 248 (889 )
Other receivables 1,364 546
Other assets 36 368
Accounts payable (3,525 ) (1,769 )
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