Alliance HealthCare Services Reports Results for the Second Quarter Ended June 30, 2013

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Alliance HealthCare Services Reports Results for the Second Quarter Ended June 30, 2013

Company Grows Adjusted EBITDA for Fifth Consecutive Quarter, Generates Strong Cash Flow and Confirms 2013 Guidance

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 the second quarter ended June 30, 2013.


Second Quarter 2013 Highlights

  • Excluding the impact of rent expense from our fourth quarter 2012 sale/leaseback transaction, second quarter 2013 Adjusted EBITDA increased by 3% over the prior year, representing the fifth consecutive quarter of organic increase in Adjusted EBITDA.
  • Also excluding the impact of rent expense from our fourth quarter 2012 sale/leaseback transaction, second quarter 2013 Adjusted EBITDA as a percentage of revenue increased by 3% to 35.5% from 32.7% in the prior year.
  • Achieved positive second quarter 2013 revenue gap of +$2.0 million and the revenue gap for the last twelve month period ended June 30, 2013 is now neutral, an indicator of revenue stability and a pathway to growth in the future.
  • Generated net income per share of $0.23, after excluding loss on extinguishment of debt, impairment charges, restructuring and transaction costs, and differences in the GAAP income tax rate compared to our historical income tax rate. Earnings per share in accordance with GAAP was ($1.22) per share.
  • Continued to generate strong cash flow, with $48.3 million reduction in net debt in the last twelve month period, after adjusting for fees paid in connection with debt refinancing and proceeds related to the sale/leaseback transaction.
  • Paid down $126 million of total debt over the last seven quarters, and decreased our total leverage by 0.5x to 3.70x for the last twelve months ended June 30, 2013 from 4.21x in the last twelve month period a year ago.
  • Completed a refinance of our term loan debt and a partial call of our senior notes, which will save the Company $12 million in cash interest expense annually and approximately $7 million in 2013.

"We are very pleased to report positive second quarter results that were in line with our expectations. Over the past several quarters, we have been very proactive and successful in generating cash flow, paying down our debt and managing our leverage. This success continued into the second quarter, as we maintained a high level of cash flows and completed the refinancing of our credit agreement and debt structure," stated Larry C. Buckelew, Chairman of the Board and interim Chief Executive Officer. "As we move to the second half of 2013, we will continue to focus on driving long-term growth and profitability. As such, increased efforts to improve the quality of our customer portfolio will continue to impact our revenue over the course of the year. Despite this near-term pruning of select low margin revenue streams, we remain confident that our long-term strategy of aligning the Company and our services with our hospital partners will position Alliance for meaningful growth and value creation."

Second Quarter 2013 Financial Results

Revenue for the second quarter of 2013 was $114.4 million compared to $120.7 million in the second quarter of 2012. This $6.3 million decrease in revenue was driven by the strategic reduction of our customer base in 2012 and industry-wide softness in outpatient healthcare volumes.

Alliance's Adjusted EBITDA (as defined below) decreased 2.1% to $38.6 million in the second quarter of 2013 from $39.4 million in the second quarter of 2012. Excluding $2.0 million of rent expense from the sale/leaseback transaction completed in November 2012, Adjusted EBITDA would have increased by 3.0% to $40.6 million in the second quarter of 2013 from $39.4 million in the second quarter of 2012.

Alliance's net loss, computed in accordance with generally accepted accounting principles ("GAAP"), totaled ($13.0) million in the second quarter of 2013 and ($0.8) million in the second quarter of 2012.

Net loss per share on a diluted basis, computed in accordance with GAAP, was ($1.22) per share in the second quarter of 2013 compared to ($0.08) per share in the second quarter of 2012. In the second quarter of 2013, net loss per share on a diluted basis was impacted by ($0.92) due to loss on extinguishment of debt, ($0.26) related to the impairment of intangible assets in our professional services business, ($0.27) 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 second quarter of 2012, net loss per share on a diluted basis was impacted by ($0.08) in the aggregate due to restructuring charges, mergers and acquisitions transaction costs and differences in the GAAP income tax rate from our historical income tax rate.

Cash flows provided by operating activities totaled $22.0 million in the second quarter of 2013 compared to $18.4 million in the second quarter of 2012. In the second quarter of 2013, capital expenditures were $4.8 million compared to $6.2 million in the second 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 $6.7 million to $512.0 million at June 30, 2013 from $518.7 million at December 31, 2012. Cash and cash equivalents were $47.0 million at June 30, 2013 and $40.0 million at December 31, 2012. As a result of the Company's successful term loan refinancing in June 2013, the Company's net debt was increased by $9.3 million related to fees and expenses incurred and $2.5 million due to the change in the unamortized discount on the old and new term loans. The Company's net debt, as defined above, divided by the last twelve months Consolidated Adjusted EBITDA was 3.39x for the twelve month period ended June 30, 2013 compared to 3.81x for the twelve month period ended a year ago. The Company's total debt, as defined above, divided by the last twelve months Consolidated Adjusted EBITDA was 3.70x for the twelve month period ended June 30, 2013 compared to 4.21x for the twelve month period ended a year ago.

"Our ability to refinance our term loan during the second quarter is a clear indication that Alliance is focused on making improvements in our business performance while strengthening our balance sheet. Also, as previously announced earlier this month, we completed the $80 million delayed draw on our term loan and used the proceeds to pay down $80 million on our 8% senior notes. These financings represent another positive step in our ongoing effort to maximize the efficiency of our capital structure, while providing the flexibility and cash flow necessary to execute upon our strategic initiatives, including ongoing reduction of our debt. Our new term loan facility significantly reduces our interest rate and associated interest expense on an ongoing basis, which will translate into increased cash flow for the current fiscal year and beyond. Continuing to pay down debt and reducing our total leverage ratio remains a top priority at Alliance," stated Howard K. Aihara, Executive Vice President and Chief Financial Officer.

Full Year 2013 Guidance

Alliance is confirming its full year 2013 guidance ranges as follows:

  
Guidance
Ranges
(dollars in millions)
Revenue$450 - $475
Adjusted EBITDA$140 - $160
Capital expenditures$45 - $55
Decrease in long-term debt, net of
the change in cash and cash equivalents
(before investments in acquisitions and debt refinancing costs)
$32 - $42
 

Second Quarter 2013 Earnings Conference Call

Investors and all others are invited to listen to a conference call discussing second quarter 2013 results. The conference call is scheduled for Thursday, August 1, 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 www.alliancehealthcareservices-us.com. 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 September 1, 2013. The telephone replay can be accessed by calling (855) 859-2056 or (404) 537-3406. The conference call identification number is 22553323.

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 482 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 130 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; the Company's ability to grow revenue in the future; the Company's ability to make investments that support and move forward the Company's long-term business goals, the Company's ability to continue to pay down debt and reduce its total leverage ratio, 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.

 
ALLIANCE HEALTHCARE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share amounts)
         
Quarter EndedSix Months Ended
June 30,June 30,
2012201320122013
 
Revenues$120,664$114,418$241,417$224,800
 
Costs and expenses:
Cost of revenues, excluding depreciation
and amortization63,88160,094130,020120,733
Selling, general and administrative expenses18,07820,24738,91339,342
Transaction costs20-26380
Severance and related costs7722981,301646
Impairment charges-4,867-4,867
Loss on extinguishment of debt-17,069-17,069
Depreciation expense20,69316,32242,13832,838
Amortization expense3,9942,9118,0066,705
Interest expense and other, net13,67911,05327,36723,325
Other (income) and expense, net 1,208  (385) 1,362  (1,287)
Total costs and expenses 122,325  132,476  249,370  244,318 
Loss before income taxes, earnings from unconsolidated
investees, and noncontrolling interest(1,661)(18,058)(7,953)(19,518)
Income tax benefit(2,427)(7,195)(5,069)(7,333)
Earnings from unconsolidated investees (1,161) (1,408) (2,239) (3,142)
Net income (loss)1,927(9,455)(645)(9,043)
Less: Net income attributable to noncontrolling interest (2,728) (3,509) (4,978) (6,339)
Net loss attributable to Alliance HealthCare Services, Inc.$(801)$(12,964)$(5,623)$(15,382)
 
Comprehensive loss, net of taxes
Net loss attributable to Alliance HealthCare Services, Inc.$(801)$(12,964)$(5,623)$(15,382)
Unrealized gain (loss) on hedging transactions, net of taxes 37  (192) 92  (272)
Comprehensive loss, net of taxes:$(764)$(13,156)$(5,531)$(15,654)
 
Loss per common share attributable to Alliance HealthCare Services, Inc.:
Basic$(0.08)$(1.22)$(0.53)$(1.45)
Diluted$(0.08)$(1.22)$(0.53)$(1.45)
 
Weighted average number of shares of
common stock and common stock equivalents:
Basic10,63310,62910,64810,629
Diluted10,63310,62910,64810,629
 
 
ALLIANCE HEALTHCARE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
 
  December 31,  June 30,
20122013
ASSETS
Current assets:
Cash and cash equivalents$39,977$47,003
Accounts receivable, net of allowance for doubtful accounts62,32063,810
Deferred income taxes17,36417,364
Prepaid expenses5,0787,456
Other receivables 3,898    4,235 
Total current assets128,637139,868
 
Equipment, at cost827,162820,545
Less accumulated depreciation (618,601) (634,129)
Equipment, net208,561186,416
 
Goodwill56,49356,493
Other intangible assets, net126,931115,359
Deferred financing costs, net16,49711,485
Other assets 23,022  18,557 
Total assets$560,141 $528,178 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$15,993$14,460
Accrued compensation and related expenses22,48118,969
Accrued interest payable5,0812,507
Other accrued liabilities26,83523,363
Current portion of long-term debt 13,145  15,813 
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