Alliance HealthCare Services Reports Fourth Quarter and Full Year 2012 Results; Provides Full Year 2

Alliance HealthCare Services Reports Fourth Quarter and Full Year 2012 Results; Provides Full Year 2013 Financial Guidance

Company Continues to Organically Grow Adjusted EBITDA and Generate Significant Cash Flow


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 fourth quarter and full year ended December 31, 2012 and provided guidance for full year 2013.

Full Year 2012 Highlights

  • Full year 2012 Adjusted EBITDA increased 3.4% to $154.4 million from $149.3 million in 2011; excluding the sale/leaseback transaction completed in November 2012, which decreased Adjusted EBITDA by $1.3 million, full year 2012 Adjusted EBITDA would have increased 4.3% to $155.7 million compared to $149.3 million in 2011

  • Company made a $75 million voluntary term loan payment, reducing total leverage to 3.89x at year-end

  • The decrease in total debt for 2012, net of the change in cash and cash equivalents, totaled $53.8 million in 2012, excluding proceeds related to the sale/leaseback transaction, which exceeded the guidance range of $45 to $50 million

  • Cost saving initiatives generated $36 million in annualized savings since August 2011, surpassing the initial goal of $20-$25 million

  • Reverse stock split in December afforded the opportunity to switch stock exchange listing to the NASDAQ Global Market in February 2013

Fourth Quarter and Full Year 2012 Financial Results

Larry C. Buckelew, Chairman of the Board and Chief Executive Officer, explained, "Our solid operating results for 2012 are due to the hard work of our dedicated team members and the successful implementation of Project Phoenix, the cost savings plan that we introduced in August 2011. Our corporate culture is increasingly focused on continuously driving operational efficiency, and has generated $36 million in annualized savings since inception. I am pleased to report that these cost savings improvements and enhanced efficiency have translated into year-over-year Adjusted EBITDA growth."

Buckelew added, "In an effort to realize our long-term vision of being the indispensable partner of choice to hospital partners, we strategically pruned our customer base, consciously removing some revenue that will have a near-term impact in order to enhance the long-term value proposition that will lead to higher renewal rates and deeper relationships with our most valued customers. In addition, our strong cash generation allowed us to amend our term loan and we are now well positioned to execute our long-term strategy to achieve sustainable growth and profitability."

Revenue for the fourth quarter of 2012 was $114.8 million compared to $120.7 million in the fourth quarter of 2011. This $5.9 million decline in revenue was almost entirely driven by the strategic pruning of our customer base. For full year 2012, revenue decreased 4.3% to $472.3 million from $493.7 million in 2011. Full year 2012 revenue decreased compared to the prior period primarily due to planned changes to our portfolio to eliminate unprofitable Imaging Division and Oncology Division businesses.

Alliance's Adjusted EBITDA (as defined below) increased 0.4% to $35.6 million from $35.4 million in the fourth quarter of 2011. For full year 2012, Adjusted EBITDA totaled $154.4 million an increase of 3.4% compared to $149.3 million for full year 2011. Excluding the sale/leaseback transaction completed in November 2012, which decreased Adjusted EBITDA by $1.3 million, the fourth quarter Adjusted EBITDA would have increased 3.9% to $36.8 million from $35.4 million in the fourth quarter of 2011. For full year 2012, excluding the effect of the sale/leaseback transaction, Adjusted EBITDA would have increased 4.3% to $155.7 million from $149.3 million in 2011.

Alliance's net loss, computed in accordance with generally accepted accounting principles ("GAAP"), totaled ($5.1) million in the fourth quarter of 2012 and ($16.4) million in the fourth quarter of 2011. Full year 2012 net loss totaled ($11.9) million compared to net loss of ($160.1) million for full year 2011.

On December 26, 2012, Alliance completed a 1-for-5 reverse split of its common stock and the net loss per share described below has been adjusted for all periods presented. Net loss on a diluted basis, computed in accordance with GAAP, was ($0.48) per share in the fourth quarter of 2012 compared to ($1.54) per share in the fourth quarter of 2011. In the fourth quarter of 2012, net loss per share on a diluted basis was impacted by ($0.26) in the aggregate due to restructuring charges, mergers and acquisitions transaction costs, fair value adjustments related to interest rate swaps, and differences in the GAAP income tax rate from our historical income tax rate. In the fourth quarter of 2011, net loss per share on a diluted basis was impacted by ($0.96) in the aggregate due to impairment charges, restructuring charges, fair value adjustments related to interest rate swaps, mergers and acquisitions transaction costs, refinancing transaction costs and differences in the GAAP income tax rate from our historical income tax rate. Alliance's historical income tax rate has been 42%, compared to the GAAP income tax rate of 28.8% in the fourth quarter of 2012 and 33.1% in the fourth quarter of 2011.

Net loss on a diluted basis, computed in accordance with GAAP, was ($1.12) per share for full year 2012 compared to ($15.07) per share for full year 2011. For full year 2012, net loss per share on a diluted basis was impacted by ($0.52) in the aggregate due to restructuring charges, mergers and acquisitions transaction costs, fair value adjustments related to interest rate swaps, and differences in the GAAP income tax rate from our historical income tax rate. For full year 2011, net loss per share on a diluted basis was impacted by ($14.01) in the aggregate due to impairment charges, restructuring charges, fair value adjustments related to interest rate swaps, mergers and acquisitions transaction costs, refinancing transaction costs and differences in the GAAP income tax rate from our historical income tax rate. Alliance's historical income tax rate has been 42%, compared to the GAAP income tax rate of 36.0% for full year 2012 and 19.3% for full year 2011.

Cash flows provided by operating activities were $23.0 million in the fourth quarter of 2012 compared to $22.5 million in the fourth quarter of 2011. For full year 2012, cash flows provided by operating activities were $103.1 million compared to $93.5 million for full year 2011. The difference in operating cash flows was primarily attributable to improved operating performance and timing of working capital requirements. In the fourth quarter of 2012, capital expenditures were $21.0 million compared to $17.6 million in the fourth quarter of 2011. For full year 2012, capital expenditures were $41.6 million compared to $56.2 million for full year 2011. Alliance opened two new radiation therapy centers in the fourth quarter of 2012. For the full year of 2012, Alliance opened three new stereotactic radiosurgery centers and seven fixed-site imaging centers. 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 $80.6 million to $518.7 million at December 31, 2012 from $599.3 million at December 31, 2011. Cash and cash equivalents were $40.0 million at December 31, 2012 and $44.2 million at December 31, 2011. The Company's net debt, as defined above, divided by the last twelve months Adjusted EBITDA, as defined in the Company's credit agreement, was 3.61x for the twelve month period ended December 31, 2012.

The Company's total long-term debt (including current maturities) decreased to $558.6 million at December 31, 2012 from $643.5 million at December 31, 2011. The Company's total long-term debt divided by the last twelve months Adjusted EBITDA, as defined in the credit agreement, was 3.89x for the twelve month period ended December 31, 2012. Adjusted EBITDA as defined in the Company's credit agreement includes an adjustment to exclude income attributable to non-controlling interest in subsidiaries.

Full Year 2013 Guidance

For full year 2013, the Company expects revenue to range from $460 million to $485 million and Adjusted EBITDA to range from $140 million to $160 million. The 2013 revenue guidance range is impacted by $12 million due to changes made in 2012 to our portfolio to eliminate unprofitable revenue from our Imaging and Oncology Divisions. The Adjusted EBITDA guidance range is impacted by an approximately $8 million increase in operating expenses due to lease payments related to the sale/leaseback transaction entered into in November of 2012, the proceeds of which were used to reduce borrowings under the Company's credit agreement by $30.0 million.

For full year 2013, the Company expects radiation oncology revenue to range from $84 million to $92 million. This revenue guidance range is impacted by $7 million of strategic pruning of our Oncology revenue base. Alliance expects that approximately 19% of the Company's full year 2013 revenue will be generated from radiation oncology. Alliance trimmed the portfolio of unprofitable radiation oncology centers and divested 8 centers in 2012.

Alliance expects 2013 capital expenditures to total approximately $45 million to $55 million. The Company expects to open 20 to 25 fixed-site imaging centers and expects to open two to six radiation therapy centers in 2013.

Cash income taxes paid for full year 2013 are expected to range from $2 million to $3 million.

In 2013, the Company expects a decrease in long-term debt, net of the change in cash and cash equivalents, of $25 million to $35 million. This guidance range for cash flows is impacted by an $8 million increase in operating expenses due to the sale/leaseback transaction entered into in November 2012.

Buckelew concluded, "In 2013, we will continue to implement the strategic changes necessary to drive the long term growth and success of our business. As a result, we expect 2013 to be a transition year as the impact of portfolio management will continue to affect our income statement in the near-term. Over the past year, we have been successful in stabilizing our Imaging Division, which now allows us to expand our value proposition to be more of a strategic partner to our customers moving forward. We expect to continue to see progress in providing our services in the most efficient manner and expect the results of higher retention and new sales to impact our 2013 results, particularly in the second half of the year."

Full Year 2012 Earnings and 2013 Guidance Conference Call

Investors and all others are invited to listen to a conference call discussing fourth quarter 2012 results. The conference call is scheduled for Thursday, March 14, 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 April 14, 2013. The telephone replay can be accessed by calling (855) 859-2056 or (404) 537-3406. The conference call identification number is 19312574.

Definition of Adjusted EBITDA

Adjusted EBITDA, as defined by the Company's management, represents net income (loss) 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. The components used to reconcile net income (loss) to Adjusted EBITDA are consistent with our historical presentation of Adjusted EBITDA. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States, or "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 45 states. Alliance operates 490 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 128 locations across the country. Alliance also operates 29 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, and increase organizational efficiency and cost savings through the Project Phoenix initiative; 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 the preliminary financial results and estimates due to the restatement or review of the Company's financial statements; the nature, timing and amount of any 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, 2011, 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 Ended

Year Ended

December 31,

December 31,

2011

2012

2011

2012

Revenues

$

120,652

$

114,828

$

493,651

$

472,258

Costs and expenses:

Cost of revenues, excluding depreciation and amortization

69,172

62,664

279,751

253,225

Selling, general and administrative expenses

20,433

20,780

77,140

76,022

Transaction costs

112

482

3,429

994

Severance and related costs

482

716

3,991

2,226

Impairment charge

12,089

-

167,792

-

Depreciation expense

22,015

16,627

89,974

79,333

Amortization expense

4,179

3,866

16,444

15,861

Interest expense and other, net

13,618

13,032

49,789

54,101

Other (income) and expense, net

1,540

1,725

2,203

3,036

Total costs and expenses

143,640

119,892

690,513

484,798

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

(22,988

)

(5,064

)

(196,862

)

(12,540

)

Income tax benefit

(8,101

)

(2,050

)

(38,242

)

(6,710

)

Earnings from unconsolidated investees

(780

)

(1,256

)

(3,516

)

(4,667

)

Net loss

(14,107

)

(1,758

)

(155,104

)

(1,163

)

Less: Net income attributable to noncontrolling interest

(2,292

)

(3,314

)

(5,008

)

(10,775

)

Net loss attributable to Alliance HealthCare Services, Inc.

$

(16,399

)

$

(5,072

)

$

(160,112

)

$

(11,938

)

Comprehensive loss, net of taxes

Net loss attributable to Alliance HealthCare Services, Inc.

$

(16,399

)

$

(5,072

)

$

(160,112

)

$

(11,938

)

Unrealized loss on hedging transactions, net of taxes

23

(86

)

(281

)

(239

)

Comprehensive loss, net of taxes:

$

(16,376

)

$

(5,158

)

$

(160,393

)

$

(12,177

)

Loss per common share attributable to Alliance HealthCare Services, Inc.:

Basic

$

(1.54

)

$

(0.48

)

$

(15.07

)

$

(1.12

)

Diluted

$

(1.54

)

$

(0.48

)

$

(15.07

)

$

(1.12

)

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

Basic

10,620

10,589

10,626

10,624

Diluted

10,620

10,589

10,626

10,624

ALLIANCE HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

December 31,

2011

2012

ASSETS

Current assets:

Cash and cash equivalents

$

44,190

$

39,977

Accounts receivable, net of allowance for doubtful accounts

70,701

62,320

Deferred income taxes

10,086

17,364

Prepaid expenses

6,462

5,078

Other receivables

4,301

3,898

Total current assets

135,740

128,637

Equipment, at cost

954,337

827,162

Less accumulated depreciation

(663,038

)

(618,601

)

Equipment, net

291,299

208,561

Goodwill

56,493

56,493

Other intangible assets, net

143,024

126,931

Deferred financing costs, net

17,268

16,497

Other assets

19,270

23,022

Total assets

$

663,094

$

560,141

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

22,417

$

15,993

Accrued compensation and related expenses

18,204

22,481

Accrued interest payable

6,582

5,081

Other accrued liabilities

33,438

26,835

Current portion of long-term debt

24,923

13,145

Total current liabilities

105,564

83,535

Long-term debt, net of current portion

430,451

357,056

Senior notes

188,109

188,434

Other liabilities

879

4,314

Deferred income taxes