AIQ - Alliance Healthcare

[frommi]

Yes I do still have a large position about 8% at this point.  At 7x EBITDA I get closer to $49 per share which I think is close to fair value.  RDNT sells at a premium to this price and most medical facilities trade at 7 to 9x EBITDA. 

 

As to thin trading that goes with the territory of cheap stocks and that may be one reason it trades at a discount to RDNT.

 

Packer

 

And this is without even factoring in the possible growth of EBITDA in 2015 and the FCF of 2015. Chances are good that there is some organic growth + the open of the CAMC cancer center.

 

The new cancer center will offer new state-of-the-art comprehensive cancer care services including medical and radiation oncology treatments, radiosurgery through brain and body, mammography, ultrasound and other cancer support services. We expect the new radiation therapy units to be installed by mid-summer of 2015. First year revenues from the new radiation therapy department at the CAMC cancer center are expected to yield Alliance approximately $10 million in annual revenues.

[tombgrt]

Alliance Healthcare Services Establishes Partnership with The Pain Center of Arizona

 

http://phx.corporate-ir.net/phoenix.zhtml?c=129994&p=irol-newsArticle&ID=2017649

 

 

[kab60]

Thanks, tomb. I only found some mixed reviews on Yelp. Anyone know how much cash these guys generate?

[misterkrusty]

Packer-  what sort of EBITDA estimates are you using when you say 7x EBITDA gets you to $49/share?

 

I see 127.3 million of TTM EBITDA.  7*127.3=891.1 EV

 

891.1

- 44.5 minority interest

- 505.3 debt

+ 38.8 cash

= 259.8 market cap  / 10.6m shares = $24.50 per share

 

I guess you see EBITDA going up from here?

[krazeenyc]

Packer-  what sort of EBITDA estimates are you using when you say 7x EBITDA gets you to $49/share?

 

I see 127.3 million of TTM EBITDA.  7*127.3=891.1 EV

 

891.1

- 44.5 minority interest

- 505.3 debt

+ 38.8 cash

= 259.8 market cap  / 10.6m shares = $24.50 per share

 

I guess you see EBITDA going up from here?

 

I have $140.5 TTM Ebitda.

[Packer16]

I have $143m EBITDA from mid-point of 2014 forecast range of adjusted EBITDA.

 

Packer

[Phaceliacapital]

Packer-  what sort of EBITDA estimates are you using when you say 7x EBITDA gets you to $49/share?

 

I see 127.3 million of TTM EBITDA.  7*127.3=891.1 EV

 

891.1

- 44.5 minority interest

- 505.3 debt

+ 38.8 cash

= 259.8 market cap  / 10.6m shares = $24.50 per share

 

I guess you see EBITDA going up from here?

 

Your calculation seems off. 890 - 450 + 40 = +/- 380 ?

[misterkrusty]

you're right - i screwed that up somehow.  sorry

[GrizzlyRock]

2 thoughts on the Pain Center acquisition:

 

1)  Pretty weird no 8k filed regarding the acquisition.  Just another quirk which speaks to the valuation gap btw price & FV.

 

2)  Would be interesting to know (not that we will ex ante) if this was the "hockey stick growth chart for the CIM" for the Oaktree sale or if they think a pain intervention roll-up nationally makes sense...  My guess is the former.

[Packer16]

Interesting questions about the acquisition.  I think it may be early for the 8-K and am not sure if the have to disclose if it is a JV.  Getting ready for a sale may also be a motivation as the current CEO has sold firms to others in the past.

 

Oaktree just took another of there equity investees (Pulse Electronics) private at a 50% above the pre-announcement price.  Pulse was in much worse condition than AIQ in terms of debt level and service of which they owned the majority.

 

Packer

[Phaceliacapital]

2)  Would be interesting to know (not that we will ex ante) if this was the "hockey stick growth chart for the CIM" for the Oaktree sale or if they think a pain intervention roll-up nationally makes sense...  My guess is the former.

 

Could you elaborate on this?

[GrizzlyRock]

Pure speculation on my part.  Oaktree needs an exit by sale.  For the bankers to sell the biz at a reasonable multiple (read: anywhere near RadNet), they need to be able to speak to business growth.  Given the dynamics of imaging and oncology, the pain mgmt biz could reasonably be assumed to be the "growth" part of the story...

[phil_Buffett]

http://investors.alliancehealthcareservices-us.com/phoenix.zhtml?c=129994&p=irol-newsArticle&ID=2026086

 

full year 2014 earnings

[Laxputs]

I'm still waiting to read the CC but based on the Q4 and YE update, things look good. Revenue is steady after accounting for the sale of their Pro Rad Services Biz last year.

 

I have current EV/EBITDA multiple of 5.8. If it goes to 6.5x I have 40% appreciation from 25$/share. Not that high of a base case upside.  Am I missing something there?

 

But mid-range guidance is 138m EBITDA. Interest -24. M-Capex -32. PreTax Cash Flows = 82m. Say -6m tax. That's about 76m owner's earnings. 10.8m shares. 7$/share in OE. 25$ p/s. 3.6x OE or 30% of the market cap in owner's earnings. Given 51% ownership by Oaktree, there will come a more sane valuation of the company in relation to cash flows at some point (either through a sale or through massive buybacks/dividends). If it's delayed then that means there exists profitable growth and the intrinsic value is increasing.

 

MOS: 125m low end EBITDA - 30m m-capex is 95m. 4x interest coverage.

 

Thoughts?

 

[simplefocus]

At 7x EBITDA (low end), I got ~$40 per share.

 

(7 x 125) - $463 (EV - Market Cap) = $412 / 10.52 (shares outstanding) = ~$40

[hyten1]

one disappointing data point, i thought one of their goals is to reduce long term debt, but it does seem that 2015 the net long term debt will actually increase due to growth.

 

 

[krazeenyc]

one disappointing data point, i thought one of their goals is to reduce long term debt, but it does seem that 2015 the net long term debt will actually increase due to growth.

 

I think this is actually a positive (not the debt growth of course), but the fact that they see enough growth potential in Oncology to make further investments despite their commitment to reducing long term debt. 

[Packer16]

You are right I think they do plan on increasing debt by $10 to $25 million in addition to the growth according to the CC.  However, they have beaten FCF guidance by $5 million in 2014 and if the debt is associated with LT contracted revenue, they should be OK.

 

Packer

[hyten1]

packer did i read this wrong, this is from their recent 4th quarter report

 

"Additionally, in 2015, the Company expects a decrease in long-term debt, net of the change in cash and cash equivalents, before growth capital expenditures, of $20 million to $45 million. After capital expenditures focused on growth projects, Alliance expects an increase in long-term debt, net of the change in cash and cash equivalents, of ($10) to ($25) million."

[krazeenyc]

packer did i read this wrong, this is from their recent 4th quarter report

 

"Additionally, in 2015, the Company expects a decrease in long-term debt, net of the change in cash and cash equivalents, before growth capital expenditures, of $20 million to $45 million. After capital expenditures focused on growth projects, Alliance expects an increase in long-term debt, net of the change in cash and cash equivalents, of ($10) to ($25) million."

 

I read it the same way as you. The part that I'm not sure about is whether or not the acquisition of 59% of TPC ($29MM) is counted as part of this -- a caller asked about this -- but I missed it (by the way they will be consolidating TPC in the future).

[phil_Buffett]

you have to have strong Patience for this stock. iam really pissed that it everytime goes down.  >:(

[Laxputs]

Anybody think my owners earnings calculations are off? Seems like a good buy given the growth, the management, and the price.

[GrizzlyRock]

My read of the CapEx vs debt question is as follows:

- Net funded debt is likely to tick down incrementally due to the growth CapEx.

- However, Total Net Leverage ought to be ticking down more as the growth CapEx begins to prove out in the EBITDA in late 2015 and into 2016

- the growth CapEx figure of "$45 to $55 million" as stated in the press release is likely overstated as it pertains to cash out the door in 2015.  Why? As discussed more on the CC than in the PR, a lot of the growth is coming from JVs (i.e. pain mgmt biz) in oncology and intervention.  As the minority partners (read: local Dr) would prefer not to infuse cash into the JV, its likely that AIQ funds much of the growth CapEx with capital leases...

[JPerez]

I'm still waiting to read the CC but based on the Q4 and YE update, things look good. Revenue is steady after accounting for the sale of their Pro Rad Services Biz last year.

 

I have current EV/EBITDA multiple of 5.8. If it goes to 6.5x I have 40% appreciation from 25$/share. Not that high of a base case upside.  Am I missing something there?

 

But mid-range guidance is 138m EBITDA. Interest -24. M-Capex -32. PreTax Cash Flows = 82m. Say -6m tax. That's about 76m owner's earnings. 10.8m shares. 7$/share in OE. 25$ p/s. 3.6x OE or 30% of the market cap in owner's earnings. Given 51% ownership by Oaktree, there will come a more sane valuation of the company in relation to cash flows at some point (either through a sale or through massive buybacks/dividends). If it's delayed then that means there exists profitable growth and the intrinsic value is increasing.

 

MOS: 125m low end EBITDA - 30m m-capex is 95m. 4x interest coverage.

 

Thoughts?

 

From your 76m I would deduct higher cash taxes, they guided 15 to 18 million and minority interests with 15-20 million but most likely higher with the TPC acquisition. (Maybe 20 million) that would bring owner earnings to around 45.

 

In reality I think it is simpler than that, owner earnings should be equal to their guidance for change in net debt before acquisitions and growth capex which is 20 to 45 million.

 

In general the financial performance has been below expectations with 2014 EBITDA below their own guidance range. 136 million vs a range of 140-160 and the guidance for 2015 is also a bit dissapointing unless the hit the higher end of the range (125 to 150 million).

 

They explained in the cc that the deterioration in pricing in their radiology business was faster and deeper than expected  but in the q&a they said that they were aggresive in the repricing renewing contracts to maintain market share and also they expect this prices to be a new base and the pressure on prices to be less from here on.

Also volumes in their radiology business seem to be more stable with increases in patiance number from the affordable care act.

 

Outside the numbers they were very upbeat on the cc and the developments in oncology and the new division look very promissing. They talked about them having lots of projects in the pipeline in oncology and they were very positive on the TPC acquisition. They expect to be able to leverage the expertise of the doctors and cross sell pain services to their radilogy and oncology clients which makes lots of sense.

 

On the debt front the guidance is for it to increase 10 to 25 million before acquisitions so if the only acquisition is the one they made early this year the net debt should increase 40 to 55 million.

 

With this figures I think share price given 7x EBITDA at year end 2015 should be:

7x137.5=962.5 EV minus debt of 522= 440 minus minority interest 58 as per q414 minus TPC minority interest of 18= 368 million which with 10.8 million shares outstanding give us a 33.7$ share price.

Obviously small increases in EBITDA have a huge impact in this calculation. At 150 million EBITDA it would give a share price of 41.9 at 7xEV/EBITDA.

And on the lower end of the range of 125 EBITDA 7xEV/EBITDA should be 25.59$ per share.

 

All in all I think patience would be require if they can implement their expansions plan and increase EBITDA in 2016 and beyond the share price could double or triple from this levels on the other hand if they can't increase EBITDA given their leverage it could end up badly.

 

[plato1976]

May I ask why "if they can't increase EBITDA given their leverage it could end up badly"?

Even if they don't grow I would think their current EBITDA can reduce the debt over time and the current valuation is ok?

 

I'm still waiting to read the CC but based on the Q4 and YE update, things look good. Revenue is steady after accounting for the sale of their Pro Rad Services Biz last year.

 

I have current EV/EBITDA multiple of 5.8. If it goes to 6.5x I have 40% appreciation from 25$/share. Not that high of a base case upside.  Am I missing something there?

 

But mid-range guidance is 138m EBITDA. Interest -24. M-Capex -32. PreTax Cash Flows = 82m. Say -6m tax. That's about 76m owner's earnings. 10.8m shares. 7$/share in OE. 25$ p/s. 3.6x OE or 30% of the market cap in owner's earnings. Given 51% ownership by Oaktree, there will come a more sane valuation of the company in relation to cash flows at some point (either through a sale or through massive buybacks/dividends). If it's delayed then that means there exists profitable growth and the intrinsic value is increasing.

 

MOS: 125m low end EBITDA - 30m m-capex is 95m. 4x interest coverage.

 

Thoughts?

 

From your 76m I would deduct higher cash taxes, they guided 15 to 18 million and minority interests with 15-20 million but most likely higher with the TPC acquisition. (Maybe 20 million) that would bring owner earnings to around 45.

 

In reality I think it is simpler than that, owner earnings should be equal to their guidance for change in net debt before acquisitions and growth capex which is 20 to 45 million.

 

In general the financial performance has been below expectations with 2014 EBITDA below their own guidance range. 136 million vs a range of 140-160 and the guidance for 2015 is also a bit dissapointing unless the hit the higher end of the range (125 to 150 million).

 

They explained in the cc that the deterioration in pricing in their radiology business was faster and deeper than expected  but in the q&a they said that they were aggresive in the repricing renewing contracts to maintain market share and also they expect this prices to be a new base and the pressure on prices to be less from here on.

Also volumes in their radiology business seem to be more stable with increases in patiance number from the affordable care act.

 

Outside the numbers they were very upbeat on the cc and the developments in oncology and the new division look very promissing. They talked about them having lots of projects in the pipeline in oncology and they were very positive on the TPC acquisition. They expect to be able to leverage the expertise of the doctors and cross sell pain services to their radilogy and oncology clients which makes lots of sense.

 

On the debt front the guidance is for it to increase 10 to 25 million before acquisitions so if the only acquisition is the one they made early this year the net debt should increase 40 to 55 million.

 

With this figures I think share price given 7x EBITDA at year end 2015 should be:

7x137.5=962.5 EV minus debt of 522= 440 minus minority interest 58 as per q414 minus TPC minority interest of 18= 368 million which with 10.8 million shares outstanding give us a 33.7$ share price.

Obviously small increases in EBITDA have a huge impact in this calculation. At 150 million EBITDA it would give a share price of 41.9 at 7xEV/EBITDA.

And on the lower end of the range of 125 EBITDA 7xEV/EBITDA should be 25.59$ per share.

 

All in all I think patience would be require if they can implement their expansions plan and increase EBITDA in 2016 and beyond the share price could double or triple from this levels on the other hand if they can't increase EBITDA given their leverage it could end up badly.