Laxputs Posted March 17, 2015 Share Posted March 17, 2015 Thanks for the reply. Nice post. How do the "Earnings from unconsolidated investees" work? They show significant deductions every year for that. And how does "Less: Net income attributable to noncontrolling interest" work. Page 84 AR goes over it but I'm not clear. They have 3 unconsolidated investees. They provide services to those investees and record those services under revenue. But given that they own 1-50% of those three companies, they are in effect partially providing services for themselves so they deduct what it cost them to provide it? Why are earnings from Unconsolidated Investees posted as losses? And the Net Income attributable to NCI is that their JV that they have to payout? TIA Link to comment Share on other sites More sharing options...
GrizzlyRock Posted March 17, 2015 Share Posted March 17, 2015 While not my comment, the answer to why "if they can't increase EBITDA given their leverage it could end up badly" is: Significant Financial Leverage * Problematic Operating Leverage = Troublesome Total Leverage Link to comment Share on other sites More sharing options...
JPerez Posted March 17, 2015 Share Posted March 17, 2015 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? What I meant is that obviously their core radiology business is under pressure and they are trying to compensate the decline with the increase in oncology and the new division they just acquired. They are going to increase debt in this coming year and their EBITDA is going to stay flat in the middle of the guidance range compare with 2014. They have to expend a certain amount of money in acquisitions and growth CAPEX just to keep their EBITDA steady. My hope is that from 2016 on these investments will pay off and the increase in these 2 divisions and the slowing in the decline of their core radiology business will mean that their EBITDA is going to grow. But the downside scenario is that even acquiring new companies and spending money in their oncology business they can't compensate for the decline of the radiology business. It is not hard to imagine a scenario in which they grow debt and they don't increase EBITDA if they don't invest wisely and they fail to execute. When a company is as leverage as this one you don't have the luxury of getting it wrong and try something different. I think they will be ok and the stock is undervalue but we can't forget about the downside. Thanks for the reply. Nice post. How do the "Earnings from unconsolidated investees" work? They show significant deductions every year for that. And how does "Less: Net income attributable to noncontrolling interest" work. Page 84 AR goes over it but I'm not clear. They have 3 unconsolidated investees. They provide services to those investees and record those services under revenue. But given that they own 1-50% of those three companies, they are in effect partially providing services for themselves so they deduct what it cost them to provide it? Why are earnings from Unconsolidated Investees posted as losses? And the Net Income attributable to NCI is that their JV that they have to payout? TIA My understanding from looking at the P&L is that they have the profit before tax of the company, then deduct taxes from this and below this they take net income attributable to NCI which has been 15 million last year and then add the profits from unconsolidated investees which have been4.5 million. I assume that NCI are the ones where they own more than 50% of the JV and the other one are the profits from JV where they are the minority partner so it is not consolidated in the accounts. That is why they have such high taxes from small earning. For 2015 they guide 0-10 million in net earnings and 15-18 in income tax expenses which is a bit puzzling giving their 42% historical tax rate. Anybody can explain this? Link to comment Share on other sites More sharing options...
Guest JoelS Posted March 23, 2015 Share Posted March 23, 2015 Why doesn't this company just use FCF to buy back shares? If they expect free cash before growth capex to be 20m-45m and for pricing pressures in radiology to be mostly captured in the guidance for 2015, then a 2016 return close to 20% by buying back shares today sounds pretty good to me (assuming free cash normalizes at $45m for 16'). Unless the growth capex promises north of 40%, the capital might be put to better (and more certain IRR) use. Just some thoughts from the peanut gallery. Link to comment Share on other sites More sharing options...
peterareed Posted March 23, 2015 Share Posted March 23, 2015 Does the credit facility permit the Company to do so? If so, in what amount? Here is the link for it: http://www.sec.gov/Archives/edgar/data/817135/000081713513000021/creditagreementimport.htm There has been at least one amendment, but it doesn't look the the amendment changes any of the Restricted Payment capacity. Link to comment Share on other sites More sharing options...
peterareed Posted March 27, 2015 Share Posted March 27, 2015 Have any of the AIQ investors on this board performed an analysis of how much contractual capacity the Company has to repurchase stock (pursuant to the limitation in the Credit Agreement)? Link to comment Share on other sites More sharing options...
peterareed Posted April 12, 2015 Share Posted April 12, 2015 It seems likely that no here cares about this detail, but after reviewing the definitions in the Credit Agreement, and comparing them to the Company's guidance, I think it is unlikely that there is significant contractual capacity under the Credit Agreement for AIQ to repurchase shares in the next year. If anyone here feels differently, I'd be really interested in how you come to that conclusion. Link to comment Share on other sites More sharing options...
BG2008 Posted May 7, 2015 Share Posted May 7, 2015 Q1 Earnings Results Revenue for the first quarter of 2015 grew by $4.0 million or 3.8% over the first quarter of 2014. The Company generated $30.1 million of Adjusted EBITDA (as defined below). Continued to generate strong cash flow, with $20.8 million in operating cash flows. Alliance Oncology revenue grew by 17% to $24.2 million in the first quarter of 2015 from $20.7 million in the first quarter of 2014. Alliance Radiology had strong same store volume growth of +7.4% for MRI and +3.4% for PET/CT. The Company generated Adjusted Net Income Per Share (as defined below) of $0.30. Completed the acquisition of The Pain Center Alliance in the first quarter of 2015, which contributed $3.9 million in additional revenue. Company affirms 2015 Full Year Guidance. http://investors.alliancehealthcareservices-us.com/phoenix.zhtml?c=129994&p=irol-newsArticle&ID=2045606 Link to comment Share on other sites More sharing options...
gurpaul88 Posted May 26, 2015 Share Posted May 26, 2015 Down ~5% can't find any news. Link to comment Share on other sites More sharing options...
tombgrt Posted May 26, 2015 Share Posted May 26, 2015 Market down + low liquidity. Volume barely hits $500k / day so it's easy to impact stock price. That's just how it goes with small caps. Making use of it. :) Link to comment Share on other sites More sharing options...
peterareed Posted May 27, 2015 Share Posted May 27, 2015 The relevant section is 7.5. It is the limitation on Restricted Junior Payments. That covenant, and the relevant definitions, appear to severly limit the Company's near term capacity to repurchase shares when overlaid against the Company's guidance. Hope this helps. Link to comment Share on other sites More sharing options...
jawn619 Posted May 27, 2015 Share Posted May 27, 2015 Most of the debt is variable rate. Market might be spooked with higher interest rates coming. Also i'm noticing that the company is depreciating at $15mil/quarter but only investing $5M/quarter for capex. Has anyone looked into that? Right now EV is $725M and I put fair intrinsic value at around $825M. Link to comment Share on other sites More sharing options...
Andy Dufresne Posted May 27, 2015 Share Posted May 27, 2015 jawn 619 - about half the variable rate debt is hedged until the end of 2016 - see p. 16 of the latest Q: Cash Flow Hedges Interest Rate Cash Flow Hedges For the three months ended March 31, 2014 and 2015, the Company had interest rate swap and cap agreements to hedge approximately $259,320 and $257,902 of its variable rate bank debt, respectively, or 50.4% and 48.3% of total debt, respectively ... The 2013 Caps, which mature in December 2016, had a notional amount of $250,000 and were designated as cash flow hedges of future cash interest payments associated with a portion of the Company’s variable rate bank debt. Under these arrangements, the Company has purchased a cap on LIBOR at 2.50% Also - do you mind explaining how you got to FV of 825m ? TIA Link to comment Share on other sites More sharing options...
Ian L Posted May 27, 2015 Share Posted May 27, 2015 For such a leveraged company changes in perception of the underlying business have a large effect on the stock price. Add the fact it is illiquid and relatively large moves can result without any news. Link to comment Share on other sites More sharing options...
jawn619 Posted May 27, 2015 Share Posted May 27, 2015 jawn 619 - about half the variable rate debt is hedged until the end of 2016 - see p. 16 of the latest Q: Cash Flow Hedges Interest Rate Cash Flow Hedges For the three months ended March 31, 2014 and 2015, the Company had interest rate swap and cap agreements to hedge approximately $259,320 and $257,902 of its variable rate bank debt, respectively, or 50.4% and 48.3% of total debt, respectively ... The 2013 Caps, which mature in December 2016, had a notional amount of $250,000 and were designated as cash flow hedges of future cash interest payments associated with a portion of the Company’s variable rate bank debt. Under these arrangements, the Company has purchased a cap on LIBOR at 2.50% Also - do you mind explaining how you got to FV of 825m ? TIA So right now the company is doing $130m in ebitda. I subtracted $20m of maintence capex to get $110m of owners earnings per year. That's about $10/per share. I did a DCF assuming 15% hurdle rate assuming no growth and got a value of $66.66/share, or about $735m for the value of the business. They have about $130m in current assets and so that gets us to about $850. My assumptions are pretty aggressive because I assume no growth and value their equipment which they have on their books at $100m as 0. I think at these prices things look very interesting but I could never get comfortable with companies that are highly levered because of the added amount of fragility. I'm probably just a super nit but does anyone have a better way to think about leverage? Link to comment Share on other sites More sharing options...
jamesmadison Posted May 27, 2015 Share Posted May 27, 2015 Well, if you are going to be a "super nit", you should probably not add the non-cash current assets to the DCF value as they are needed to run the business. Can't use an asset to generate cash flows AND separately monetize it. :) Link to comment Share on other sites More sharing options...
kab60 Posted May 27, 2015 Share Posted May 27, 2015 Jawn, I'd suggest reading the 'Ask Packer'-thread to get a good idea about one way of looking at leverage. I found it to be very good lesson. Link to comment Share on other sites More sharing options...
Andy Dufresne Posted May 27, 2015 Share Posted May 27, 2015 jawn 619 - about half the variable rate debt is hedged until the end of 2016 - see p. 16 of the latest Q: Cash Flow Hedges Interest Rate Cash Flow Hedges For the three months ended March 31, 2014 and 2015, the Company had interest rate swap and cap agreements to hedge approximately $259,320 and $257,902 of its variable rate bank debt, respectively, or 50.4% and 48.3% of total debt, respectively ... The 2013 Caps, which mature in December 2016, had a notional amount of $250,000 and were designated as cash flow hedges of future cash interest payments associated with a portion of the Company’s variable rate bank debt. Under these arrangements, the Company has purchased a cap on LIBOR at 2.50% Also - do you mind explaining how you got to FV of 825m ? TIA So right now the company is doing $130m in ebitda. I subtracted $20m of maintence capex to get $110m of owners earnings per year. That's about $10/per share. I did a DCF assuming 15% hurdle rate assuming no growth and got a value of $66.66/share, or about $735m for the value of the business. They have about $130m in current assets and so that gets us to about $850. My assumptions are pretty aggressive because I assume no growth and value their equipment which they have on their books at $100m as 0. I think at these prices things look very interesting but I could never get comfortable with companies that are highly levered because of the added amount of fragility. I'm probably just a super nit but does anyone have a better way to think about leverage? Jawn - OK, I understand the logic now; however I think a DCF is less appropriate here compared to EV/EBITDA as the latter equalizes different capital structures. You are using one amalgamated hurdle rate for a company that's highly levered - how did you reach 15% ? did you unlever betas, add R(f) and other risk premiums? did you take into account the D/E ratio and that the company is and has been borrowing for far less than this 15% rate for many years, so a blended discount rate implies that the equity stub requires very very high returns to get to 15% ... This is, IMHO, less appropriate, especially as there are good market comps and as the company is controlled by Oakmark so they are likely to continue to enjoy good financial advice as well as access to debt markets. Also, if I am not mistaken, you used a perpetuity formula rather than a DCF (by assuming zero growth) which is the least sensitive instrument we have, though at least it has fewer assumptions ... this leads me back to why its wise to look for direct market multiples if they exist ... you understand that the sensitivity inherent in the discount rate is large - if the discount rate I choose is 12% I get a per share FV of $83.33 Admittedly the company has been unable to realize the "appropriate" multiple given its lower debt load compared to RDNT (read up on Packer's posts as kab60 wisely suggested) but one way to gauge the riskiness of the company is to understand what the debt markets think about it - if the debt is trading for a "normal" yield given its leverage and FCF then the debt markets think the leverage is appropriate or at least workable. In any case, its always best to try and run multiple comps because they help you ask good questions and think about risks and appropriate discounts. Link to comment Share on other sites More sharing options...
jawn619 Posted May 27, 2015 Share Posted May 27, 2015 jawn 619 - about half the variable rate debt is hedged until the end of 2016 - see p. 16 of the latest Q: Cash Flow Hedges Interest Rate Cash Flow Hedges For the three months ended March 31, 2014 and 2015, the Company had interest rate swap and cap agreements to hedge approximately $259,320 and $257,902 of its variable rate bank debt, respectively, or 50.4% and 48.3% of total debt, respectively ... The 2013 Caps, which mature in December 2016, had a notional amount of $250,000 and were designated as cash flow hedges of future cash interest payments associated with a portion of the Company’s variable rate bank debt. Under these arrangements, the Company has purchased a cap on LIBOR at 2.50% Also - do you mind explaining how you got to FV of 825m ? TIA So right now the company is doing $130m in ebitda. I subtracted $20m of maintence capex to get $110m of owners earnings per year. That's about $10/per share. I did a DCF assuming 15% hurdle rate assuming no growth and got a value of $66.66/share, or about $735m for the value of the business. They have about $130m in current assets and so that gets us to about $850. My assumptions are pretty aggressive because I assume no growth and value their equipment which they have on their books at $100m as 0. I think at these prices things look very interesting but I could never get comfortable with companies that are highly levered because of the added amount of fragility. I'm probably just a super nit but does anyone have a better way to think about leverage? Jawn - OK, I understand the logic now; however I think a DCF is less appropriate here compared to EV/EBITDA as the latter equalizes different capital structures. You are using one amalgamated hurdle rate for a company that's highly levered - how did you reach 15% ? did you unlever betas, add R(f) and other risk premiums? did you take into account the D/E ratio and that the company is and has been borrowing for far less than this 15% rate for many years, so a blended discount rate implies that the equity stub requires very very high returns to get to 15% ... This is, IMHO, less appropriate, especially as there are good market comps and as the company is controlled by Oakmark so they are likely to continue to enjoy good financial advice as well as access to debt markets. Also, if I am not mistaken, you used a perpetuity formula rather than a DCF (by assuming zero growth) which is the least sensitive instrument we have, though at least it has fewer assumptions ... this leads me back to why its wise to look for direct market multiples if they exist ... you understand that the sensitivity inherent in the discount rate is large - if the discount rate I choose is 12% I get a per share FV of $83.33 Admittedly the company has been unable to realize the "appropriate" multiple given its lower debt load compared to RDNT (read up on Packer's posts as kab60 wisely suggested) but one way to gauge the riskiness of the company is to understand what the debt markets think about it - if the debt is trading for a "normal" yield given its leverage and FCF then the debt markets think the leverage is appropriate or at least workable. In any case, its always best to try and run multiple comps because they help you ask good questions and think about risks and appropriate discounts. Thanks for the update. Tell me if you think is a more accurate way of valuing the company Looking at their latest filing, They're expected to do $125-150M in EBITDA. Lets say its $135M. Subtract $35M for maintenance capex and another $25M ($500M at 5%) for the interest costs, I get around $7/share of owners earnings. Doing a DCF using a 10% blended rate again assuming no growth I get a value of $70/share and enterprise value of $770M. Right now the company is at EV of $725M so you get the growth for free, assuming the company is spending for growth capex wisely. Link to comment Share on other sites More sharing options...
KJP Posted May 28, 2015 Share Posted May 28, 2015 How reliable is your maintenance capex number? Free cash flow appears to be high because depreciation has been significantly higher than capex and will continue to be at current capex levels. The company has been able to do that because (i) its machines apparently have longer useful lives than accounting lives, and thus many of them are already fully depreciated; and (ii) they have been relying on software upgrades to extend the lives of their machines, rather than buying new ones. How much longer can that last? A simple, multiples-based analysis -- particularly one based on free cash flow -- seems to assume that it can last forever. I doubt that's true. Link to comment Share on other sites More sharing options...
peterareed Posted May 29, 2015 Share Posted May 29, 2015 It seems tricky and potentially misleading to value the equity using a combination of: a) some midpoint of EBITDA guidance for this year, and then subtracting b) only maintenance capex. EBITDA has been in pretty steady decline. If the Company only spends maintenance capex, won't EBITDA continue to decline? If this is the case, then the unlevered free cash flow (EBITDA less Maintenance Capex) is going to give a misleading number (one that is too high). It seems that the Company needs to invest the "growth" capex in order to generate incremental EBITDA to offset the decline from the base business. If this is correct, then the unlevered free cash flow needs to subtract all of the capex, not just the maintenance portion, if it is to be a relevant metric. Link to comment Share on other sites More sharing options...
Lowlight Posted June 5, 2015 Share Posted June 5, 2015 Anyone adding at these levels? Continues to fall. Link to comment Share on other sites More sharing options...
Packer16 Posted June 6, 2015 Author Share Posted June 6, 2015 The question of free cash flow depends upon when EBITDA stabilizes. If it does so in 2015 (as planned) then the current management provided value is valid. If not then a portion of the growth cap-ex will be required for stabilization. Based upon history it is probably somewhere between these two numbers as the recent history has shown decline but has been clouded with restructurings. Packer Link to comment Share on other sites More sharing options...
Laxputs Posted July 8, 2015 Share Posted July 8, 2015 Added a bit. Anyone else? Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted July 9, 2015 Share Posted July 9, 2015 I've been looking at Fonar lately. Looks like they are stealing market share. I saw earlier in the thread someone mentioned they were a weak competitor. Is anyone worried by Fonar's unique design and recent move to become a facility operator to expand Fonar's market share personally. Lot of white papers supporting Fonar giving better/clearer results and providing a better overall value (can do more procedures?). Link to comment Share on other sites More sharing options...
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