Packer16 Posted December 10, 2013 Author Share Posted December 10, 2013 Since this is a leasing company I think the concept of paying off debt is not applicable. All leasing companies finance equipment with debt and capture the spread between the lease payments and debt. This is what GE Capital, United Rentals and other leasing cos do. Lets look at their current return on capital. The FCF to the firm is $56m (FCF to equity) plus $37m in interest expense is $93m. Divided by the current EV of $715.3 gives you an EV FCF return on capital of 13%. If you look at BV of EV the numbers get even better (26% return on BV of EV). The FCF return on equity is 25%. Pretty good in my book. Packer Link to comment Share on other sites More sharing options...
no_free_lunch Posted December 10, 2013 Share Posted December 10, 2013 Packer, does that $56M FCF figure include maintenance capex? I am just trying to figure out if they are going to be hit with some replacement costs at some point or if that $56M is sustainable. Link to comment Share on other sites More sharing options...
Packer16 Posted December 10, 2013 Author Share Posted December 10, 2013 It includes $35 of capex the mid-point of the 2013 guidance range. It also includes the reduction in interest expense based upon the refis this year. This level is pretty close to maintenance but does include some radiation center cap-ex. Packer Link to comment Share on other sites More sharing options...
yadayada Posted December 10, 2013 Share Posted December 10, 2013 Ok I get it now. But it seems that the spread is about 20 million? I supose FCF fluctuates here, but in the long run it should be 20 million? Unless they take on more debt and increase revenue. Or can they use it for longer then the depreciation period, do they get like 20% of the original price for it? Because at a 20 million $ spread, like the earnings statement imply, it seems that there isnt much upside at this price at a market cap of 200 million. Where does the extra cash above that 20 million$ spread come from? Just thinking out loud here trying to understand the business model :) . Link to comment Share on other sites More sharing options...
Packer16 Posted December 10, 2013 Author Share Posted December 10, 2013 Where are you getting $20 million? Due to nature of this business the way to look at is via FCF not earnings. Earnings in this case is an imaginary number while FCF is cash the firm is generating. Packer Link to comment Share on other sites More sharing options...
phil_Buffett Posted December 10, 2013 Share Posted December 10, 2013 Ok I get it now. But it seems that the spread is about 20 million? I supose FCF fluctuates here, but in the long run it should be 20 million? Unless they take on more debt and increase revenue. Or can they use it for longer then the depreciation period, do they get like 20% of the original price for it? Because at a 20 million $ spread, like the earnings statement imply, it seems that there isnt much upside at this price at a market cap of 200 million. Where does the extra cash above that 20 million$ spread come from? Just thinking out loud here trying to understand the business model :) . why isnt there much upside? if i have a Company which is valued at 220mio and i have fcf around 60mio and possible more into the Region of 80mio-100mio. than this Company is undervalued, and i have a good margin of safety Link to comment Share on other sites More sharing options...
xtreeq Posted December 10, 2013 Share Posted December 10, 2013 Ok I get it now. But it seems that the spread is about 20 million? I supose FCF fluctuates here, but in the long run it should be 20 million? Unless they take on more debt and increase revenue. Or can they use it for longer then the depreciation period, do they get like 20% of the original price for it? Because at a 20 million $ spread, like the earnings statement imply, it seems that there isnt much upside at this price at a market cap of 200 million. Where does the extra cash above that 20 million$ spread come from? Just thinking out loud here trying to understand the business model :) . These are the numbers I have: EV - $710 (at current share price of $20) Third quarter adjusted EBITDA totaled $38.6 million (CC Q3) We generated $43.3 million of free cash flow for the LTM (CC Q3) LTM pro forma free cash flow is $56.3 million or $5.30 per share, and results in a 22% free cash yield (CC Q3) Play with the numbers so they reflect the adjustments you want and assign a proper multiple... Link to comment Share on other sites More sharing options...
yadayada Posted December 10, 2013 Share Posted December 10, 2013 Where are you getting $20 million? Due to nature of this business the way to look at is via FCF not earnings. Earnings in this case is an imaginary number while FCF is cash the firm is generating. Packer Ok again I misread :/, not my day lol . They are break even in earnings if you take off amortization. Im just trying to understand where the difference between depreciation on paper and the actual equipment costs on the cash flow statement comes from. Something I have a hard time understanding in alot of businesses. They might generate nice FCF now, but if in 3 years they are breaking even because they have to start renewing their equipment then that doesnt mean much right? Link to comment Share on other sites More sharing options...
plato1976 Posted December 10, 2013 Share Posted December 10, 2013 one naive question is that with 25% FCF yield, when will AIQ begin to issue a fat dividend ? ...... I am in the "show me the money" mode ... Ok I get it now. But it seems that the spread is about 20 million? I supose FCF fluctuates here, but in the long run it should be 20 million? Unless they take on more debt and increase revenue. Or can they use it for longer then the depreciation period, do they get like 20% of the original price for it? Because at a 20 million $ spread, like the earnings statement imply, it seems that there isnt much upside at this price at a market cap of 200 million. Where does the extra cash above that 20 million$ spread come from? Just thinking out loud here trying to understand the business model :) . These are the numbers I have: EV - $710 (at current share price of $20) Third quarter adjusted EBITDA totaled $38.6 million (CC Q3) We generated $43.3 million of free cash flow for the LTM (CC Q3) LTM pro forma free cash flow is $56.3 million or $5.30 per share, and results in a 22% free cash yield (CC Q3) Play with the numbers so they reflect the adjustments you want and assign a proper multiple... Link to comment Share on other sites More sharing options...
no_free_lunch Posted December 11, 2013 Share Posted December 11, 2013 Thanks Packer. My thinking is that 22% free cash is a very good yield. However, on an enterprise basis it is only an 8% yield. Is an 8% yield good from an EV perspective? Link to comment Share on other sites More sharing options...
Packer16 Posted December 11, 2013 Author Share Posted December 11, 2013 If you are going to use an enterprise value (debt plus equity) you need to use EV FCF not equity FCF. If you add back the interest expense you get a return closer to 13%. Packer Link to comment Share on other sites More sharing options...
yadayada Posted December 11, 2013 Share Posted December 11, 2013 Yeah so i calculated cash flow after investing activities and got an average of 21 million per year with quite a bit of variance over the last 13 years. And a total of 278 million. With revenue slightly below 400 million in 1999 2000 and 2001. I really dont get where you guys get that those 60 million$ free cash flow figures are sustainable. It seems like a low margin commodity business, and unlike the shipping industry there arent up or down cycles to give you a fat pitch. So I dont see where the upside is from the current market cap of 225 million. I mean sure depreciation is not a cash charge, but are they using equipment after they depreciated it down? Are they wrongly depreciating it? Some years they make 50 million, but then the next 2 years they might make nothing in cash flow. You really gottta give a good reason why depreciation will lag behind actual equipment and acquisition costs in the next 10 years to just slap a 5 or 10x multiple on that 60 million cash flow figure. For example in 2002 they generated 60 illion of cash flow, and 23 in 2003. in 2004 45 million. But -8 the year after. 52 the year after and then 2 years where they lost over 20 million in cash flow. You could easily get the wrong idea there? There is alot of variance in FCF here, and you cannot go by that? Even if there is a little bit of wiggle room here, and it is 30 million on average from now on then with a margin of safety, there isnt much upside from current price. ALlthough I agree it was a great idea early this year. FWIW depreciation was 1.2 billion $ the last 13 years. equipment purch was 1 billion. acquisitions about 350. and sale of assets roughly 70 million. Too lazy to figure out the last one precisely. So depreciation and actual investing activities seem to match up over the long run. Allthough it is choppy. Link to comment Share on other sites More sharing options...
Packer16 Posted December 11, 2013 Author Share Posted December 11, 2013 Looking at history is misleading because the product mix has changed considerably. Historically, they had a large mobile component that was more commodity in nature now they have longer-term fixed rate contracts. The interest rates have also declined very fast and that is not reflected in the past numbers. In addition, they have gone through a management change over the last 12 months with a focus now more on cash flow and hospital customers. There were also acquisitions historically that drained cash. From 2010 to 2012, they have paid down $120 million in debt and this year it will be close to $50 million. You also have Oaktree as a majority shareholder also providing guidance which adds a qualitative plus to the firm. This is not a commodity business. Just look at the EBITDA margins (30%+). There competitors are in the 20%s range. The reason why the historic depreciation is high is they had an over supply of mobile equipment that they wrote-off/sold earlier this year. This business has changed in the past 24 months and at this point the market is looking at what you have expressed but not the view that has been espoused above. I think there is also a cyclical tailwind and that is increased reimbursement to hospital via ACA. Time will tell who is correct. Packer Link to comment Share on other sites More sharing options...
no_free_lunch Posted December 12, 2013 Share Posted December 12, 2013 If you are going to use an enterprise value (debt plus equity) you need to use EV FCF not equity FCF. If you add back the interest expense you get a return closer to 13%. Thanks. There was a momentary lapse of math skills on my end. Link to comment Share on other sites More sharing options...
plato1976 Posted December 12, 2013 Share Posted December 12, 2013 Hi, Packer: The original thesis was that the declining revenue from MRT etc. will compensated by the fast growing oncology business. More than 1 year later, now do we have the split data to support this is happening ? Looking at history is misleading because the product mix has changed considerably. Historically, they had a large mobile component that was more commodity in nature now they have longer-term fixed rate contracts. The interest rates have also declined very fast and that is not reflected in the past numbers. In addition, they have gone through a management change over the last 12 months with a focus now more on cash flow and hospital customers. There were also acquisitions historically that drained cash. From 2010 to 2012, they have paid down $120 million in debt and this year it will be close to $50 million. You also have Oaktree as a majority shareholder also providing guidance which adds a qualitative plus to the firm. This is not a commodity business. Just look at the EBITDA margins (30%+). There competitors are in the 20%s range. The reason why the historic depreciation is high is they had an over supply of mobile equipment that they wrote-off/sold earlier this year. This business has changed in the past 24 months and at this point the market is looking at what you have expressed but not the view that has been espoused above. I think there is also a cyclical tailwind and that is increased reimbursement to hospital via ACA. Time will tell who is correct. Packer Link to comment Share on other sites More sharing options...
no_free_lunch Posted December 12, 2013 Share Posted December 12, 2013 Revenue decreased $2.6 million, or 2.3%, to $113.4 million in the third quarter of 2013 compared to $116.0 million in the third quarter of 2012 mostly due to decreases in MRI and PET/CT of $3.8 million, and also due to a decrease in radiation oncology revenue of $0.3 million, partially offset by an increase of $1.4 million in other revenue. Of the $2.6 million decrease in revenue, $2.2 million is related to the strategic reduction of our customer base in 2012 and $0.4 million primarily relates to industry-wide weakness in outpatient healthcare volumes. It looks like it is still a little too early to make the call on whether revenue has bottomed. That being said, you are being fairly well compensated for the risk. Link to comment Share on other sites More sharing options...
Packer16 Posted December 12, 2013 Author Share Posted December 12, 2013 They closed 2 oncology centers and reduced the number of MRI systems as they close to money losing centers and open new ones with contracts in place. The reduced cap-ex in part reflects a delay in the contracts for the new centers. Packer Link to comment Share on other sites More sharing options...
tombgrt Posted March 13, 2014 Share Posted March 13, 2014 Earnings out. Still cheap! Link to comment Share on other sites More sharing options...
gary17 Posted March 19, 2014 Share Posted March 19, 2014 I am wondering if those who have bought AIQ noticed that in 2013 and 2012 management guided higher capEX but the actual capital spending turned out to be a lot less.... does anyone know why? if we take their 2014 guidance & assume same interest expense i get about 39M or $3.64/share fcf (after capex and interest expense) which is about 12% yield at recent prices. thanks Gary Link to comment Share on other sites More sharing options...
gary17 Posted March 19, 2014 Share Posted March 19, 2014 i read in their annual report that they do not plan to issue any dividend - they will be focused on debt payment and funding future expansions first. Gary one naive question is that with 25% FCF yield, when will AIQ begin to issue a fat dividend ? ...... I am in the "show me the money" mode ... Ok I get it now. But it seems that the spread is about 20 million? I supose FCF fluctuates here, but in the long run it should be 20 million? Unless they take on more debt and increase revenue. Or can they use it for longer then the depreciation period, do they get like 20% of the original price for it? Because at a 20 million $ spread, like the earnings statement imply, it seems that there isnt much upside at this price at a market cap of 200 million. Where does the extra cash above that 20 million$ spread come from? Just thinking out loud here trying to understand the business model :) . These are the numbers I have: EV - $710 (at current share price of $20) Third quarter adjusted EBITDA totaled $38.6 million (CC Q3) We generated $43.3 million of free cash flow for the LTM (CC Q3) LTM pro forma free cash flow is $56.3 million or $5.30 per share, and results in a 22% free cash yield (CC Q3) Play with the numbers so they reflect the adjustments you want and assign a proper multiple... Link to comment Share on other sites More sharing options...
plato1976 Posted March 19, 2014 Share Posted March 19, 2014 I am ok with debt reduction, but when I hear "future expansions" I usually frown ... These deeply undervalued companies won't be that undervalued if they are willing to just return (at least a portion) of their FCF to shareholders instead of pursing expansion i read in their annual report that they do not plan to issue any dividend - they will be focused on debt payment and funding future expansions first. Gary one naive question is that with 25% FCF yield, when will AIQ begin to issue a fat dividend ? ...... I am in the "show me the money" mode ... Ok I get it now. But it seems that the spread is about 20 million? I supose FCF fluctuates here, but in the long run it should be 20 million? Unless they take on more debt and increase revenue. Or can they use it for longer then the depreciation period, do they get like 20% of the original price for it? Because at a 20 million $ spread, like the earnings statement imply, it seems that there isnt much upside at this price at a market cap of 200 million. Where does the extra cash above that 20 million$ spread come from? Just thinking out loud here trying to understand the business model :) . These are the numbers I have: EV - $710 (at current share price of $20) Third quarter adjusted EBITDA totaled $38.6 million (CC Q3) We generated $43.3 million of free cash flow for the LTM (CC Q3) LTM pro forma free cash flow is $56.3 million or $5.30 per share, and results in a 22% free cash yield (CC Q3) Play with the numbers so they reflect the adjustments you want and assign a proper multiple... Link to comment Share on other sites More sharing options...
tombgrt Posted April 12, 2014 Share Posted April 12, 2014 Anyone (Packer? ;)) know what's up with Radnet lately? I know that every dog has his day once in a while but this one has more than doubled. Does anyone know how AIQ and Radnet compare valuation wise? I've sold all AIQ last month in $33-34 range but still think it is very cheap. Possibly even a double from here at 7 times $150M EBITDA assuming $35M more debt paid down by YE. But I'm not sure how likely that price target would be, maybe through acquisition. I've sold because I found other things that were much closer to multi-year lows and wouldn't be surprised to see AIQ drop quite a bit in a correction because of price anchoring. Maybe that's silly. Link to comment Share on other sites More sharing options...
Packer16 Posted April 12, 2014 Author Share Posted April 12, 2014 I don't know what is up with Radnt but now it is trading at 6.4x EBITDA while AIQ is only 5.4x EBITDA. When AIQ was up around $34 I lightened a bit but now that it is below $30 the upside is about 80% and it is tough for me to find something with 2x that I can redeploy into. Packer Link to comment Share on other sites More sharing options...
zippy1 Posted May 3, 2014 Share Posted May 3, 2014 Not sure what to think of this?! http://investors.alliancehealthcareservices-us.com/phoenix.zhtml?c=129994&p=irol-newsArticle&ID=1925656&highlight= Alliance HealthCare Services Announces Executive Departure NEWPORT BEACH, Calif.--(BUSINESS WIRE)--May 2, 2014-- Alliance HealthCare Services, Inc. (NASDAQ:AIQ), a leading national provider of radiology and radiation therapy services, today announced that Mike Shea has stepped down from his position as Chief Operating Officer (“COO”), effective April 30, 2014, and informed the Company of his decision to retire. After his departure, the Company’s senior leadership team will carry out Mr. Shea’s former duties and responsibilities, and the Company has no immediate plans to replace the COO role. Link to comment Share on other sites More sharing options...
gary17 Posted May 3, 2014 Share Posted May 3, 2014 that is interesting he is retiring and the company is not replacing that position anytime soon -- is this the corporate way of saying he is fired? Link to comment Share on other sites More sharing options...
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