AIQ

Alliance HealthCare Services, Inc. (AIQ)

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Exchange: NASDAQ
Industry: Health Care
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Alliance Imaging Inc. (AIQ)

Q1 2008 Earnings Call

May 01 2008 08:30 am ET

Executives

Eli Glovinsky, - EVP and General Counsel, Secretary

Paul Viviano - Chairman and CEO

Howard Aihara - CFO and EVP

Analyst

Darren Lehrich - Deutsche Bank Securities

Mark Arnold - Piper Jaffray

Aaron Lindberg - William Smith and Company

Henry Reukauf - Deutsche Bank

Rob Mains - Morgan, Keegan and Company, Inc.

Gary Lieberman - Stanford Group Company

Kyle Smith - Jefferies and Company

Harlan Turniak - Venner

Michael - Stephens Incorporated

Presentation

Eli Glovinsky

Good morning, and welcome, ladies and gentlemen, to Alliance Imaging's First Quarter 2008 Earnings Call. My name is Eli Glovinsky, and I'm the Company's Executive Vice President, General Counsel and Secretary. At this time, I would like to inform you that this conference is being recorded for rebroadcast, and that all lines have been placed on mute to prevent any background noise. We will open the conference up for questions and answers after the presentation.

This conference call contains forward-looking statements, which are based on the company's current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties, which could cause actual outcomes and results to differ materially from the company's expectations, forecasts and assumptions. These risks and uncertainties include factors affecting the company's ability to stabilize its core MRI business and grow revenues and profits from PET/CT, fixed site imaging centers and radiation therapy.

The company's leverage, including fluctuations in interest rates; the company's ability to obtain financing, the effect of operating and financial restrictions on the company's debt instruments, the accuracy of the company's estimates regarding capital requirements, the effect of intense levels of competition in the company's industry, changes in the health care, regulatory and reimbursement environment. The company's ability to keep pace with technological development within the industry, the company's ability to integrate acquisitions, the effects of natural disasters and other risks and uncertainties, including both enumerated and described in the company's filings with the Securities and Exchange Commission, which are available on the SEC website at www.sec.gov.

The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Financial and other statistical information presented on this conference call and the company's 2008 guidance release, along with the required information required by the SEC's Regulation G, may be accessed through the financial releases button in the investor relations section of the company's website, located at www.allianceimaging.com. The company is offering a live webcast of today's call, which can be accessed on the company's website. Please visit our website for replay information.

I will now turn the conference over to Paul Viviano, Chairman of the Board and Chief Executive Officer of Alliance Imaging. Please go ahead, Paul.

Paul Viviano

Thank you, Eli. I would like to welcome you to Alliance's first quarter 2008 earnings call. Joining me today is Howard Aihara, our Executive Vice president and Chief Financial Officer. On today's call, I will first briefly review our first quarter 2008 results and achievements, followed by an update of the trends in the health care services industry, and the specifics associated with the diagnostic imaging and radiation therapy sectors. I will then provide an overview of our companywide initiatives, and Howard will follow with the details of our first quarter 2008 financial performance. A question-and-answer session will follow our prepared remarks.

Yesterday, Alliance announced first quarter 2008 revenue of $119.1 million, an increase of $9.7 million, or 8.9%, from the first quarter of 2007. First quarter 2008 adjusted EBITDA was $43.6 million, compared to $41.6 million as adjusted in the first quarter of 2007, a 4.9% increase. These performance indicators reflect the continued success of our many accomplishments in 2007, which have strategically positioned us for revenue and adjusted EBITDA growth in 2008. Year-over-year volume growth in health care services continues to be relatively soft. A recent report, which tracks volume data for approximately 500 acute care hospitals, reported that for the first quarter of 2008, same store admission growth totaled approximately 1% to 2% year-over-year.

Same store growth in the acute hospital sector was positively impacted by a more aggressive flu season in 2008. However, such increased admissions do not typically translate into growth in advanced imaging procedures performed at hospitals. Relatively slow volume growth in the hospital sector had been exacerbated by the somewhat challenging general economic conditions that exist today. Specifically, the shifting of insurance plans that covered with higher deductibles continues to place pressure on the healthcare industry. From our perspective, the market conditions which have yielded flat to modest same store acute hospital volume growth will remain in place for the foreseeable future.

I highlight these industry-wide statistics, because low volume growth rates in the acute care hospital sector directly impact the company's performance. Alliance generates approximately 80% of revenues from wholesale relationships, overwhelmingly with acute care hospitals. Thus, as hospital volume growth has been negatively impacted, our scan volume has also been adversely affected. Commercial insurers are continuing their efforts to manage utilization of high-cost, advanced imaging services, given continuing increases in costs.

The retention of radiology benefit managers is now widespread, which continues to be a contributing factor to modest volume growth. Strategies that health plans are implementing to control utilization include requirements for prior authorization, credentialing of all providers and clinical-based education for ordering physicians. These initiatives place undue hardship on patients and those providing services in order to cut cost, and negatively impact volumes. In addition, referring physicians continue to operate imaging technology in their private practice setting. Although the trend of adding advanced imaging to the medical group office practice setting appears to have recently slowed, this element of the imaging sector continues to be a major cause of excess supply of advanced imaging systems in many markets. This practice exists primarily due to the physician in-office ancillary services exemption under the Stark Law.

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