Alliance HealthCare Services, Inc. (AIQ)

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Alliance Imaging, Inc. (AIQ)

Q2 2008 Earnings Call Transcript

August 1, 2008 8:30 am ET


Eli Glovinsky – EVP, General Counsel and Secretary

Paul Viviano – Chairman and CEO

Howard Aihara – EVP and CFO


Mark Arnold – Piper Jaffray

Darren Lehrich – Deutsche Bank

Whit Mayo – Stephens, Inc.

Aaron Lindberg – WM Smith & Co.

Rob Mains – Morgan Keegan

Gary Lieberman – Stanford Group Company

Brian Schinderle – Wolf Point Capital

Mike Scarangella – Merrill Lynch

Harlan Cherniak – Venner Capital Management


Eli Glovinsky

Good morning, and welcome, ladies and gentlemen, to Alliance Imaging's second quarter 2008 earnings conference call. My name is Eli Glovinsky and I am 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'll 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 and assumptions. These risks and uncertainties include factors affecting the company's ability to stabilize its core MRI business and grow revenue 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 healthcare, regulatory, and reimbursement environment; the company's ability to keep pace with technological development within the industry; the effect of higher energy prices; 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 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 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 The company's 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 second 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 second quarter 2008 results and achievements, followed by an update of the diagnostic imaging and radiation therapy sectors, and an update on trends in the healthcare services industry. I will then provide an overview of our company-wide initiatives, and Howard will follow with the details of our second quarter 2008 financial performance and an update to our full-year 2008 guidance ranges. A question-and-answer session will follow our prepared remarks.

Yesterday, Alliance announced second quarter 2008 revenue of $122.8 million, an increase of $11 million, or 10% from the second quarter of 2007. Sequentially, second quarter 2008 revenue increased 3% over first quarter 2008 revenue of $119.1 million.

Second quarter 2008 adjusted EBITDA was $46.6 million compared to $42 million in the second quarter of 2007, an 11% increase. Sequentially, second quarter 2008 adjusted EBITDA increased 7% over the first quarter 2008 adjusted EBITDA of $43.6 million.

These performance indicators reflect the success of our many operational and strategic initiatives, which have positioned us for revenue and adjusted EBITDA growth in 2008. We are pleased that Alliance's first half 2008 results have put us in the position to raise our full-year financial guidance, which I will ask Howard to walk through in detail in a moment.

As noted on previous earnings calls, the pipeline of opportunities for diagnostic imaging and radiation therapy acquisitions by Alliance remains strong and we are well positioned to take advantage of these opportunities. We are enthusiastic regarding the Medical Outsourcing Services acquisition announced earlier this week and look forward to combining the resources and experience of our two organizations over the next six to nine months. We expect the MOS team to seamlessly merge into our business. The synergies, which will be realized over the next 12 months, will complement the high quality and superior value offered to our patients and customers as the nation's largest provider of PET/CT services. We expect this acquisition to be accretive in 2008.

The Alliance team will continue our highly-disciplined approach to acquisitions. The focus will remain on attractive returns on capital and a focus on growing organizations, which meet our strategic criteria, including fixed-site imaging providers in CON states; PET/CT providers, both mobile and fixed; and radiation therapy centers. We have been successful at integrating all of the acquisitions we completed in 2007 and 2008, and are refining comprehensive integration plans, which will allow our new additions to continue to grow within the overall framework of Alliance.

During 2008, we have continued to see significant legislative and regulatory healthcare activity in Washington, D.C. On July 15, Congress passed the Medicare Improvements for Patients and Providers Act, which included updates to the 2008 Medicare Physician Fee Schedule and also mandates that – number one, the 10% physician professional component reductions slated for the second half of 2008 be replaced with a 0.5% increase retroactive to July 1, 2008. Number two, all imaging facilities and providers be accredited as of January 1, 2012. Number three, CMS to design an accreditation process by January 1, 2010, a positive for Alliance and a provision we have long advocated for. Number four, CMS to establish a two-year demonstration project to assess the appropriate use of advanced diagnostic imaging services to be implemented by January 1, 2010, which Alliance plans to fully participate in. And number five, CMS to evaluate the current reimbursement formula.

On June 30, 2008, CMS posted the proposed Medicare Physician Fee Schedule rules for 2009, which is open for comment through the end of August. In terms of reimbursement for next year, CMS has proposed a slight increase in 2009 MRI rates, while maintaining 2008 PET/CT reimbursement levels through next year. We view this as a positive for the industry and also believe that CMS’ proposed initiative to expand IDTF quality standards to all imagining services provider on an out-patient basis in physician offices will benefit imaging companies overall.

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