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Q3 2015 Earnings Call Transcript

Published: 8 Nov 2015

[Rick Johns:]

Good afternoon, ladies and gentlemen, and welcome to the Alliance HealthCare Services Third Quarter 2015 Earnings Call. My name is Rick Johns, and I'm the company's Executive Vice President and General Counsel. This conference is being recorded for rebroadcast, and all lines have been placed on mute. We will entertain questions and answers after the presentation. This conference call will contain forward-looking statements, which are based on the company's current expectations, forecasts, and assumptions, including statements related to our business strategy, growth opportunities, the impact of the Affordable Care Act, the 2014 Medicare fee schedule, our 2015 guidance, our expected capital expenditures for 2015, expected cost reduction, and the company's effective tax rate. As most of you know, 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 are described in the 2015 guidance release under the heading forward-looking Statements, as well as in the Risk Factors section of the company's Annual Report on Form 10-K for the year-ended December 31, 2014, as such report may be modified. 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 or information required by the SEC's Regulation G may be accessed through the Investor Relations section of the company's website. Please visit our website for replay information of this call. On today's call, our CEO, Tom Tomlinson will provide commentary regarding our third quarter 2015 results and business performance. Our Chief Financial Officer, Howard Aihara, will follow with financial details of the third quarter 2015 results. With that, I will now turn the conference over to Tom. Tom, please go ahead.

[Tom Tomlinson:]

Thanks, Rick, and good afternoon, everyone. Welcome to our call today. As Rick mentioned, I'd like to begin the call with an overview of Alliance's third quarter 2015 results and some background regarding our business performance. Before I discuss quarterly results, I would like to highlight a few strategic perspectives that are important context for understanding our current financial performance and our outlook for the future. During our call in March of this year, we outlined several key strategic imperatives including positioning alliance as the outsource partner of choice for hospitals and health systems in our core radiology and oncology service lines. Expanding into the adjacent space of Interventional Services in order to take advantage of an attractive growth segment and build a third division with excellent growth and return on investment prospects. And testing the opportunities across our multiple service line opportunities into a single customer relationship, if warranted expand this offer to accelerate growth. I'm very happy with the progress we've made this year in executing in the strategic vision. In Alliance Radiology, we've capitalized on our position as the market leader in hospital-centric radiology services to grow revenue, recapture share in the mobile segment, and increase momentum in our RAD360 strategy. We've added new partners and increased our presence with existing partners. Alliance Oncology launched a new stereotactic radiosurgery site with Dignity Health has another new project under construction, with a new partner to oncology and just announced a partnership in [indiscernible]. With the existing partners, such as the Medical University of South Carolina and Charleston Area Medical Center, we've delivered on our value proposition by driving significant same center growth. Our overall pipeline of activity is quite strong. In February, we launched Alliance HealthCare Interventional Partners with the acquisition of a majority interest in the Pain Center of Arizona. And just recently added to this platform with a similar transaction with PRC, a leading provider in Florida. Testing across Southeast is still in its early days, but our testing lease certainly validates this basic premise that hospitals and health systems need partnering outsource providers who can come alongside their acute operations and help them drive great performance. There is no company better positioned than Alliance to do this in radiology and oncology. We now have five agreements with customers who have a relationship with Alliance in more than one service line. I also want to take a few moments to talk about a topic that I know is on the minds of many of our shareholders. We recently announced a transaction between Oaktree and other current shareholders and Thai Hot. The strategy I just outlined and our progress in turning that strategy into actual results is precisely why Thai Hot is making their investment. As such, with regard to our current strategy, Thai Hot is very supportive and we expect business as usual in the U.S. In addition to the U.S. market, they're compelling opportunities in overseas markets such as China. The depth and breadth of Thai Hot's international experience can help Alliance evaluate the non U.S. opportunities in a measured manner and ensure that any such initiatives are met with success. Our team is excited about this positive development for Alliance and is confident, that [indiscernible] support in our strategic direction and leadership in the company will remain intact. We're still on track for a late fourth quarter closing. Now we'll turn to our results for the quarter. We achieved solid results for the third quarter highlighted by 10% year-over-year revenue growth and adjusted EBITDA of $34 million. Same-store volume performance continues to be strong in radiology and the Stereotactic Radiosurgery segment of our oncology business. We're pleased with the momentum in our business and our continued progress executing against our growth, cost management and productivity improvement goals. Over the past 12 months, our main strategic objective has been to return the company to growth and in doing so, drive consistent growth and profitability and value for shareholders. Across each of our business segments we've taken proactive steps to enhance the value proposition we provided to our customers. Throughout the year we've communicated our decision to be strategically aggressive in our price strategy and radiology in order to sustain and grow market shares. This has created some margin pressure in this division in the near term. However, our strategy is gaining traction as demonstrated by the fact that we grew revenue in the radiology division during the quarter for the first time in two years. Adjusted EBITDA for the quarter of $34 million was impacted by $5.1 million, as a result of our radiology price strategy. This represents a $1.1 million decrease from the prior year. Consistent with our previous communications of our radiology price strategy we continue to believe that 2015, we'll see the majority of the price actions we need to take and that price comparisons in 2016 and 2017, should be easier year-over-year. Overall, while encouraged by the progress in our results we recognize, we have much still to accomplish and are working hard to sustain and build upon our momentum. I also want to highlight a few of the industry trends we are we're focusing on as we refine our strategy and execute operationally. Hospital operators have experienced solid volume performance in part due to an increase in the insured population flowing from the Affordable Care Act. This is particularly true in states that have elected to expand their Medicaid program. While some of this volume lift maybe moderating in the hospital segment, our radiology business benefits from this trend as over 75% of our revenue is derived from hospital relationships. Another trend is the industry wide shift to value based care that's driving hospitals and providers to reduce costs and become more efficient in delivering care. This is affecting our business in two ways, in the near-term, it's putting increased pressure on the price and margin structure of our mobile diagnostic radiology business. However, that same trend is also accelerating the opportunity to partner with hospitals to build efficient, high quality sites of service to deliver care to their patient base. Exactly the opportunity our Alliance Oncology and RAD360 strategies are focused on capturing. While we've seen our net leverage ratio increase by approximately 0.3 times EBITDA we remain committed to the disciplined use of capital, making good investments on growth projects, as well keeping leverage at conservative levels. We also note that part of the increase in near-term leverage is due to capital invested on new projects and acquisitions where we've incurred the cash usage, but have not yet seen the full benefit of increasing EBITDA that we expect to achieve from these investments. As recently evidenced by the announcements we've made regarding the Alliance Oncology project in Hawaii and the partnership with a leading interventional practice in Florida we continue to see great opportunities to drive profitable growth. And I'll talk more about some of our recent investments a bit later in my comments. Now, moving to the details of our third quarter 2015 results by division. In total, revenues for Alliance Oncology were up 7% over the same quarter last year as investments to upgrade radiation therapy equipment at the Medical University of South Carolina enabled same-store double-digit growth within stereotactic radiosurgery. Alliance Oncology continued its same-store volume growth trends with strong same-store stereotactic radiosurgery volume growth of 10.8% with linear accelerator volume decreasing by 5.5%. Linear accelerator volume remained challenge, but I'm confident on our actions taken to improve performance across this offering. We couldn't be more pleased with our relationship with the Charleston Area Medical Center as we celebrate our one year anniversary of working with this important customer and partner. I would encourage anyone interested in how we've been able to grow and impact the business and create value with CAMC to watch the short video on our Investor Relations website. As I mentioned above, we've recently executed an agreement to form another important partnership with Pacific Cancer Institute or PCI, a radiation oncology center founded by Dr. Bobby Baker. To acquire a 95% controlling interest in this center, we anticipate PCI will be a strategic partner to further expand our footprint while letting value to Alliance Oncology's broad network of leading physicians and physicists. The closing of the transaction is subject to various conditions that are expected to be satisfied prior to the end of the year. Our expanded business development efforts have produced a robust pipeline of opportunities with numerous active deal discussions taking place with hospitals and health systems across the nation. We continue to see positive impact from bringing marketing in-house rather than a continued reliance on outside agency support. This approach is proven to be lower cost and more effective, enabling us to deliver more targeted messaging resulting in stronger patient adoption and retention. Looking forward to the progress our team is making has us excited about the strong pipeline that we built for the Oncology business. Our development team is keenly focused on a number of near term opportunities, including the opening of a new site that's a joint-venture with a hospital partner. This project is well underway and we expect to begin providing care to patients in the first quarter of 2016. Interestingly this particular hospital partner is also a joint-venture partner with several sites in our Radiology Division. And we currently have four signed letters of intent covering seven potential sites of service. In Alliance Oncology, the growth drivers are in place and the attraction we're seeing illustrates the competitive advantage our oncology team has in the multiple-line partner sub-strategy that we bring to the table. Now in our Alliance Radiology business, our strategy to be selectively aggressive in our price strategy has been effective and helping our teams to sustain and grow market share. We've seen positive net new sales in sequential quarters and we've seen a higher customer retention rate indicating that this strategy is effective. Customer attention has been better and net new sales are positive resulting in year-over-year growth within our MRI and PET/CT business lines and modest growth in overall division revenue. Returning our radiology business, the growth has been a key priority. Reaching this goal is the result of our teams' improved sales performance where we've not only seen stronger new sales and customer attention, but also stronger referring physician support. Operationally, we are delivering improved customer service and, as we have for many years, continued excellence in patient care and clinical quality. We continue to strategically compete on price to sustain and grow market share, with MRI pricing decreasing 7.1% and PET/CT pricing decreasing 6.6% year-over-year. In terms of performance by modality, our radiology same store growth was strong in the third quarter with MRI up 4.7% and PET/CT up 5.7% over the same quarter in 2014. Our RAD360 strategy continues to gain momentum with hospital systems and other providers, in fact with an existing hospital joint venture partner we acquired and began operation at a multimodality outpatient site on the East Coast. We expect to close another joint venture transaction with the same hospital partner in Q4 of this year. Finally, we recorded our second full quarter results in our new business offering in Interventional Services, which we're now calling Alliance HealthCare Interventional Partners. We continue to see very compelling future partnership opportunities in this fast growing segment of the healthcare services market. As you've heard we mentioned on prior calls, interventional pain management is the largest segment within the Interventional Services space and is a natural complement to our diagnostic radiology business. As an adjacent service line, there are a number of synergies between diagnostic radiology and Interventional Services. The use of imaging modalities, similar hospital customers and physician referrals by way of example. So, it makes sense, that they'll benefit from a coordinated sales and business development effort contributing to organic growth. This also aligns with our vision to provide multiple service lines to a single hospital customer. Our initial investment in The Pain Center of Arizona is off to a positive start contributing $9 million in revenue in the third quarter of 2015. Just yesterday, we announced our first addition to this platform, with the acquisition of a majority interest in PRC, a market leading high profile practice with eight locations across central and Palm Coast areas or Florida. One of the benefits of this new partnership is that it allows us to take advantage of brining ancillary services into our centralized processing facility that was part of the TPC acquisition, improving service to patients, creating efficiencies, and improving revenue. With two strong initial platforms in two different regions of the country, we continue to see a very compelling future and great partnership opportunities for Alliance HealthCare Interventional partners. In summary, we're encouraged by our growth momentum and confident in the strategies, we're executing to strengthen the long-term foundation of the business. As we near the end of 2015, I'm confident that we enter 2016 as a stronger company. We're seeing traction on our cross-selling strategy across our three principle service lines. Our business development teams currently have five agreements and customers with ongoing relationships in both radiology and oncology divisions, with even more under development. As we've outlined in our strategy, hospitals and health systems are looking for partners with specific service line expertise, a shared commitment to excellence in patient care and the ability to be an effective long-term business partner. Alliance HealthCare is all of that and more. As I noted earlier, our primary strategic objective has been to return the company to growth. This effort begins with our team and we've been fortunate to recruit a number of new leaders to alliance this past year in all areas including sales, business development and operations. Together with some key long term alliance leaders, we now have a world-class team with the talent and drive to ensure that we achieve our goals. As a result, we've now seen several sequential quarters of revenue growth and the trend in the year-over-year comparisons is accelerating. This is consistent with our intended strategy. As a result of our shift in radiology pie strategy, our year-over-year comparisons and adjusted EBITDA have been difficult in 2015, again, consistent with our intended strategy. Looking forward we're not positioned to sustain our revenue growth trend and see improved performance in terms of adjusted EBITDA and earnings. I'll now hand the call over to Howard to provide some financial details of the third quarter 2015.

[Howard Aihara:]

Thanks, Tom and good afternoon. Today, I'll review the highlights of our third quarter performance, affirm our full year 2015 guidance ranges, and discuss the impact of the final 2016 CMSP schedule changes, which are expected to have no impact to Alliance. Revenue totaled $120.8 million in this year's third quarter, an increase of 10% or $10.6 million over last year. Our revenue increase year-over-year was primarily due to the addition of our partnerships with Charleston Area Radiation Therapy Center in West Virginia in the fourth quarter of 2014 and The Pain Center of Arizona, which began in the middle of the first quarter of this year, which combined contributed $11 million of revenue in the third quarter. In addition, in August, we modified the governance structure of H&I, our long time radiology joint venture partnership in Michigan and began consolidating H&I's financial performance in to Alliance effective in August, resulting in an increase in Q3 revenue of $1.3 million. This HNI consolidation expected to impact Alliance's revenue on approximately $7.5 million annually. Alliance's previously unconsolidated joint venture with HNI's results previously reflected in the earnings in unconsolidated investees are an item of our income statement. On an organic basis, revenue decreased $1.6 million, due to $5.1 million of competitive contract pricing reductions in MRI and PET/CT, which we expected and discussed in our 2015 guidance call in March, partially offset by strong MRI, PET/CT and SRS same-store volume growth. Alliance Oncology revenue totaled $25.2 million and is 21% of the total company revenue. Oncology revenue increased 7% year-over-year due to our partnership with Charleston Area Radiation Therapy Center and strong same-store treatment volume growth in stereotactic radiosurgery, offset by a decrease in a same-store volumes in linear accelerator treatments. As Tom mentioned, in October we announced the formation of our partnership with Pacific Cancer Institute in Maui, Hawaii, in which Alliance will purchase a 95% ownership initiative in PCI. This radiation oncology center is expected to generate approximately $6 million of AI's revenue and this transaction is expected to close late in the fourth quarter pending regulatory approval. Alliance Radiology revenue totaled $86.3 million in this quarter, up slightly over last year. This was primarily driven by MRI and PET/CT scan volume growth due to a strong same-store volume and new contract and contract retention performance. Increased revenue from our RAD360 growth initiative and revenue from the HNI consolidation, offset by $5.1 million of competitive price reductions as previously mentioned. Same-store volume growth was a strong 4.7% for MRI and 5.7% for PET/CT. This was a second consecutive quarter, since the first quarter of 2012, that we have increased quarterly total scan volumes, both MRI and PET/CT in the same quarter. Interventional Services partnership with Pain Center of Arizona continues to grow with revenues contributing $9 million in the third quarter or 7% of total revenue. TPC is expected to contribute approximately $30 million of revenue on an annualized basis. As Tom mentioned, we recently announced our second partnership in pain management with acquisition of a 60% interest PRC Associates, a Florida provider of Interventional Services, completed in mid-October. PRC is expected to contribute $12 million of annualized revenue. Third quarter adjusted EBITDA totaled $34 million, a year-over-year decrease of $1.1 million. Organically, adjusted EBITDA decreased $4.2 million year-over-year. This decrease was due to MRI and PET/CT price reductions I mentioned earlier, which was partially offset by cost saving initiatives in our Radiology division. In terms of earnings, pro forma diluted EPS was $0.34 in the third quarter of 2015 compared to $0.52 a year ago. As reported diluted EPS for the third quarter was $0.67, compared to $0.37 last year included in the as reported diluted EPS was $0.20 charge in the third quarter of this year and a $0.15 charge last year's third quarter for legal matter expenses impairment transaction costs, restructuring charges, and differences in the GAAP income tax rate from our historical rate of 42.5%. This quarter as reported diluted EPS was impacted the non-cash gain on the fair value asset step up related to the HNI consolidation, which increased as reported diluted EPS by $0.53. In terms of CapEx, we made a significant – we made significant investments in growth capital projects, efficient upgrade of our assets. In the third quarter of 2015, our CapEx investments totaled $16.1 million, compared to $11.7 million last year. In this quarter, we invested $13.4 million in growth CapEx including equipment deposits. Also, in the third quarter, we invested $2.7 million in maintenance CapEx. Cash CapEx totaled $7.4 million and finance CapEx was $8.7 million in this quarter. Alliance continues to generate strong free cash flow. We continue to manage our balance sheet through free cash flow generation. We defined free cash flow as a change in net debt before investments and acquisitions, and debt financing fees. Alliance generated $8.3 million of free cash flow before growth investments in the third quarter of 2015. Year-to-date, we generated $25.7 million of free cash before growth investments. After growth investments, Alliance's net debt increased $5.1 million in this year's third quarter, the first nine months of this year, net debt increased $8.7 million. At the end of this year's third quarter, Alliance had cash balances of $45 million. Long-term debt totaled $552 million, net debt was $507 million, as of the end of September 2015 and our net debt leverage ratio is 3.78 times. Now, I'll reaffirm our full year guidance for the full year 2015. As we mentioned on our guidance call, this is really a dynamic time for Alliance with many growth opportunities in Radiology, Oncology, and Interventional Services. Full year 2015 revenue is expected to range from $470 million to $505 million. 2015 adjusted EBITDA is expected to range from $125 million to $150 million. Offsetting growth in adjusted EBITDA from Radiology, Radiation Oncology and Interventional Services is the aforementioned price reductions in our core radiology mobile business of approximately $15 million. 2015 maintenance CapEx is expected to total approximately $35 million. With a pipeline of our growth projects, we expect growth CapEx to be in the $45 million to $55 million range, including amounts financed under debt arrangements for our joint venture equipment purchases. These growth projects will also positively impact our 2016 results. Free cash flow before growth CapEx is expected to range from $20 million to $45 million. Free cash flow after growth CapEx is expected to range from minus $10 million to minus $25 million. I'll make a few comments on CMS's final 2016 fee schedules, which were released last week for both non-hospital Medicare Physician Fee Schedule and hospitals – hospital outpatient prospective payment system providers. As you know, Alliance's business model is to partner with hospitals in a direct relationship. Revenue that we bill directly to Medicare managed care plans and other third-party payers is 14% of total revenue. The result being the Alliance largely is not directly exposed to CMS fee schedule reductions. As I mentioned in my earlier comments, the final 2016 Medicare fee schedules is expected to be mutual in the aggregate for radiology, oncology and interventional services. Using direct billings to Medicare in 2015, the 2016 impact on our radiology division is neutral for MRI. As in 2015, CMS has decided to leave PET/CT reimbursement decisions up to the Medicare remediaries. And so, CMS is going to reimburse in PET/CT services under the MPFS schedule in parity with the HOPS schedule we assume no reimbursement impact for PET/CT. CMS also did not change the hospital fees schedule for PET/CT in 2016. For radiation oncology, the 2016 impact of the final Medicare fee schedules is a negative $400,000 combine for SRS and Linac services. For interventional services, the final 2016 fee schedule impact is an increase of approximately $500,000. Thank you for your interest in Alliance. We look forward to answering your questions. I'll now turn the call back over to the operator to begin the Q&A session.

[Operator:]

The question-and-answer session will begin now. [Operator Instructions] Your first question comes from the line of [indiscernible].

[Unidentified Analyst:]

Yes. Hi. How are you?

[Tom Tomlinson:]

Hi, Sam. How are you?

[Unidentified Analyst:]

Good. My first question is regarding the Thai Hot Investment. What I'm trying to understand is Thai Hot has agreed to purchase shares at $18.50 per share and the stock is now down over 50% from their the purchase price. What I'm wondering is, how that effects the deal closing? And exactly, some comments that you may have on this type of price action in the stock?

[Tom Tomlinson:]

I don't think, there's any direct impact on the transaction itself. There's not an ouch in the agreement for changes in the share price, so I don't think, it materially changes the likelihood of that transaction moving to close. And everything that we see, continues to indicate to us that, that transaction will close before the end of the year. In terms of, the trading pattern in the share price since the announcement, you know, I don't know that we have a lot of color on that to be candid. We continue to be very confident in the performance of the business, as you know shortly after the announcement, we did come up with a clarification released, that confirmed guidance. As you know, from the discussion we just went through and the release that we provided today, we again confirmed guidance and I think, you can see in the numbers the business performance is strong. Its consistent with the expectations we set at the beginning of the year. We continue to be very confident in the strategy that we're executing, and how that's going to build value long-term for the shareholders of the company. So we have a high level of confidence in the business. And as I said, we are excited actually about having Thai Hot as a new majority owner. We've had a meaningful amount of interaction with the people from Thai Hot and the three individuals that would join the board once the transaction closes. They are very excited about the investment, they really like the strategy we've been executing in United States. They are making the investment because they wanted to be invested in U.S. based healthcare and they really like the strategy and story of Alliance. And we think it potentially opens up new avenues of possible expansion in the country of China with a partner, if you will, that has strongly aligned economic interest with the interest of the shareholders of Alliance overall. So we think it's a very positive development for the company.

[Unidentified Analyst:]

And have the debt holders actually approved the deal already? I know that they have to actually approve it or – and there is a risk that they may not approve it, what exactly is the situation on their end?

[Tom Tomlinson:]

We have not yet launched that process. We intend to probably fairly soon. We don't expect that to be a material issue related to the closing of the transaction.

[Unidentified Analyst:]

Okay. My next question quickly is do you think in 2016, I mean, what would be the level of growth CapEx and what we get back to a level where there'll actually be some free cash flow generated to pay down some of the debt because it seems like the debt is solely creeping up already?

[Tom Tomlinson:]

In this call, we don't plan to provide any guidance related to 2016. I think, we've articulated what our strategic path is, we will continue on that strategic path as we commented on here. On this call we continue to be very careful in our investments and how we use the cash generated by the business, well leverage has come up a little bit here in the near term. We think it's been to use capital to invest in what we believe are very compelling and exciting growth opportunities that are going to be very beneficial to the value of Alliance for our shareholders. So, no specific comment on 2016, but we trust that as you've seen as operate here over the last couple of years I think we're mindful of a reasonable pace of investment with the objective of returning Alliance to growth again, which we're doing.

[Unidentified Analyst:]

Okay. Thank you very much. I'll jump back in the queue.

[Tom Tomlinson:]

Yeah. Thanks for the question, Sam.

[Operator:]

Your next question comes from the line of Morgan Spector [RBC Dominion Securities].

[Morgan Spector:]

Yes, good afternoon, Tom.

[Tom Tomlinson:]

Hey, Morgan.

[Morgan Spector:]

How are you today?

[Tom Tomlinson:]

I'm good. Thanks. How are you?

[Morgan Spector:]

Okay. Number one, I want to complement you on your very comprehensive presentation today, it was extremely well articulated.

[Tom Tomlinson:]

Thanks, Morgan.

[Howard Aihara:]

Really well done. I have to say very, very professional and you should be complemented on that. I have a number of comments, some of the comments, we've discussed on some of the phone calls that we had together over the last few months, but I just want to make a few comments today. You refer – you talk about maximizing and building shareholder value over the long-term and I appreciate that. But with your stock presently selling for a $9 approximately 50% of the – sorry about that – with your stock presently selling for $9 or approximately 50% of the price that Oaktree has gotten for their shares. Where is that commitment to maximize shareholder value even in the short term and I'll let you address it in a second. I just want to complete my points. All right. So, number one talking about shareholder value, where is that commitment both short term and long term. Number two, with your stock selling at an enterprise value of approximately 4 times EBITDA or one times cash flow. how come no director or officer has stepped up to the plate and bought shares. It's quite amazing to me. The stock is selling at half the price that Oaktree got and nobody is buying shares. If you're also committed to the future of this company why wouldn't you step up and buy stock at $9. And I know that there's restrictions and there's quiet periods but nevertheless there's been times I think over the last few months where you could have bought shares. And just finally again, why isn't the company buying back stock here at these prices levels? It's just – it's hard to figure out why wouldn't be buying stock here at such a low price? And the last point again concerns the special committee that was set up to protect the minority shareholders. I'd like you to just talk a little bit about what this – what – what did the special committee do to ensure that this deal with Thai Hot has been fair for the minority shareholders. What specifically that the special committee do because it just doesn't seem – doesn't seem like it all makes sense to me as you know what I think, but nevertheless that's what I have to say today. Morgan, I appreciate you sharing your perspectives and the questions and I'm happy to respond to them. In terms of creating value for shareholders, short term versus long term, I think was if I just tell you first point or first question, like any company – any public company, in particular, we are constantly thinking about how do we balance near term versus longer term investment priorities. We've continued to run the business to build value for the shareholders. I think you can see evidence of that with some of the recently announced growth projects. So we're certainly very focused on that. As you know from some of our conversations, offline if you will, certainly it's a concern of ours that the share price has traded down to the degree it has, but that's not exactly in our control. As it relates to the management team or members of the board, potentially buying stock as I think I've indicated to you, we – since the announcement of the transaction we've been in a closed window period where council believes it's not appropriate for insiders to buy or sell stock. And so we have all acted in a manner consistent with that guidance from council. So, it's not been something that any of us could consider if we were selling client. I think that window probably opens I would guess in a few days. People who make their own decisions, once...

[Morgan Spector:]

Okay. Fair enough.

[Tom Tomlinson:]

Once that window is open.

[Morgan Spector:]

Fair enough.

[Tom Tomlinson:]

The Board has met as is – you would expect going through a transaction process like this. On several occasions over the last number of weeks and months, the board has discussed from time to time, should we consider other near-term measures such as a share buyback in order to indicate confidence in the company's prospects and future. At this stage, the company has not chosen to allocate capital in that direction. Instead, we've chosen to allocate capital to some projects that we believe drive long-term success and growth like the Alliance Oncology Project we've talked about, like the addition of a significant interventional business to the interventional strategy that we've talked about. So, that's been the decision that the board has maintained as it has been discussed a couple of times. And then lastly with regard to the special committee, the special committee, as is appropriate is made up only of members of the board, who are fully independent of Oak Tree and related industries who are sellers into the Thai Hot transaction. That committee has been negotiating a number of different provisions to protect the non-transacting, non-majority shareholders. Some of those, I think – some of that information we have provided publically once a final standstill agreement has been negotiated and agreed to, and along with the other details related to the transaction, that'll be made public, and that'll be made available to you. A couple of things I would highlight for you are that all the cost for instance of the credit agreement amendment, the special committee negotiated to ensure that those costs are fully borne by the transacting parties and not borne by the non-transacting, non-majority shareholders of Alliance that is as it should be. And that's one of the examples of something that the special committee negotiated on behalf of the non-majority shareholders. There will be other provisions in the standstill agreement that I think you pretty typically see including restrictions on the ability of the majority shareholder to buy additional ownership in the company without first coming to the special committee that way to majority of it can't kind of slowly creep up their ownership percentage in a manner that's unfair, and not fully visible to the minority shareholders. Again, that's fairly typical in standstill agreement agreements. So, there's a variety of things. The special committee is doing to make sure the non-transacting, non-majority shareholders are treated fairly and appropriately in the transaction. I think the committee is doing a commendable job of executing those responsibilities and again once the standstill agreement is fully negotiated and the transaction is ready to be closed, that will be fully visible to you and other shareholders, who are interested.

[Morgan Spector:]

All right. But you talked about making the decision to allocate capital to projects and I understand that project that you think will be positive for the company's long-term prospects that the market cap is so small today of the companies particularly attributable to the minority – to the minority group. We're looking at market cap of less than $50 million so that the little money spent on a buyback would go a long way to instilling confidence and possibly very possibly boosting the stock price. We're talking about the whole thing is $50 million. A 20% buyback would be $10 million. I would...

[Tom Tomlinson:]

Morgan unless you know ...

[Morgan Spector:]

I would just – just I would urge you to reconsider that. That's all I have to say today. I would urge you and the board to reconsider taking steps towards that in that area and I'll leave it there.

[Tom Tomlinson:]

I appreciate the perspective Morgan, thanks for sharing it.

[Morgan Spector:]

All right. Thank you for your time.

[Tom Tomlinson:]

Thank you.

[Operator:]

Your next question, comes from the line of [indiscernible].

[Unidentified Analyst:]

Yeah. Yes, Hi. Hello, how are you?

[Tom Tomlinson:]

I'm good. Thanks.

[Unidentified Analyst:]

I kind of wanted to echo the previous callers concerns about balancing short-term versus long-term. If I look at your numbers from five years ago, your top line was around $480 million, your EBITDA was $153 million. This year, in your guidance it's $470 million to $505 million and your EBITDA was actually even less, if you meet the high end of it. So, you've kind of had five years to do other things, to sort of grow the business, generally profitability, reduce debt, which you've done actually. And so, that's just the push back, I wanted to give – you actually have had five years, to do something. And the company hasn't done anything in terms of growth. So, how would you balance the – balance that with the comment you made before about balancing, sort of short-term versus the long-term?

[Tom Tomlinson:]

Look up with next year....

[Unidentified Analyst:]

As that with the next five years?

[Tom Tomlinson:]

The company has had – the five-year window that you described and I'll trust that the numbers you articulated are accurate. I've not separately verify them. The leadership team that's in place now, I just came to my second year anniversary on October 1.

[Unidentified Analyst:]

Yeah.

[Tom Tomlinson:]

So, I was around for that whole five year window. When I came here, I think I very quickly articulated that I came here with the mandate to return this company to growth. And if you look at the last three quarters, we've begun to grow again. If you look at the investment decisions we are making, there are sound projects that are delivering incremental revenue and earnings to the company, and we believe over time that will be reflected in the evaluation of the company. So, we think that things we're doing strategically to reposition this business as a company that can grow its revenue and earnings again, profitably with prudent use of capital is exactly the right strategy that we should be pursuing. And we believe, our execution of that strategy is getting stronger and stronger, as we go forward. And I think, you can see that in the numbers.

[Unidentified Analyst:]

Can I – so my follow-up to that would be, you're – is it fair to say that you are buying revenues for growth?

[Tom Tomlinson:]

Certainly, where you think...

[Unidentified Analyst:]

And with…

[Tom Tomlinson:]

Certainly, where you think acquisition to some extent is part of our growth strategy. So, when you look at our same center growth numbers, I – because I'd beg to differ that we're "buying all of our growth." We've shown very strong same center volume growth numbers in this business, certainly for the last year and it really oncology, really for the last couple of years. Linac has been a little more challenged this year, but that's coming off of a very strong same center number in 2014. So, I think we're growing the company both in terms of organically to improving performance as well as through targeted acquisitions that we think are in projects that have good strong long-term value proposition.

[Unidentified Analyst:]

That's fair. So in terms of these growth initiatives. Your – the guidance of 45 to 55, does that include or exclude?

[Howard Aihara:]

This is Howard. No, it excludes acquisition capital.

[Unidentified Analyst:]

So the $24.5 million you spent for acquisitions will not be in that number?

[Howard Aihara:]

That's correct.

[Unidentified Analyst:]

So, we're at midpoint would be 50 and assuming you actually announced a new acquisition recently, correct?

[Howard Aihara:]

We announced two actually. We announced PRC acquisition, Interventional Services acquisition yesterday and then we announced the – previous to that we announced the Maori transaction, the PCI transaction for Alliance Oncology that is expected to close late this year.

[Unidentified Analyst:]

Right. So, the 50 midpoint plus all the acquisitions what does that total U.S. round numbers for the year?

[Howard Aihara:]

Round numbers approximately ballparkish around at a $125 million to $130 million.

[Unidentified Analyst:]

So, $125 million to $130 million goes out the door for growth CapEx and acquisitions, correct?

[Howard Aihara:]

That's correct.

[Unidentified Analyst:]

I know you don't want to give guidance but we have to model this business. What kind of EBITDA or ROI whatever you feel comfortable sharing should we sort of estimate for this $125 million that you spent? Because my concern is that your leverage is creeping up again. One of the thing good things you've done over the previous five years, you've brought down the debt but now sort of you're going in the opposite direct. So it will be helpful if you can sort of articulate for us what the cash flow, whatever you feel comfortable sharing so that we have some confidence that this business can delever again?

[Howard Aihara:]

We've mentioned that our cash flow before growth investments and growth CapEx is in the $25 million to $45 million – $20 million to $45 million range this year and after growth CapEx it's fairly neutral and then you have acquisitions on the VAT. We believe that that acquisitions that we're entering into all accretive to earnings and make sound financial sense. We are disciplined about how we approach acquisitions.

[Unidentified Analyst:]

So how should we think about, is it a 10% EBITDA margin business? is it 15%? It's a 20%? What kind of EBITDA will all this – will $125 million generate on sort of a full year run-rate basis?

[Howard Aihara:]

One of the pieces of information we provide generally in the release is related to for instance the [ph] Maori acquisition is a rough estimate of or approximate estimate of what the annual revenue is.

[Unidentified Analyst:]

Yeah. That I got it.

[Howard Aihara:]

I'm sorry.

[Unidentified Analyst:]

No that part I get, I get…

[Howard Aihara:]

Let me complete my thought then. So, if you look in the K and Q, I believe there is a segment level EBITDA to give you some sense of what the EBITDA – at a segment level what the segment EBITDA margins are to allow you to make some estimations because we do understand people are working with their models to try to figure out what the implications are of the different things we're doing. So I would encourage you to look in the information that's provided in those public filings. I think you can come with some reasonable estimation methodologies.

[Unidentified Analyst:]

Okay. If it's there, you can share it here, right?

[Howard Aihara:]

Yeah. Again, I don't know off the top of my head what the segment EBITDA margin is for Oncology for instance. So, certainly, I am sure, we could look that up for you here but again that information is provided in the Ks and Qs.

[Unidentified Analyst:]

Okay. And just finally, is the company doing anything to sort of generate investor interest? Do you hold any conference – do you go to any conferences. I know you don't have a slide deck on your website. At least, if there is one, I missed it. What are you doing to sort of generate more interest for this company, does anybody even know it exists, doesn't trade that much. I know you've tried to improve the trading volume over the years but doesn't seem to improve. Is the company doing anything, does it have any interest in doing something?

[Tom Tomlinson:]

Part of what Howard and I do from time to time is we'll do non-deal roadshows. We'll go and meet with prospective investors and that's something we certainly have been involved, continue to be active – active with in the roles that Howard and I serve.

[Unidentified Analyst:]

Have you been to any conference, industry conferences? Presented?

[Tom Tomlinson:]

Not recently, no.

[Unidentified Analyst:]

Is there any plans to, why wouldn't you?

[Tom Tomlinson:]

Not any current plans, relative to conferences, but there are some current plans relative to other meetings with investors.

[Unidentified Analyst:]

Okay. Thank you.

[Tom Tomlinson:]

Thanks for the questions.

[Operator:]

Your next question comes from the line of [indiscernible].

[Unidentified Analyst:]

Hi, guys. Thanks.

[Tom Tomlinson:]

Hi, Jay.

[Unidentified Analyst:]

My questions regarding your guidance. It's nice that you've affirmed your guidance, but we're three quarters of the way through the year now, so you can back into what you're saying for the fourth quarter and the numbers are incredibly wide for the fourth quarter. You're guiding to $125 million to $150 million of EBITDA for the year. You've done I think $98 million so far. So that would imply $27 million to $52 million for the fourth quarter. Is there any way you can narrow that guidance so that we can get a sense of the fourth quarter? It would be great if you hit the high end of that guidance but that doesn't seem realistic to me.

[Howard Aihara:]

Okay. We're certainly comfortable with the guidance that we provided and we definitely have done $98 million of adjusted EBITDA for the first nine months of the year and that we've got several growth initiatives that will most likely grow EBITDA in the fourth quarter. So I think you can go about and do your math using those numbers.

[Unidentified Analyst:]

So you're comfortable with the high end of that guidance that it's possible that you could do $52 million of EBITDA in the fourth quarter?

[Howard Aihara:]

Yeah. Actually, I said that we're comfortable with the guidance range so won't be within the guidance range.

[Unidentified Analyst:]

And the range is $27 million to $52 for the fourth quarter, which would imply you have to be comfortable with both end of that guidance?

[Howard Aihara:]

That's correct.

[Unidentified Analyst:]

Okay. Thanks.

[Operator:]

And we do have a follow-up question from the line of [indiscernible].

[Unidentified Analyst:]

Yes. Hi. I just wanted to echo what some of the other callers had mentioned and just point out just quickly that you have publicly traded RadNet business though the business model is quite different. In certain sense they have a similar EBITDA, similar debt profile and the market capital is about triple year level. So it just seems in terms of creating shareholder value, that's been a complete failure here over the last couple of years and I would hope going forward that you actually do start to concentrate on minority shareholders to actually increase the stock price and in terms of that, I would believe that some de-levering would certainly help. I'm not a fan of share buybacks per se, but again, what another caller said and I said before, your debt is creeping up. The leverage ratio is creeping up and I think a lot of prudence is recommended for the debt on the balance sheet. And I'll leave it at that. Thank you very much.

[Tom Tomlinson:]

Thanks for the perspective prospective, Sam.

[Operator:]

If there are no further questions, I will now conclude this conference call.

[Tom Tomlinson:]

Thanks, everybody. Appreciate you joining us today for the call. And as usual of the case, if you do have any questions, feel free to call us directly. Thanks a lot. Have a good evening.

[Operator:]

You may now disconnect.