Alliance Healthcare Services, Inc. (NYSE:AIQ)
Q4 2013 Results Earnings Conference Call
March 13, 2014 8:30 AM ET
Kristin Osborn - Vice President and Corporate Controller
Tom Tomlinson - Chief Executive Officer
Howard Aihara - Chief Financial Officer
Mike Shea - Chief Operating Officer
Brooks O'Neil - Dougherty & Company
Quinton Mathews - QKM, L.L.C
Good morning. And welcome, ladies and gentlemen to the Alliance HealthCare Services' Fourth Quarter and Full Year 2013 Earnings Call. My name is Kristin Osborn, and I’m the company's Vice President and Corporate Controller. This conference is being recorded for rebroadcast and 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 will contain forward-looking statements, which are based on the company's current expectations, forecasts and assumptions, including statements related to our business strategy, our growth opportunities, impact of the Affordable Care Act and the 2014 Medicare Physician Fee Schedule, our 2014 guidance, our expected capital expenditures for 2014, expected cost reductions 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 2013 guidance released 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, 2012, as such report may be modified or supplemented by the company's subsequent filings with the SEC.
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, maybe 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, Tom Tomlinson, our Chief Executive Officer, will first provide a brief overview of 2013 and then will discuss the priorities of the organization in 2014 and beyond. Our Chief Financial Officer, Howard Aihara will then follow with the financial results for the fourth quarter and full year 2013 and the details of our 2014 guidance. We also have Mike Shea, our Chief Operating Officer joining us today who will participate in the Q&A session after our prepared remarks.
With that, I will now turn the conference over to Tom. Tom, please go ahead.
Well, thanks, Kristin, and good morning, everyone. Welcome to Alliance’s fourth quarter and full year earnings call. We appreciate your time, interest and participation in our call this morning. The fourth quarter was a strong and to an important year in the history of our company.
As we mentioned during our last call, as we look at our past, present and future in framing our strategic evolution as a company, we talked about the three Ts and as we shift from the first T or turnaround phase to the second T, the transformation phase it’s worth noting a few accomplishments in 2013 that really highlights the progress we have made in driving this strategic evolution.
We finalized the complete risk finance of our debt structure which collectively will save the company’s $17 million in cash interest expense annually. We continued strong cash flow generation, allowing for $43.3 million reduction in net debt during 2013, which represented approximately $0.04 per share.
These moves to strengthen our balance sheet and optimize our cost of capital were necessary steps to build the foundation upon which we can reestablish Alliance as a growth company and I’ll speak to that strategy for growth in greater detail later in my comments.
Continuing with the few highlights from 2013, in our Alliance Imaging division, we made significant progress with our enhanced value proposition or EVP strategy. Specific elements of this include the development of the robust radiology service line diagnostic tool, built upon a practices assessment of hospital radiology service lines across the healthcare industry, which Alliance is uniquely positioned to do, given our 100 plus hospital customers. This tool enables us to work with our hospital customers to create an optimal strategy for success in their radiology service lines.
It takes into account over 100 specific operational factors and creates an actionable plan to lift performance. This tool enables us to provide a full 360 degree perspective of the radiology services within our hospital partners and we are currently working with over 36 customers utilizing this diagnostic tool.
When combined with our operational and sales capabilities that we are developing, we branded this outsourcing service RAD360 and going forward we expect these engagements to result in greater retention and penetration within our core mobile, supplemental service and fixed rate business, and growth in terms of new strategic joint ventures covering an entire radiology service line.
We have significantly augmented an improved a referring physician facing sales team, so that we can drive same-store growth at existing sites and on behalf of our hospital customers and partners. The pipeline of strategic engagements with hospitals and system is growing significantly over the past year.
Now switching to Alliance oncology, 2013 was a year where we transition to a new and more effective division leadership. We eliminated from unprofitable sites that were distraction to our team, implemented strategies to drive same-store growth and begin to refocus on business development in order to reignite growth.
Our pipeline in Alliance oncology is strong as we enter 2014 and our team has great momentum. We have strengthened our cost focus driving significant end year savings. This discipline is broadening into a performance-based focus across all areas of our business. And as a result, we delivered full year adjusted EBITDA of $147.4 million in 2013, which was near to mid-term -- the mid-point of our guidance range of $140 million to $160 million.
And finally, our shareholders were rewarded for their investment with us during this progress from turnaround to transformation as our stock price grew from $6.50 a share in January of 2013 to the current $30 range that has been maintained from the fourth quarter to-date.
So while we are proud of the success we had last year, I’d now like to shift focus to our future and expand on what our transformation phase has in store and began to set expectations for our third T or the traction phase.
In transforming Alliance imaging we continued to build stronger RAD360 competency, excellence across all elements of operating a hospital radiology service line. Our goal is to become the outsourced partner-of-choice for hospitals looking to enhance the performance of their radiology department whether inpatient or outpatient.
This encompasses demand generation in order to maximize market share capture within their catchment area, increased operating efficiency to drive down the cost of delivering care, share coordination to help drive patients with acute care needs into the hospital systems and other critical success factors.
A recent survey on hospital -- on healthcare outsourcing trends illustrate that hospital outsourcing is an all time high and 88% of those that outsource by the expertise of the outsourced partner as the driver of your decision. Here at Alliance we are excited by these trends and we are poised to be that expert partner.
Our commitment to becoming indispensable to our customers has begun to gain traction as evidenced by agreements we are entering in to that are consultative nature, helping healthcare providers understand ways to improve their operating efficiency and market share capture effectiveness.
By way of example, we recently signed a letter of intent with one of the largest hospital management organizations. In that letter of intent outlined the joined strategy for own and operate numerous multimodality radiology clinics within the catchment area of a number of their hospitals.
Our pipeline of similar strategic relationships has strengthened in each of the last several months and we believe this more value-added approach will help us drive continued success in both our existing core imaging business and in larger strategic joint venture radiology service line relationships.
Within our Imaging division we have always proud of ourselves on our market leadership position and hospital centric nature of our business model. And as we move from transformation to traction, you will see us successfully leveraging these historical strengths in order to drive improved sales performance in the mobile and supplemental service segments and to be the outsource partner-of-choice within the radiology service line.
We look to increase the pace of new relationships such as the recently executed LOI that we described earlier. In the support of these new goals we are investing an operational resources to execute on these new opportunities that are in the pipeline. And we have begun investing and added bench strength to our sales and business development leadership.
In short, we’re running hard after what we see as a fantastic opportunity to build a large segment of hospital joint venture operations alongside our existing core imaging business. And reflective of this direction, we’re rebranding Alliance Imaging and Alliance Radiology. This brand transition has begun to better position and describes our business as a full radiology service line outsource provider.
Similar to Alliance Radiology, the Alliance Oncology business is positioned for long-term growth. As noted by the Advisory Board, stereotactic radiosurgery is expected to see growth of 19% by 2022. In linac-based, IMRT growth is projected to total 37%.
Very importantly for Alliance Oncology, an IMP medical information survey of radiation therapy providers noted that approximately 750 current radiation therapy providers plan to acquire or replace their radiation therapy equipment in the next several years. And we are keenly focused on engaging with these providers, who are looking to maximize their radiation oncology service line and convert them into new partners.
The great example of this type of opportunity is the new relationship, we recently announced with The Medical University of South Carolina. As cancer incidence increases with an aging population, Alliance Oncology will be the partner of choice to expand and optimize radiation therapy program.
It’s important to note that our radiation oncology business has a track record of successfully delivering market-leading operational performance. In 2013, our radiosurgery centers, average patient volume that exceeded the national average of all such cites by over 50%.
We have a demonstrated track record of taking over underperforming sites and executing successful turnaround strategy. And our comprehensive suite of sales and marketing capabilities allows us to capture share of both, within the natural catchment area of our site and in secondary and tertiary market.
Hospitals choose to partner with Alliance in order to leverage these strengths. As we demonstrated recently with the MUSC relationship, hospitals and systems value our ability to develop and execute marketing strategies that maximize share capture in our operational expertise and driving efficiency, our ability to rapidly execute on adding cutting-edge clinical equipment and our reputation for clinical excellence.
In short, we see a fantastic runway for growth in this business and we’re investing in our team to take advantage of the market opportunity. Our leadership team is moving that business in the right direction, adding business development resources in order to build our pipeline of opportunities and ensuring we have the operational bench strength to execute on growth.
In the near term, this does put some pressure on margins but we’re already seeing a growing pipeline and expect to be able to deliver new projects that had improved case going forward. The significant hospital partnerships we already have are all excellent references as we look to build new relationships.
Finally we developed and are consistently reemphasizing a performance-based culture. As noted on our last call, this disciplined stretches across all aspects of our business including cost management, operation sales and business development. This fundamental change in perspective born out of necessity over the last several years and honed through successful cost saving initiatives has enabled us to deliver EBITDA growth against the backdrop of industry challenges and reduction in our revenues.
Our pro forma margins for 2013 grew by 210 basis points over 2012 as a result of our focus on efficiency and higher margin business. Our same center volume results for MRI were positive in the quarter and MRI and PET/CT volumes were slightly better than and in line with the hospital outpatient visit growth rate respectively.
So with all this progress across our strategic initiatives, I want to be clear that 2014 is a transition year. As I mentioned we’re making investments to grow revenue and operationally execute on projects like MUSC and others. We expect to be driving performance in our existing business to stronger same-store growth and increasing efficiency and growing our pipeline of strategic opportunities in both divisions as we move to 2014.
We will be looking for new business wins and focus intently on execution so each new relationship builds upon our reputation as the outsourced partner of choice in the radiology and radiation therapy service lines. The change is occurring in the industry right now play to the historical strengths of our hospital centric business model.
We believe that hospital systems will benefit from the Affordable Care Act with volumes continuing to migrate into hospitals over 2014, ‘15 and ‘16. And as hospitals benefit from the increase in covered lives resulting from the ACA, we too will benefit due to our alignment with them.
In closing, I’m excited to be part of the culture here at Alliance that delivers extraordinary care to our patients. And this is key because we’re an extension of the quality of care, our hospital customers provide. Alliance has a long-history of successful alignment with the hospital segment in both radiology and radiation therapy and we’ve worked hard to become a trusted partner.
I'm confident that with the active engagement of the whole team here at Alliance, we’ll return to growth and succeed in driving long-term value for our shareholders. To that end, Howard will discuss the guidance we developed for 2014 and I look forward to discussing our goal, strategy and accomplishments with all of you in the future. Howard?
Thanks Tom and good morning, everyone. Today I will review the highlights of our fourth quarter and full year 2013 financial performance, followed by discussions of the most recent Medicare pricing changes. Lastly I will discuss our full year 2014 guidance ranges following our highlights for our fourth quarter and full year 2013.
Fourth quarter adjusted EBITDA totaled $35.1 million. Reducing this quarter's adjusted EBITDA was $700,000 or 2% related to the sale/leaseback transaction we completed in the fourth quarter of last year. Pro forma for this transaction, adjusted EBITDA increased 1% to $35.8 million compared to $35.6 million a year ago.
Additionally, we generated adjusted EBITDA growth for full year 2013. 2013 adjusted EBITDA totaled $147.4 million which is close to the midpoint of our guidance range of $140 million to $160 million. Reducing this year’s adjusted EBITDA, was $6.7 million related to the sale/leaseback transaction we completed in the fourth quarter of last year.
Additionally 2012 included a favorable $2.2 million related to a legal settlement. Pro forma for these transactions, adjusted EBITDA increased 1% to $154.1 million compared to $152.2 million a year ago. Pro forma for these transactions, our adjusted EBITDA margin as a percentage of revenue increased 210 basis points to 34.3% in 2013, compared to 32.2% in 2012.
This improvement in our adjusted EBITDA margin is due to our focus on operating efficiency. Revenue in the fourth quarter of 2013 totaled $110.7 million compared to $114.8 million last year. Almost all the decrease in revenue were $3.2 million of the $4.1 million decrease, or 3% was driven by actions taken in 2012 to prune our portfolio of unprofitable business and the sale of our professional radiology services business in December of 2013.
Revenue for full year 2013 totaled $448.8 million compared to $472.3 million last year. $13.6 million of this decrease or 3% was driven by actions taken in 2012 to prune our portfolio of unprofitable business. In the fourth quarter, on a same-store basis, MRI volumes were positive 2.1% and PET/CT volumes were a negative 0.6%.
Our fourth quarter MRI same-store volume growth was better than the growth in hospital outpatient visits and PET/CT same-store was in line with this hospital data, which has been reported at a negative 1.5 of 1% in the fourth quarter.
As we announced in December, we entered into an exclusive strategic affiliation with ONRAD for the provision of teleradiology services. But part of this affiliation was the sale of our Professional Radiology Services business to ONRAD. This sale was effective in early December and represented about $14 million of annualized revenue.
On with some pretty of unprofitable business in our imaging division, this revenue reduction will impact 2014 by $15 million. Another highlight from this fourth quarter and full year 2013 is related to our bottom line profitability. Pro forma diluted EPS was a profit of $0.26 in the fourth quarter of 2013, compared to a loss of $0.22 in last year's fourth quarter.
Full year 2013 was a profit of $0.86 compared to a loss of $0.61 in 2012. As reported, diluted EPS for the fourth quarter was a $0.38 loss compared to a $0.48 loss a year ago. Full year diluted EPS for the full year of 2013 was a $2.02 loss compared to a $1.12 loss a year ago.
Included in the as reported, diluted EPS was a $0.64 charge in the fourth quarter of 2013 and a $2.88 charge for full year 2013 due to the following items. Loss on extinguishment of debt related to retiring our senior notes and refinancing our term loan, impairment of certain intangible assets and restructuring charges, severance related costs, legal cost and differences in the GAAP income tax rate with more historical rate of 42.5%.
In terms of CapEx efficiency, we continued to invest in solid capital projects and efficient upgrade of our assets. For the fourth quarter of 2013, our CapEx spend totaled $8 million compared to $21 million a year ago. For the full year 2013, our CapEx spend totaled $27 million compared to $37.6 million last year.
As I mentioned earlier, we continued to generate strong free cash flow. We define free cash flow as a change in net debt before investments and acquisitions and their financing fees. We generate free cash flow by focusing on organic growth and adjusted EBITDA, efficient CapEx spending and effective pricing of our debt structure. This focus has resulted in Alliance generating $43.3 million of free cash flow, or $4.07 per share in 2013. The strong free cash flow generation continues to strengthen our balance sheet.
As previously announced, refinancing transactions completed during 2013 are serving the company $70 million of cash interest expense annually. In December, we brought an incremental $7 million into our existing senior secured term loan and along with the proceeds from borrowings under our revolving line of credit of $19 million and cash on hand of $13 million, redeemed all of our outstanding 8% senior notes bonds due 2016.
Interest rate on the incremental term loan is the same as existing term loan at LIBOR plus 3.25% with a 1% LIBOR floor. Although the terms including maturity of our term loan in June 2019 matched the terms of our existing term loan, the $70 million incremental borrowing was funded at 99% for the principal amount. As of the end of the year, total leverage is 3.6 times, net leverage is 3.4 times. At the end of the year, Alliance had cash balances of $35 million. Long-term debt totaled $503 million and net debt was $495 million.
I will make a few comments on the final 2014 Medicare physician fee schedule, which was published by CMS in November. As you will recall, Alliance was largely shielded from reductions in the Medicare physician fee schedule, due to the vast majority of our revenue that was generated from and billed by our hospital partners. Only 6% of our total revenue was directly reimbursed by Medicare.
We updated the impact to revenue as announced in our December 2013 press release, was as previously reported a modest 2014 impact of $2.8 million. Based on Medicare reimbursement increases from individual Medicare intermediaries for PET/CT before realizing in 2014, revised total reduction in revenue for 2014 is now expected to total approximately $800,000.
Now, I will address our 2014 guidance ranges. For full year 2014, Alliance expects revenue to range from $437 million to $462 million. As Tom mentioned, 2014 was a foundational year for the transformational phase of Alliance. We believe that 2014 will be a pivotal year in terms of growing our results in a meaningful and significant way as we look out to 2015 and beyond.
As I mentioned, our 2014 revenue guidance range also assumes a negative impact of $50 million, primarily related to the sale of our Professional Radiology Services business in December 2013. Therefore, our 2014 revenue guidance range assumes organic revenue growth.
For radiology division, our revenue is expected to range from $347 million to $366 million. For our oncology division, revenue is expected to range from $90 million to $96 million.
Our 2014 adjusted EBITDA guidance ranges $140 million to $160 million, which includes incremental investments in our sales, business development and marketing teams and $5 million to grow Alliance into the premier hospital partner for radiology and radiation oncology services. We will continue to maintain cost discipline throughout the organization.
Our 2014 revenue and adjusted EBITDA guidance ranges also contemplate the impact of severe weather across most of the country in January and February. We expect the softest quarter in 2014. Our 2014 capital expenditure guidance is $52 million to $62 million. Approximately, $30 million is expected for maintenance CapEx.
Of the remaining, $22 million to $32 million is for growth projects, including our Alliance Oncology, MUSC project and our imaging RAD360 projects. We will continue to allocate sufficient resources through targeted investments designed to support long-term growth.
Depreciation expense in full year 2014 is expected to total approximately $56 million, down $10 million from $66 million in 2013. Our free cash flow guidance is a range from $27 million to $37 million. Impacting our 2014 free cash flow guidance range are cash income tax payments for full year 2014 of $14 million to $17 million, which increased from $2 million of cash income taxes in 2013.
At year end 2013, we had $22 million of federal NOLs and $12 million of state NOLs, all which are expected be used during 2014, as Alliance transitions to becoming a regular cash taxpayer sometime in 2014. We expect to pay $24 million to $25 million of cash interest expense in full year 2014.
Thank you for your interest in Alliance. We look forward to answering your questions. I'll turn the call back over the operator to begin the question-and-answer session.
Thank you. (Operator Instructions) Our first question is from the line of Brooks O'Neil with Dougherty & Company.
Brooks O'Neil - Dougherty & Company
Good morning. I have a couple of questions. First, I was hoping you might talk a little bit about what you’re seeing from your hospital partners as they think about the outlook for their hospital-based imaging and oncology units, as opposed to the competition they might be seeing from free-standing centers in each area? Thanks a lot.
Yes, thanks, Brooks. This is Mike Shea. Our hospital partners are consistent really in their desire to have partners that understand not only the market conditions so that they can compete effectively, but also to help them efficiently run their departments and prove the customer service or patient service of their departments in order to make them to be more desirable center for imaging services.
So I would have to answer that question that to just say that we’re seeing continued interest, we have many, many hospitals that are focused on our partnership. So I hope that answers your question and if it’s not I would be very happy to clarify, but it’s a very general question.
Brooks O'Neil - Dougherty & Company
Sure. Let me ask a different question. Obviously, you’ve guys commented about 2014 been a transition year and you’re making investments to strengthen the growth profile. I am guessing you’re not anxious to quantify the level of growth you see in the company or in the business over the next couple of years, but anything you could say about sort of the broad nature of the growth opportunity would be terrific?
Brooks, this is Tom. As I mentioned in some of my comments, the thing that gets us excited about what’s coming down the path over the next few years and the opportunity we see. When you look at the -- I guess the recent examples, we talked about the MUSC transaction, and as I mentioned in my remarks there based on third party survey work, there is 750 sites of services doing radiation therapy in United States today, that based on independent survey work are likely to make a decision to upgrade or replace equipment in the coming few years.
And we think that creates a great opportunity set for us to chase after for new business development opportunities. Part of the transaction was MUSC was that they had a desire to upgrade the quality of their equipment and their service in their market area and if by partnering with Alliance that enable them to do that. So we think there is going to be some subset of that market opportunity of 750 sites of service where we’re going to be an attractive joint venture partner together with them. And so our goal and what we are chasing hard after is the opportunity to take a share out of that 750 sites and turn that into new profitable business for Alliance and for the hospital partner that we align with.
When you shift over to the radiology space, as Mike said, we see a lot of interest from hospitals, looking for an expert partner in that services line that they can work with to lift the performance and to create and execute on a new strategy. I don’t think it’s a secret for anybody in the radiology space. The one of the challenges many hospital radiology providers face into is that the payers using RBM strategies are trying to pull volume out of their imaging services and pull it into free-standing locations where the cost to the payer is lower.
And so we think it’s really an important time and what we are hearing from our hospital customers is that they see it as a very important time to really take a look at their radiology strategy and how they are using radiology as a service line that helps drive market share within their catchment area.
Brooks O'Neil - Dougherty & Company
That’s great. Thank you very much.
I appreciate the question, Brooks.
Thank you. Our next question is from the line of [Chris Samsung with Samsung Partners] (ph).
Hi, guys. Thanks for taking my call. How would you compare the price per scan that an Alliance partnership would affect the -- would impact the hospital versus if the hospital were to conduct that scan themselves?
Thanks, Chris, for the question. In terms of how we price our services to the hospital, we obviously price them in such a way that everybody wins where the hospital can provide the service at a reasonable cost and that Alliance can also make margin. So in the end, there is a good spread in terms of what we build the hospital and what the hospital in turn price themselves competitively to get the scan.
I guess to focus more on the cost side for instance, you say that the fee per scan that Alliance received in the fourth quarter for, for instance MRIs was $348.51, but a hospital didn’t have Alliance. If the hospital were to go about offering that service themselves, the hospital resources, what were the comparable costs per scan basis, do you think hospital would have to pay?
That’s going to vary quite widely by individual hospital and hospital systems. I would say, generally speaking, we’re able to help the hospitals by delivering a service at a lower cost per unit than we typically can deliver that same service within their system. We think that’s one of the value propositions that make the RAD360 an attractive alternative for hospital, that’s looking to find ways to run more efficiently.
Okay. So it’s lower. Can you give me a sense, is it 20% less, 50% less, so just I’m trying to understand, given the movement in price per scan, I’m trying to get a sense for what is the general savings that hospital might get in outsourcing to Alliance? Is that a reasonable question do you think?
It’s a reasonable question. I think my answer for right now would be that it can be material. I understand you would like more specificity at, I guess it varies quite widely by individual customer. We think it’s a material amount and therefore is supportive of strategy that we’re pursuing.
Okay. And then what sort of visibility and expectations do you guys have for pricing the MRI and PET CT scans for 2014?
In 2014, Chris, we see that there probably be a little bit of pricing pressure, but it’s going to be more than offset by volume growth as we continue to focus on our customers and helping them grow their volumes. And so on a kind of a same customer basis or a same store basis, we see growth in volumes that more than offset we think a little bit of pricing decrease that we see in both MRI and PET CT.
Okay. And you mentioned, there is a growth opportunity on the oncology side, could you talk a little more about and what we could expect -- what that opportunity might be to quantify that would be -- to quantify vaguely would be helpful?
As I mentioned, we’ve disclosed revenue expectation with the MUSC transaction and the release we did on that couple of days ago. So that gives you some idea, I think that brings our total number of sites to 29 I believe and we've provided a revenue outlook for 2014 for that business. So you could do some basic math to provide that our revenue per site estimation. And I would say when we're looking at, we look at that number and we looked at the market potential for 750 sites that are going to be open to a dialogue about someone that could come and partner with them and help them implement and execute on new technology, more dynamic strategies and plans of execution.
And so the question for us, the challenge for us is really a business development deal making challenge. How many opportunities can we create for Alliance out of that bucket of 750 sites where there is opportunity in our view, that's one of our primary focus area.
Of course, as we've done in the past we continued to look for de novo opportunities as well and particular in the SRS space where we think we have some very unique differential advantages operational and from the marketing perspective. But that's our focus is how many those opportunities can we convert like we did with MUSC to new revenue and earning assets for the company.
And Chris, this is Howard. Just to add on to Tom’s comments, we've signed an SRS deal that we expect to open mid-year, so that we have an incremental new site coming online mid-year. And in addition to the MUSC which is a sizeable transaction, we are -- last year's revenue for Alliance oncology was about $78 million and I talked about our guidance range of $90 million to $96 million for 2014.
So you can also look at our existing centers and you can see that where we have also some pretty strong growth prospects within our existing center volumes and I think in the end we're expecting call it mid-single digits things for our volume growth in our -- both our linear accelerator and SRS sites this year. So, the growth in de novo’s, growth through MUSC and same-store growth.
Howard, thanks. That's very helpful. And my last questions for you guys is, I think in your prepared remarks you talked about the stock appreciation in 2013 and this being the transition area leading to maybe growth in 2015? So can you help us understand in terms of making yourself available through investors, through conferences, talking to people about the story, to helping people understand, the value proposition that Alliance provide? Are you going to be doing any of that conferences and I know you did some stuff on the high-yield side, but of course the equity has really been a good -- a big performer? Is there going to be more focus on talking to equity investors?
Thanks Chris for that question. Clearly, that's one of our objectives for this year and focus of our management team. And we plan on, I'm speaking at some equity conferences, as well as doing some, call it focus one-on-one type meetings throughout the country this year.
So stay tuned. There will be some investor meetings that we're planning on doing here in the next coming months for sure. So as we continue to get the story out and the focus and as well as, the fact of getting investors out to me, Tom and talk about -- really talk about our kind of our strategic direction and as you can tell through Tom’s prepared remarks that we really kind of refined and honed what we're going to be doing and we really looking forward to increase growth, not only 2014 but really 2015 and beyond.
Great. Well, I'm sure there is a lot of northeastern investors that would have might heading to Newport Beach to visit you guys.
Great. No, Dallas.
Okay. Thanks guys.
Thank you. Our next question is from the line of [John LaPar with Washmen Analysis] (ph).
Hey. How you guys doing? Thanks for taking my question. With the national coverage analysis announced by CMS concerning coverage of CT scanning for lung cancer, I was wondering if that was something you guys had thought about at all or would anticipated to drive volumes or new business line? And if so if you had any sense of potential impact of that could be?
We have not specifically, sorry about that, I think we had little (indiscernible) with the line, we have not specifically baked an expectation into our numbers based on that coverage announcement and we do think it creates some opportunity but nothing specific that we have included in our guidance.
Okay. Thanks a lot.
Thank you. Our next question from the line of Quinton Mathews with QKM, L.L.C.
Quinton Mathews - QKM, L.L.C
Quinton Mathews - QKM, L.L.C
On CapEx, is it fair to say that the last year or two has kind of trough on your CapEx spend, I mean, you guys apparently been running lower than your historical norms I guess that 50 to 60 and may be even underneath million, better guidance you report?
Well, Quinton, thanks for the question. Over the last couple of years, we have really been focused, first of all, on running our business very, very efficiently. So, what we have been doing in the last couple of years is actually taking a look at our assets within our portfolio and really looking at operating efficiently, raising the scans per system per day. And in essence what happened was, we ended up actually selling or divesting the number of systems, so if that work is and we will continue to always do that.
But as we look forward and we see a number of growth opportunities in both imaging and radiology and in radiation/oncology that spend is going to grow up. So when I mentioned that about $30 million of our spend is really allocated to our maintenance CapEx to maintain the portfolio of our assets, but the rest of it really the $22 million to $32 million on top of that is really for growth project.
So we are going to be very disciplined about that and we are going to be really look at return on invested capital and really do this with really premier health systems and just really good opportunities, especially the joint venture with hospital relationships. So, I think that as we enter into this kind of this transformation phase that’s an important element that we are going to look to in terms of our growth.
Quinton Mathews - QKM, L.L.C
Okay. But its fair to say that given the nature of the build out of new facility and the money that goes into growth that as you guys moved to 2014 and 2015, spending will come, I don’t know whether it is six months or 12 months or whatever timeframe that where you really kind of start to see the revenue and the growth that generated from that? So maybe we are kind of go through this cadence for you guys or maybe we are spending maintenance CapEx levels and now you started to grow again, but we’ve got to wait for that growth to kind of proved out and come through and then once we move pass the transformation and maybe we will have more of an equilibrium between your growth spending and the incremental income that you generated from the growth in the past, is that fair?
It depends on the individual growth project. So for instance MUSC and there are other opportunities in the pipeline that are -- that we are working on that are similar to that. Since we’re partnering with an existing operation and then adding capital to it in order to add new technology which allows us to grow even further and with more volume in the operation. Currently, we’re able to step immediately into our revenue and earnings stream at the time we deploy capital.
So there is a mix of investments. Each one will be evaluated on its merits as Howard said with a very keen eye to making sure we’re delivering an appropriate return on the capital invested. Some of them will be de novo where you’re investing capital in advance of driving the revenue and earning streams. Some of them will be ones like MUSC where there is an immediate opportunity to step up the revenue and earnings for the company. So it will vary by project.
Quinton Mathews - QKM, L.L.C
Okay. It make sense. Thank you. Just quick question on free cash flow, do you guys include in your free cash flow, your payment streams and non-controlling interest, it’s around $10 million or $13 million a year?
Quinton, yes, we do. We look out as the change in that task. That includes all kind of cash coming in the door as well all the cash going out the door. The only thing that we adjust for is any kind of like call it debt financing fees and things like that, of that nature. But it includes everything else, so it includes the non-controlling interest payments.
Quinton Mathews - QKM, L.L.C
Okay. Have you had any feedback from hospitals on ACA and kind of the slow rollout and the fact that what they anticipate on hospital volumes, patient volumes versus maybe what they initially work, anticipating based on kind of healthy rollout?
Yeah. Good morning. Quinton, this is Mike. The message that we are hearing from hospitals is probably not unlike the message that you read in the newspapers every day. And the anticipation of patient from ACA perhaps is not as a robust as it had been anticipated. And there’s still I think some confusion about what's going to happen. I don’t think anybody really can predict how ACA is going to impact volumes.
And everybody sort of standing at the ready and being prepared. But like you read in the newspaper, USA Today or Wall Street Journal, we’re all kind of didn’t think both and expecting anything to be thrown at us from the ACA. But so far it’s a state of -- I won't want to say confusion but just -- it's not perhaps panning out as everyone expected. We feel as though that will happen over time but so far as you read in the paper, we’re in – we read the same paper as you read.
So it would be -- my understanding is that they're having trouble signing up the young and healthy which would be not necessarily your target. So when the people that have signed up, I mean I’d say and obviously it’s been a short time, we had weather. So it may be too early to tell. But even with kind of botched rollout, you think that the people that they -- in the paper are talking about signing up or maybe that the people that you guys are targeting for the hospitals. I think it is a bit too early to tell. I turn it over to Tom and see he has any additional comments.
I think Mike’s comments are right on. The one place where I think it has been widely publicized where there is, perhaps an early silver lining to the ACA rollout as Medicaid expansion. And as you know in a number of states, Medicaid expansion has moved ahead with pace and so there is perhaps some near-term benefit in those states.
I think appropriately cautioned by the fact that Medicaid isn’t always the most robust payor in the world. But an insured patient is better than uninsured patients. So on par that’s a win.
Other than that, I think it is a little bit murky still exactly how many patients are going to show up as a result of ACA that previously were uninsured. And that’s one of the key things. I think everybody needs to keep in mind. It’s not entirely clear today of the total enrollment through ACA related exchanges. How many of those are patients who were previously uninsured and therefore, represent a new insured life where there is opportunity and how many of those previously had insurance and so are just trading one insurance product for another? And I think that's an important definition, but I don't think there is great visibility out there.
Quinton Mathews - QKM, L.L.C
Okay. Last question, when you look back 10 years at Alliance, you guys had a lot going on in your business lines in the last 10 years or so. EBITDA and cash flow from operations, kind of broadly, haven’t change that much year-to-year, you guys have been steady. And let’s say for EBITDA, $150 million and maybe I’m wrong in the assessment of this because I know, you guys have obviously had a lot going on.
But it seems to me that one of the challenges of your business is technology related in the sense that the high pay and highest margin scans are opportunities for you guys are always been diminished. So years ago, MRIs were more expensive, you probably made more money on them and [they were] (ph) being done. And as the technology improved and it become more, more people go to them and price goes down, you guys take less money out of it but you get into PET Scans, you get into oncology.
So you kind of had the constant battle of your new higher-margin business, has been offset kind of by a constant drag of older business, which is maybe solid business but it is not as solid as it used to be. So, can you speak to anything broadly about what’s going to change, I mean, how is the path not going to be prolonged for you guys going forward with your new growth opportunities? How do you move from that $150 million EBITDA mark with your new business without being offset by your older business?
As we’re trying to describe for the investment community, we’re in the process of transforming this company from one that was largely an equipment leasing company that -- some of that maybe a good portion of its value was derived from being able to bring the latest technologies in the imaging mortalities to bare or radiation therapy systems to bear, to one that is much more of a service company where we’re actually providing the medical service. We’re functioning as a strategic joint venture partner with hospital systems.
Broadly speaking, so not just bringing a piece of equipment with the latest technology but bringing a full suite of management services that help them run their radiology service line and run it most effectively and help them run their radiation therapy departments and be most successful in those two service lines. So, we’re really pivoting the company away from some of the dynamic you’ve seen in the past, which is more than a equipment leasing company, kind of equipment technology focus to that of being a broad line provider of management services across everything related to the radiology service line and the radiation therapy service line.
Quinton Mathews - QKM, L.L.C
Okay. And then I’ll hop off but just to clarify that, I mean, obviously, you guys are still going to trying to bringing the equipment. So it really, breaking out of that pattern, it’s really going to be predicated on, you guys being able to kind of -- lack of better word, I’ll call consultant services that you guys, I mean, eventually kind of being able to charge the consulting and the management in the service expertise that you guys have because I mean, obviously you want equipment. You guys are still doing the same thing at heart. You guys are just adding layers on top of what you’re doing, correct?
I don’t know that I would say it exactly that way. As I mentioned in my remarks, we have right now in imaging a particular, we have kind of a dual mandate if you will. Mandate one is continue to drive our current legacy business that you described with greater intensity, taking share from competition, driving efficiency. And at the same time, transformed into doing more transactions where we’re in joint venture partnership with hospitals and hospital systems, running segments of their full on radiology service line.
Quinton Mathews - QKM, L.L.C
And I think that’s different from what you're describing. We’re not looking to make money as a consultant, so let me be very clear. What we’re looking to do is use the unique expertise we have, because we have visibility into a thousand hospitals, radiology service line. And we’re building a set of unique conservative skill set, but using that to be a compelling outsourced partner to the hospital. So we’re not looking to make money as a consulting firm.
We’re looking to have, use intellectual capital we have to work with the hospital such that they will say, hey, let’s execute on a radiology service line strategy where we are going to joint venture a number of outpatient radiology clinics together with you. We’re going to outsource the outpatient scheduling function with your scheduling function because you have a unique expertise there, so things along those lines. Does that make sense?
Quinton Mathews - QKM, L.L.C
Yeah. Absolutely. Thank you very much for your time.
Thank you. If there are no further questions, I will now conclude this conference call.
Thank you everyone for dialing in and participating in our call today. Appreciate your continued interest in Alliance. Thanks.
Ladies and gentlemen, this concludes Alliance Healthcare Services conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.
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