Alliance HealthCare Services NASDAQ: AIQ

Transcription

1 Alliance HealthCare Services NASDAQ: AIQ January 1,

2 Disclaimer During the course of this presentation, the Company may make projections or other forward-looking statements regarding, among other things, our business outlook, operations and strategy; service areas; competition; changes in laws and regulations and the impact of such changes on us; our estimates for future performance and operating results, including future revenues, cash flows and capital requirements. In some cases you can identify these statements by words such as could, may, expects, anticipates, believes, intends, estimates, or similar words. These forwardlooking statements are based largely on the Company s current expectations and are subject to a number of known or unknown risks and uncertainties (some of which are beyond the Company s control). We urge you to review the factors discussed under the caption Risk Factors in the Company s Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission. In light of these risks and uncertainties, there can be no assurance that the forwardlooking statements made during this presentation will in fact be realized. Except as otherwise required by applicable securities laws, we disclaim any intention or obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 Introductions Tom Tomlinson, Chief Executive Officer Joined Alliance as Chief Executive Officer in October 2013 Over 25 years of executive management and leadership experience in the healthcare, consumer products, insurance and airline industries Extensive experience in hospital joint ventures and interventional radiology strategy Former Chief Executive Officer of Midwest Dental Held Several Senior roles, including CEO, with Center for Diagnostic Imaging MBA from Columbia University and BA from the University of St. Thomas Deb Franko, Senior Director of Marketing & Communications Joined Alliance in 2014 Over 15 years of healthcare experience including hospitals & clinics, radiology, pharmaceuticals and managed care MBA in Healthcare from the University of St. Thomas and BA from the University of Minnesota 3

4 Company Overview Leading national provider of outsourced radiology, oncology and interventional services to over 1,000 hospitals and healthcare providers in 44 states Pioneering provider of outsourced services to hospitals and provider of choice with 30-year track record of successful partnering #1 market leader in outsourced radiology solutions for hospitals and healthcare providers, including fixed-site and shared-service clinical sites #1 market leader in stereotactic radiosurgery, and leading provider of outsourced radiation oncology solutions to hospitals and healthcare providers 76% of revenue is hospital-based and shielded from direct reimbursement pressure Entered into high-growth Interventional Services business with the acquisitions of The Pain Centers of Arizona and PRC Associates Unique hospital centric business model positions Alliance to capture additional market share and drive significant growth in post-healthcare reform environment Generated $458 million in revenue and $129 million in Adjusted EBITDA in LTM September 2015 Hospital- Based 76% Non- Hospital 24% LTM September 2015A Revenue Alliance Oncology 28% $458 million Shared Services Fixed-Site Linear Accelerator Stereotactic Radiosurgery Interventional Services pro forma revenue ~$42mm LTM September 2015 Adj. EBITDA $129 million Alliance Radiology 72% 4

5 Key Investment Highlights Leading National Provider of Outsource Radiology and Radiation Oncology Solutions Experienced & Proven Management Team Unique Hospital Centric Business Model Industry Leading Margins, ROIC and Free Cash Flow Compelling Value Proposition to Hospital Partners Large and Highly Fragmented Market Opportunity High Growth Oncology Business 5

6 Leading National Provider of Outsourced Radiology, Interventional Radiology and Pain Management Services and Radiation Oncology Services to Hospitals Alliance Radiology Provider of outsourced radiology solutions to hospitals $359 million LTM September 2015 Revenue $122 million LTM Sept 2015A Adj. Segment EBITDA 34% Adj. Segment EBITDA Margin DESCRIPTION: Service line management and joint venture partnerships Fixed-site and mobile MRI, PET/CT and other modalities 484 advanced diagnostic imaging systems in 44 states 116 fixed sites (82 hospital based) 20 joint ventures (11 hospital based) BUSINESS MODEL ~75% of revenues hospital-based Long-term economically aligned contracts Limited direct reimbursement risk and low bad debt BLUE CHIP CUSTOMERS: Alliance Oncology Fully integrated cancer care partner to hospitals $99 million LTM September 2015A Revenue $49 million LTM Sept 2015A Adj. Segment EBITDA 49% Adj. Segment EBITDA Margin DESCRIPTION: Linear accelerators ( LINAC ) and stereotactic radiosurgery systems ( SRS ) 30 radiation oncology centers in 16 states 22 hospital joint venture / economic partnerships 8 free standing sites BUSINESS MODEL ~75% of revenues hospital-based Long-term economically aligned contracts Limited direct reimbursement risk and low bad debt BLUE CHIP CUSTOMERS: Note: Segment level EBITDA includes only Sales & Marketing related SG&A expense. All other SG&A expense presented at the Corporate level 6

7 Alliance s Evolution Alliance has transformed from a diagnostic imaging company to a full-service outsourced radiology and radiation therapy provider with a significant future growth opportunity Establish Leading Platform Established national infrastructure Achieved national scale and market leading positions Expanded into PET / CT, fixed site imaging and radiation oncology Focus on Profitability and Cash Flow Executed customer pruning initiative and eliminated unprofitable contracts Implemented over $40 million in Project Phoenix cost savings Sustained EBITDA margin increase of approximately 200 bps Significant free cash flow used to pay down debt and decrease net total leverage to 3.3x Refine Long-Term Vision Hired new CEO Tom Tomlinson Defined strategic priorities Developed expansion framework for RAD360, radiation oncology and interventional radiology Execute on Growth Initiatives Launched RAD360 including joint venture with a large national hospital system Signed MUSC joint venture and other oncology partnerships Acquired a majority interest in Pain Center of Arizona and entered the interventional radiology space Full-service outsourced radiology solutions provider to hospitals Integrated cancer partner to hospitals Leader in interventional services Returned Alliance to growth, accelerating in 2016 Leverage hospital customer base into additional service lines Prior to and Beyond 7

8 Experienced & Highly Motivated Senior Management Team Years of Tenure Name Title Prior Experience Alliance Industry In Current Position as of Tom Tomlinson CEO Midwest Dental, Center for Diagnostic Imaging (CDI) Howard Aihara CFO UniMed, AHI Healthcare Systems Richard Johns General Counsel LaVie Care Centers, Foley & Lardner Rich Jones President of Radiology Several leadership roles in hospitals and the commercial healthcare sector Greg Spurlock President of Oncology US Radiosurgery, NeoSpine, Imaging One Steven Siwek, MD President of Interventional Services The Pain Center of Arizona, Freedom Pain Hospital Holly Huso Sales, SVP Center for Diagnostic Imaging (CDI), Mayo Clinic, Biologics Laurie Miller Human Resources, SVP Gen-E, Ingram Micro

9 Why Do Hospitals Outsource? % Top 5 Reasons for Outsourcing Patient Care Services % % 47% % 23% 11% 12% 21% 10% 12% 18% 25% 20% 17% 0 Expertise of Partner Source: Modern Healthcare Cost Savings Add a New Service Line Revenue Enhancement Request by Physicians 9

10 Hospital Centric Business Model and Favorable Industry Trends Driving Success Favorable Macro Healthcare Trends Hospital Outsourcing Trends Hospital Centric Business Model Hospital expenditures projected to increase at a CAGR of 6.2% through 2020 Elderly population expected to grow at a 3.1% CAGR through 2020 Cancer incidence estimated to grow at a 2.0% CAGR through 2030 Increased patient flows to hospitals resulting from increased covered lives from ACA 98% of hospitals outsource one or more clinical services Expenditures by hospitals on outsourced services growing at least 5% per year Hospitals consolidating outsourced providers and seeking providers with national scale Leading national provider with significant scale and 1,000+ hospital and other healthcare provider customers Long-term, exclusive contracts comprise 80% of Alliance s revenues Limited impact from changes to Medicare reimbursement Bad debt expense <1% of revenues Continued Financial and Operational Success Market trends will translate into increased demand for Alliance s services Hospital centric strategy provides platform for expansion Positioned to drive significant future growth 10

11 Hospital Centric Business Model and Favorable Industry Trends Driving Success Projected U.S. Hospital Expenditures Hospitals Who Currently Outsource Alliance Sources of Revenues ($ in billions) $1,397 Expect to Decrease Outsourcing 30% Non- Hospital Based 24% $ E 2020E 70% Expect to Continue or Increase Outsourcing 76% Hospital Based 11

12 Tremendous Opportunity for Market Penetration & Industry Consolidation Alliance participates in some of the largest and most fragmented sectors of the healthcare industry with significant growth opportunities Radiology Radiation Oncology Interventional Services Market Size ~$15 billion ~$8 billion ~$11 billion Market Growth Rate Market Share Held by Leader ~2% annually ~7% annually ~8% annually <5% <10% <1% 2019E Alliance Revenue $455 million <5% of addressable market $196 million <3% of addressable market $72 million <1% of addressable market Other Market Participants Diagnostic Imaging Group Primarily local players Existing platform provides ability to expand into other adjacent sectors such as wound care, physician staffing and lab services which would more than double Alliance s addressable market 12

13 The Affordable Care Act creates a significant tailwind for hospitals and providers of outsourced services to hospitals Healthcare Reform Benefits Incremental Insured Population (population in mm) Coverage provided to 36mm previously uninsured individuals Newly insured population more likely to utilize healthcare system Significant Increase in hospital utilization expected Early Momentum Impact of ACA already seen in number of insured and recent hospital utilization trends Uninsured rates declined to 15% in Q from 20% in Q million newly insured individuals 60% of these newly insured individuals have used the healthcare system already Over 50% indicated they would not have been able to access care previously Alliance estimates that the implementation of ACA represents a cumulative revenue opportunity of ~$150 million from 2015E to 2019E 1. The Commonwealth Fund: Tracking Trends in Health System Performance (July 2014) 13

14 Significant Alliance Future Growth Opportunity Stable Same Store Growth RAD360 Capitalize on Radiation Oncology Market Expansion into Interventional Services Capitalize on recent investment in marketing and business development ACA will increase number of insured and in turn hospital volumes Cross-sale of additional services to existing customers Comprehensive outsourced solution for radiology services Growth through acquisitions, JV radiology clinics and Management Services Agreements Drives improved same store growth, customer retention and pricing Substantial historical investments 33% of U.S. healthcare facilities planning to upgrade systems within three years Growth through de novo JVs, economic partnerships and acquisitions Rapidly growing and highly fragmented market Few sizeable competitors Strong synergies with core diagnostic radiology offering Attractive unit-level economics 1. Adjusted to exclude effect of Joplin site 14

15 Alliance Radiology Radiology represents LTM September 2015A revenue and segment EBITDA of $359 million and $122 million, respectively, or 78% and 72% of total segment contribution Market leader for hospitals looking for strategic partnership 484 advanced diagnostic imaging systems in 43 states 116 fixed sites (82 hospital based) 20 joint ventures (11 hospital based) Outstanding reputation for clinical quality Existing footprint generates strong EBITDA margins and stable free cash flow Long-term economically aligned contracts 5-10 years for fixed site 3 year average for shared services Generally evergreen for joint ventures $15 billion addressable market expected to grow 16% from 2012 to 2022 Over 5,500 hospitals and 9,000 IDTF s Increased utilization due to an aging population and ACA implementation Significant untapped growth opportunity by increasing strategic partnerships with hospitals 15

16 Delivering Value Across the Service Line DEMAND GENERATION Market Share Strategy & Capture MONITORING & OPTIMIZATION Competitive Positioning/Market Share Gain Dr. Referring Physician Marketing Insurance Pre-Auth Scheduling Practice Dr. Dr. Hospital Physician Practice Building Reception Check-In Exam/Treatment Increase Efficiency Lower Cost Engage Best Practices Image/Report Processing Competitor Dr. Dr. Competitive Marketing Engagement Hospital Partner 16

17 Case Study: Transaction with Large For-Profit Health System Alliance s first RAD360 transaction was a Master Joint Venture Agreement with a large, national for-profit health system with over 200 hospitals and presence in over 25 states Transaction Overview Master services agreement to manage outpatient radiology sites for the hospital partner Alliance performs the following services for identified and future sites: Day-to-day operational management Managed care and payor contracting Local market sales, marketing and competitive intelligence Joint-venture agreement to operate 2 radiology centers in Arkansas Attractive local markets Initial Opportunity Strong economic support by Fortune 500 companies Limited outpatient competition Large employed physician group Compelling unit-level economics and return profile Patient care, satisfaction and service quality Billing and collection Financial reporting Technology upgrade to enhance competitive market position Company earns a management fee and billing fee in addition to economic share of center-level profits 3 Yr ($ in mm) Year 1 Year 2 Year 3 CAGR Revenue $2,907 $3,877 $4,236 30% EBITDA 425 1,030 1, % Eff. EBITDA Multiple x 3.3x 10 Year Levered IRR 36.2% 17

18 RAD360 Positions Alliance for Significant Growth in Radiology Hospitals and health systems seeking turnkey solutions / fully managed service lines Expands addressable radiology services market from ~$1 billion to $15 billion Highly fragmented market ripe for consolidation and scale player Attractive organic growth trends Strategic Rationale Opportunity to leverage existing customer base, scale and infrastructure Alliance takes economic and operational control of the hospital s entire radiology service line o o o Joint venture radiology clinics Asset acquisitions Market Strategy Management Service Agreements Long-term economically aligned relationships RAD360 Continuous Cycle of Improvement Diagnose Key Activities M easure Billing Reimbursement Scheduling Marketing & Market Intelligence Patient Satisfaction & Quality Operational Management Plan Marketing & market intelligence Scheduling Operational management Patient satisfaction and quality Billing Active physician referral management Access to key market intelligence Online scheduling and referral system Multi-channel contact with patients Revenue cycle management and coding PACS connectivity Customer portals Patient preparation Automated billing processes Accounts receivable management Execute Reimbursement Pre-authorization process Payor relationship management/contracting 18

19 RAD360 Recent Developments Three current Joint Venture partners 15 advanced discussions with additional partners ongoing 20 sites in the business development pipeline 19

20 Alliance Oncology Oncology contributes LTM September 2015A revenue and segment EBITDA of $99 million and $49 million, respectively, or 22% and 28% of total segment contribution Fully integrated cancer care partner to hospitals with a strong foundation of solid partner references to build upon 30 radiation oncology centers in 16 states 22 hospital joint venture / economic partnerships 8 free standing sites Long-term economically aligned contracts years for LINAC 5 10 years for SRS Generally evergreen for joint ventures $8 billion addressable market growing at 7% annually Organic growth in cancer incidence and aging population Highly fragmented acquisition opportunity $15 billion addressable market expected to grow 16% from 2012 to 2022 Increase performance of existing centers through marketing strategies and payer management Business development emphasis towards technology upgrade opportunities and acquisitions Develop new and expanded partnerships, including complete outsourcing of radiation oncology services Business grew at 18% in 2014 Note: Segment level EBITDA includes only Sales & Marketing related SG&A expense. All other SG&A expense presented at the Corporate level 20

21 Successful Expansion into Radiation Oncology with Significant Future Upside Developed significant scale in Radiation Oncology market in less than 3 years Acquired initial facilities in 2007 and grew to ~$45 million in revenue in less than 3 years Segment generated ~$93 million in revenue for 2014 Demonstrated track record of successfully identifying and integrating acquisitions Expanded into highly attractive stereotactic radiosurgery market niche Leveraged existing radiology platform to drive organic strategic growth Industry-leading demand generation capabilities Average SRS case volumes 80% higher than peers Average patient volume 52% greater than peers Greater than 40% of volumes outside of primary service area Since 2010, achieved 18% revenue and 33% adjusted EBITDA CAGRs Industry leading growth and EBITDA margins Radiation Oncology Revenue 18% CAGR $44.4 $ LTM Sep 15 8 Facilities 30 Facilities Radiation Oncology Adj. EBITDA 33% CAGR $11.8 $ LTM Sep 15 27% Margin 54% Margin 21

22 Operational & Turn-Around Expertise Alliance has dramatically increased oncology volumes to its newly acquired sites through its deep service line expertise and extensive sales and marketing capabilities Average Annual Patient Volumes Pre & Post Acquisition Project 1 Project Volume Pre-AO Volume Post-AO Volume Pre-AO Volume Post-AO 22

23 Case Study: Medical University of South Carolina MUSC Overview One of the nation s top academic health science centers serving the Charleston, SC area 700-bed medical center with 2,600 healthcare professionals, including 800 physicians South Carolina s only National Cancer Institute designated cancer center and one of fewer than 70 in the United States 43% market share for radiation oncology Transaction Highlights Long-term economically aligned partnership entered into on March 11, 2014 Alliance delivers market and operational support, as well as management services for the entire radiation therapy department Alliance receives a percentage of collections for all technical equipment, clinical staff, EMR, IT, marketing and operational management Alliance has a right of first refusal on future centers Alliance s proven operational and management services, combined with their ability to deliver capital for innovative technology offers MUSC the tools needed to continue to lead the way in providing outstanding clinical care in radiation therapy Dr. Patrick Cawley CEO of the Medical University of South Carolina 23

24 Significant Opportunity for Expansion into Interventional Services Strategic Rationale Market Dynamics Highly fragmented and growing market Opportunity for Alliance to become the leading national provider Acquired The Pain Center of Arizona (February 2015) and PRC Associates (October 2015) adding ~$42 million in pro forma revenue Management team, including CEO Tom Tomlinson, has extensive historical experience in segment Ability to cross-sell to a defined subset of current customers IR patient flow will drive volumes to the existing diagnostic radiology business Operational synergies such as patient scheduling and insurance verification $11 billion overall market opportunity Attractive reimbursement environment Strong relationship with core radiology Trend of migration to hospital setting Attractive unit economics and asset lite business model Highly fragmented market Few sizeable competitors and no comprehensive provider of offerings to hospital partners 24

25 Interventional Services: Attractive Unit-Level Economics Drive Accretive Growth Illustrative Center-Level Financials Illustrative Return Profile Revenue $1.1 mm Initial Investment $500k EBITDA $456k % Contribution Margin 40% Annual Maintenance Capex $50k Free Cash Flow $401k % Conversion 88% Return on Invested Capital Annual Run Rate 63% 3 Year Cumulative 158% 5 Year Cumulative 225% Significant Opportunity as Top Performing Practices Generate $1mm + of Annual Revenue with a 30 50% margin Note: Return on Invested Capital defined as center EBITDA less minority interest divided by initial investment and maintenance capital expenditures 25 25

26 Recent Developments Transition in Majority Ownership September 2015 Alliance Announces the Signing of an Agreement for the Purchase of a Majority Interest by Fujian Thai Hot Investment. Upon completion of the transaction, Thai Hot would own an aggregate of approximately 51.5% of the outstanding common stock of the Company. Partnership with Pacific Cancer Institute October 2015 Alliance formed a partnership with Pacific Cancer Institute (PCI), a radiation oncology center founded by Bobby Baker, M.D., to acquire a 95% controlling interest in the center. Alliance Oncology believes PCI will be a strategic partner to further expand its footprint, while adding value to Alliance Oncology s vast network of physicians and physicists. Expands Interventional Services Footprint November 2015 Alliance announced a new joint venture partnership with PRC Associates, LLC ( PRC ). PRC is a premier provider of interventional pain management services in Florida, As part of the transaction, Alliance acquired a 60% ownership position in the joint venture through its Alliance HealthCare Interventional Partners division. 26

27 Financial Summary 27

28 Historical Financial Summary Historical track record of consistent cash flow generation and strong margin structure Core radiology business built on mature technology platforms has maintained a #1 market position for over 25 years High customer retention rate with moderate direct reimbursement risk Historical decline in revenue has been addressed with new growth strategy, resulting in positive revenue growth in recent quarters Price strategy in Radiology has compressed margins in 2014 and 2015, but pressure will moderate in 2016 and Poised for upside through growth across all divisions, including the new Interventional Services platform. Pro Forma Revenue Pro Forma Adjusted EBITDA 1 ($ in millions) ($ in millions) $448.5 $435.4 $434.4 $458.4 $153.4 $154.6 $143.7 $ LTM Sep LTM Sep 15 % Margin 34% 36% 33% 30% 1. Pro forma for sale lease back and one-time gains 28

29 Significant Free Cash Flow Generation with Track Record of Deleveraging Significant improvement in free cash flow generation as a result of cost-containment initiatives and more efficient capital spending High free cash flow conversion rate Historical free cash flow generation has enabled Alliance to reduce net debt by $100 million over the last 3 years Free Cash Flow 1 Reduction in Net Debt ($ in millions) Free Cash Flow Free Cash Flow Conversion $100.2 ($ in millions) $607.5 ~$100 million reduction in net debt $ % 62.4% 4.1% $ % 2011 LTM Sep LTM Sep Free cash flow defined as Adj. EBITDA less maintenance capex. Free Cash Flow Conversion defined as Free Cash Flow divided by Adj. EBITDA 29

30 2015 Guidance Guidance Ranges ($ s in millions) Revenue $470 - $505 Adjusted EBITDA $125 - $150 Capital Expenditures Maintenance Approx. $35 Growth $45 - $55 Decrease in long-term debt, net of the change in cash and cash equivalent (before investments in acquisitions and debt refinancing costs), before growth capital expenditures $20 - $45 Decrease in long-term debt, net of the change in cash and cash equivalents (before investments in acquisitions and debt refinancing costs), after growth capital expenditures ($10) ($25) 30

31 Peer Group Comparison Alliance (1) Hospital Outsource Services Peers (2) Radiology Peers (3) TEV / 2015E EBITDA 5.1x 13.5x 7.1x Trailing 12 month P/E Ratio 7.2x 27.2x 26.2x 2015E EBITDA Margin 28.2% 15.5% 15.2% Note: All balance sheet data as of September 30, Market capitalization as of December 1, Sources: Company guidance, Capital IQ consensus estimates, and public filings. 1. Alliance 2015E revenue and EBITDA based on midpoint of company guidance. P/E ratio based on pro forma TTM EPS of $1.32, which excludes restructuring charges, impairment charges, transaction costs, legal matter expenses, non-cash gain on step acquisition, and differences in the GAAP income tax rate from the historical income tax rate. 2. Includes Envision Healthcare Holdings, Team Health Holdings, MEDNAX Inc., and Surgical Care Affiliates. Envision numbers are LTM 9/30/15 and pro forma for the acquisition of Rural/Metro Corporation. Team Health Holdings numbers are LTM 9/30/15 and pro forma for the acquisition of IPC Healthcare. Capital IQ consensus estimates used for MEDNAX and Surgical Care Affiliates 2015E revenue and EBITDA. 3. Includes RadNet Inc. 2015E revenue and EBITDA based on midpoint of company guidance. 31

32 Appendix: Pro Forma Revenue Reconciliation LTM ($ in mm's) Sep '15 Reported Revenue $493.7 $472.3 $448.8 $436.4 $458.4 Less Customer Pruning Initiatives Radiology Division (13.1) (2.5) Oncology Division (12.8) (7.2) (0.1) Less Sale of Prof. Radiology Services (13.7) (14.1) (13.3) (2.0) -- Pro Forma Revenue $454.1 $448.5 $435.4 $434.4 $458.4 Management has implemented a number of initiatives to drive disciplined growth in the business Terminated ~100 unprofitable customers in Alliance Radiology Sold or closed 11 radiation oncology centers during 2012 and the beginning of 2013 Exited Professional Radiology Services business in

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