Radiologix executives drop hints about coming ties with OEMs

Firm cuts costs while plotting expansion

Radiologix CEO Stephan Linehan is instituting cost-cutting measures and considering possible financial relationships with one or more imaging equipment vendors to remedy a financial performance by the imaging services firm this past quarter that was less than outstanding.

A 25% cut in administrative staff promises about $4 million in savings by year's end, according to Linehan. Meanwhile, the company has replaced its marketing director and plans to hire new local marketing representatives to beef up physician marketing efforts.

"We will save significant dollars in the quarters ahead without affecting our ability to serve patients and doctors, and we still have the marketing relationships to grow our business," Linehan said during an April 6 analyst teleconference from Dallas, where he and other executives presented the firm's first quarter financial results.

Competition from small-time entrepreneurs for MR and CT business and winter storms in Texas and the mid-Atlantic coast cut into imaging volume in the first quarter, according to CFO Sami Abbasi. Service fee revenue was down 9% on a quarter-to-quarter basis to $64.4 million for the three months ended March 31. First quarter EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $12.1 million, down 34% from the previous year.

"While the results are not stellar, they show a leveling of our business," Linehan said.

Growth may be funded, in part, through financial relationships with one or more major equipment vendors, according to Linehan. The company has received a written proposal featuring aggressive financing and cash from a major manufacturer. He expects to receive terms soon from at least one other firm.

Linehan's evaluation of Radiologix, since replacing Mark Wagar as CEO in December, led him to consider withdrawing from one or two large regional markets. Through its 117 imaging centers and management contracts with 10 radiology group practices, Radiologix operates in Baltimore, Washington, DC, San Francisco, and several cities in Florida, Kansas, New York, and Texas.

The Radiologix CEO expects a decision on the company's regional market presence by year's end. In the meantime, seven single-modality imaging centers, projected to lose $1.7 million this year, will be closed. The company is focusing on small-center revenue growth and operating-margin improvement, he said.

"We believe we can grow our existing centers by 6% to 8% per year," he said. "We will also be looking at our strong regional centers to open new sites and to consider acquisitions."